Peloton, Lululemon, Apple and others are betting the fitness-at-home shift is here to stay

Published Tue, Jan 19 20212:01 PM ESTUpdated Tue, Jan 19 20212:23 PM EST

Key Points

The fitness industry was turned on its head in 2020.
As the Covid pandemic entered the United States in March, Americans quickly realized their gym routines were no longer going to be sustainable.
Businesses from Peloton to Lululemon to Apple are betting that working out at home is a behavior that's going to stick, for many people, while gym operators like Planet Fitness are overhauling their digital offerings for customers.

The fitness industry was turned on its head in 2020. As the Covid pandemic entered the U.S. in March, Americans quickly realized their gym routines were no longer going to be sustainable. Fitness studios ranging from New York Sports Clubs to SoulCycle held their final group classes, as they were forced to shut down to try to curb the spread of the coronavirus . And their users were forced to search for alternative ways to break a sweat in their basements or bedrooms, to try to alleviate Covid-related anxieties. Sales of health and fitness equipment more than doubled, to $2.3 billion, during the span of March to October, according to data from The NPD Group. Treadmill sales skyrocketed a whopping 135%, the group said, while sales of stationary bikes almost tripled. Retailers from Target to Dick's Sporting Goods could hardly keep items like 10-pound weights and jump ropes on their shelves. Now, companies from Peloton to Lululemon to Apple are betting that the Covid pandemic has permanently changed how people will exercise at home. And, so far, the numbers seem to back up their bets. When the doors of the majority of its indoor cycling studios were forced to close back in March, CycleBar was quick to spin out a plan to offer its customers something to do where they would be spending most of their time now: At home. "We were already working on a project to have a virtual offering, and we fast-tracked it," President Trevor Lucas said in an interview. "We offered it to everybody that was a member at the studios. ... Because we realized, home is going to be a part of the business going forward." According to Lucas, offering exclusive, at-home workout content — and even renting out some of its studio bikes to people at home during the pandemic — allowed the company, which has more than 200 locations, to retain about 86% of its members from the start of 2020 through the end of the year. It's also seeing new users, thanks to digital investments. "We're actually now seeing a new core group emerging, of people figuring out that health and fitness is important to them," Lucas added. "You saw those people especially early in the pandemic. The people that are out walking around the neighborhoods and getting out on their feet for the first time." "We're seeing this new fitness community arise and ... Peloton has been a big part of that obviously," he said. Peloton's explosive growth Peloton shares rallied more than 400% over the course of 2020, making it one of the hottest stocks on Wall Street. Unprecedented demand for its high-end cycles and treadmills helped to propel the company to profitability. Peloton's market cap is now roughly $43 billion, and shares are up about 370% from year-ago levels. For the three-month period ended June 30, Peloton's revenue surged 172% . That trajectory didn't slow down, either, and was followed by sales growth of 232% for the three-month period ended Sept. 30, amounting to $757.9 million , as its customers splurged on everything from Peloton-branded shoes and hoodies, to water bottles and weights. But the growth hasn't come without its share of challenges. Some Peloton customers have been left unhappy to find out their equipment orders are delayed, and customer service is spotty , at best. This week, UBS downgraded Peloton's stock to sell from neutral saying, "the current valuation reflects a high level of confidence from investors on Peloton's ability to deliver outsized operating results (especially amid logistics/operational challenges...)." In December, Peloton announced its $420 million acquisition of the fitness equipment maker Precor , with the goal of making larger quantities of its cycles more quickly, and cutting down delivery windows. Analysts are still waiting to see when Peloton's recent efforts will begin to yield positive results. But the longer-term bet is Peloton will get back on track, and its name will keep growing — with global growth presenting another huge runway opportunity. "The ability to deliver equipment in a timely fashion will be crucial [for Peloton] taking share or growing share, while the pandemic continues," said Paul Golding, Macquarie's consumer lifestyle analyst. "A theme that we see as key to the success they've had so far, and the success that they can continue to enjoy, is building a lifestyle ecosystem." Lululemon dives in Lululemon is also eyeing taking a bigger share of the at-home fitness market. Last year, the yoga-pants maker for $500 million acquired Peloton-rival Mirror, which was forecast to have brought in $150 million in revenue in 2020, up from a previously projected $100 million. Lululemon shares are up more than 42% from 12 months ago, and its market cap is about $44 billion. "Covid-19 accelerated an already emerging trend," Lululemon CEO Calvin McDonald said when announcing the deal for Mirror. "Our strategy is based upon digital content is changing how and where our guests sweat, grow and connect." Based on a 2020 survey of Lululemon customers, 64% of people were working out at home using some sort of digital platform pre-Covid, McDonald explained, while 86% plan to do so the same amount or more, post-Covid. Meanwhile, Tonal, another wall-mounted training device, reported year-over-year sales growth of more than 700% in 2020. Its sales in November alone, which included key days like Cyber Monday, were almost double the business' sales in all of 2019, it said. "Once these habits have been built ... people don't unlearn habits," Tonal Founder and CEO Aly Orady said in an interview. "We are not seeing people looking forward to going back to the gym. And we're not seeing people looking forward to going back to traditional equipment." In many instances, he noted, customers are pairing a Tonal device in their homes with another piece of equipment that is better for high-intensity, cardio workouts. Like a Hydrow rowing machine , for example. By the end of 2021, between 20% and 30% of households in the U.S. will own multiple pieces of fitness hardware, up from single digits today, according to estimates from Cowen & Co. A separate, recent polling of 3,500 Americans by The New Consumer and Coefficient Capital found 76% of people have tried working out at home during the pandemic, with 66% preferring their new at-home routines over the gym. Seeing the trends, Apple also hopes to grab some of that market share. Late last year, it launched Fitness+, a digital fitness subscription service that costs $9.99 per month and allows users to watch workout videos on their iPhones, iPads, or Apple TVs and sync their exercise metrics from their Apple Watches. A basic Peloton subscription that doesn't require the company's cycle or other equipment, for comparison, starts at $12.99 per month for classes. Echelon Fitness — a Peloton, Lululemon, Tonal and Hydrow competitor that makes cycles and treadmills but often at more affordable price points — could have an IPO on the horizon. The company recently completed a $65 million financing round led by Goldman Sachs. In 2020, Echelon's sales grew by more than 500% to top $100 million, as it was another huge beneficiary of consumers' newly formed fitness habits. "We believe in the next 24 months or less we're going to be doing an initial public offering," Echelon CEO Lou Lentine said in an interview. "Our numbers are wonderful, and we just want to have some additional track record behind us." A place for gyms, studios But not everyone can afford a Peloton. Nor does everyone have space at home for an elliptical, or a full rack of weights. Some people are eager to get back to the gym. And that will leave another set of winners. In a virtual presentation at the annual ICR conference earlier this month, Planet Fitness ' management team described 2021 as a "make-up year" to get back to 2019 membership levels. Planet Fitness shares are up about 1% over the past 12 months. Its market cap is just under $7 billion. For the three-month period ended Sept. 30, Planet Fitness' total revenue tumbled 36.8% from a year earlier , to $105.4 million. But as many Americans set their new year's resolutions to get fit, members have started to rejoin, the company said, paying as little as $10 per month, and another $4.99 for an unlimited digital offering. With the consolidation taking place in the gym industry, analysts see Planet Fitness as a beneficiary, especially as consumers trade down from more expensive gym memberships. In 2020, fitness chains that filed for bankruptcy and closed locations include Cyc Fitness, YogaWorks, Flywheel Sports, the parent of New York Sports Clubs and Boston Sports Clubs, Town Sports International, 24 Hour Fitness and Gold's Gym. "Ultimately, we believe people will employ a hybrid approach using the plethora of digital concepts coupled with the traditional gym experience," Jefferies analyst Randy Konik said. "For that reason, we foresee a trade-down effect for consumers, [where] low-price gym offerings will benefit." "The competition is folding, the trend toward greater health [and] wellness is here to stay, and Planet Fitness is the company that dominates the gym space while it also enhances its digital presence," Konik added. "That's an enviable combination in our view and why we believe Planet's stock rise is still in the early innings." Planet Fitness noted it has seen about 4% of its recent, new members coming from competitors closing, with about 9% of gym facilities across the U.S. closing permanently in 2020. Trade groups have estimated as much as a quarter of all gyms in the country could shutter by the end of the pandemic. Planet Fitness, meantime, has said it is still on track to more than double its roughly 2,000 locations to 4,000. For Planet Fitness, CEO Chris Rondeau said, having a digital platform like the gym chain's mobile app — with at-home workout content and dieting tips — is allowing the company to keep in touch with its customers, even after they leave the four walls of the gym. A number of other gym chains, including Equinox and Life Time Fitness, have launched digital, at-home workout platforms during the pandemic. Nike made its workout app free for all users, and said that has helped its online retail sales. "Digital home fitness, I don't believe, is something that will ever replace bricks and mortar," Rondeau said at the ICR Conference. "I do think, however, digital has been adopted like lightspeed, and I think it's probably here to stay."

A woman exercises at home with the help of an online course.

Thomas Trutschel/Photothek via Getty Images

The fitness industry was turned on its head in 2020.

As the Covid pandemic entered the U.S. in March, Americans quickly realized their gym routines were no longer going to be sustainable. Fitness studios ranging from New York Sports Clubs to SoulCycle held their final group classes, as they were forced to shut down to try to curb the spread of the coronavirus. And their users were forced to search for alternative ways to break a sweat in their basements or bedrooms, to try to alleviate Covid-related anxieties.

Sales of health and fitness equipment more than doubled, to $2.3 billion, during the span of March to October, according to data from The NPD Group. Treadmill sales skyrocketed a whopping 135%, the group said, while sales of stationary bikes almost tripled. Retailers from Target to Dick's Sporting Goods could hardly keep items like 10-pound weights and jump ropes on their shelves.

Now, companies from Peloton to Lululemon to Apple are betting that the Covid pandemic has permanently changed how people will exercise at home. And, so far, the numbers seem to back up their bets.