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Digital Options in Fitness and COVID’s Effects on the Industry | Fritz Lanman on Fitt Insider

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Key Takeaways

  • ClassPass is a monthly subscription membership where customers can spend virtual currency on a variety of fitness and wellness experiences, from a regular gym to cryotherapy to yoga, in fitness centers around the world
    • It currently has a billion-dollar valuation with lots of growth indicating much more upside and secular trends pointing toward an increased focus on fitness and wellness
    • “The industry desperately needs an aggregator. Most industries have an aggregator to help them fill excess capacity and I think the model we landed on is a really elegant one.”Fritz Lanman
  • The effects of the coronavirus have been devastating to the fitness industry
    • “We saw 95% of our gyms and studio partners having to close their locations down”Fritz Lanman
  • ClassPass has operations in China, Singapore, and Hong Kong so they got their first taste of the coronavirus before most of the American fitness industry
    • “We saw reservation volumes collapse and then rebound so we thought every Western government would what those countries, countries like Taiwan and Korea, are doing and just emulate those responses”Fritz Lanman
  • The future of fitness will be a mix of both brick-and-mortar and digital in Fritz’s eyes
  • “I don’t think there’s some structural shift that’s going to favor only digital versus offline. In fact, we’ve seen demand is incredibly resilient for offline, and probably more so after people have been locked up in quarantine.”Fritz Lanman
    • “There’s just nothing like the immersiveness of having that community, equipment, that intimate atmosphere, the camaraderie, and the instructor interaction” 

Intro

What is ClassPass?

  • “It’s a recurring monthly subscription membership and as a member, you can spend virtual currency on fitness and wellness experiences, either different ones in your hometown or in any of the 30 different countries that we exist in across the globe” – Fritz Lanman
    • “One day you could do yoga, the next day you could do boxing, and the next day go to a traditional gym with weights. And if you show up on a business trip in Dubai, or Hong Kong, or New York, or Missoula, MT you can get off the plane and go find a workout.”
  • Fitness classes only have a 30-40% capacity utilization and Fritz thought it was a great idea to have an aggregator fill capacity through a centralized, indirect marketing channel
  • “Initially ClassPass was unlimited workouts for $100 a month. It was a great consumer proposition but the business model wasn’t working” – Fritz Lanman
    • Then they moved to a credit model where people could choose from different tiers depending on their budget and what they wanted
      • Even though it became more expensive for consumers, consumer growth accelerated and partner retention also increased and ClassPass grew into a sustainable margin structure
  • “Our plan is to IPO, we just don’t know when it will be. But, our goal is to be an independent generational technology company, and we feel like we’ve got a really long roadmap and a lot left to prove and learn and iterate through” – Fritz Lanman

What Justifies ClassPass’ Billion-Dollar Valuation?

  • “The valuation is based on the revenue growth, the revenue scale, the growth rate, and the potential for the business to be much bigger since these investors are looking for 5, 10, 20 X return on their investment”Fritz Lanman
    • Secular trends also indicate that health and wellness are becoming increasingly important and now even more so after COVID
  • “The industry desperately needs an aggregator. Most industries have an aggregator to help them fill excess capacity and I think the model we landed on is a really elegant one.”Fritz Lanman
  • ClassPass has scaled from 4 to 30 countries in two years, launched corporate partnerships, added wellness treatments like spas and cryotherapy
    • There are plans to further expand into wellness which synergizes well with ClassPass’ partners since many fitness centers also offer wellness treatments

Effects of Coronavirus on the Fitness Industry

  • “It’s been devastating and few industries are getting hit as hard as fitness” Fritz Lanman
    • “We saw 95% of our gyms and studio partners having to close their locations down” 
    • Luckily, ClassPass raised a lot of money in a December funding round so they were able to pause billing 
  • ClassPass has operations in China, Singapore, and Hong Kong so they got their first taste of the coronavirus before most of the American fitness industry
    • “I think we got lulled into overconfidence because we saw effective government responses in those areas” – Fritz Lanman
    • “We saw reservation volumes collapse and then rebound so we thought every Western government would what those countries, countries like Taiwan and Korea, are doing and just emulate those responses”Fritz Lanman
  • “We launched live streaming capabilities for all of our partners to basically try to move their business to Zoom or Facebook and use us to monetize that content” – Fritz Lanman
  • ClassPass’ number one priority shifted to helping their partners not go out of business through many different initiatives 

Digital Options in the Fitness Industry 

  • “Part of the conversation has been that COVID has accelerated the transition to digital and there are folks that come down on the side that say brick-and-mortar is always going a piece of that experience” – Joe Vennare
  • “Our view is that the future is heterogeneous”Fritz Lanman
    • Different people have different preferences for their fitness experience. Some people love digital while some people love brick-and-mortar and for most it’ll probably be a combination of both.
  • “I don’t think there’s some structural shift that’s going to favor only digital versus offline. In fact, we’ve seen demand is incredibly resilient for offline, and probably more so after people have been locked up in quarantine.”Fritz Lanman
  • “I don’t think digital is anywhere near replicating the offline experience” – Fritz Lanman
    • “There’s just nothing like the immersiveness of having that community, equipment, that intimate atmosphere, the camaraderie, and the instructor interaction” 
  • ClassPass intends on expanding their digital options and the lessons from the lockdown have been instrumental in helping them understand the digital sphere
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