Fitness Centers Stretch Their Business Models, Build New Strengths Amid COVID-19 Pandemic

Keeping the public safe during the coronavirus pandemic means ensuring consumers stay home to avoid further spreading the virus through person-to-person contact.

Exercise enthusiasts must thus avoid gyms and fitness clubs, causing income shortages for fitness firms that traditionally rely on membership subscriptions, training revenues and retail sales during customer visits.

Fitness centers are feeling the pain from sudden revenue drops as on-site operations cease, but they may be able to build new business strengths with creative approaches and the support of payment partners.

Each gym has its own income model, with some focusing almost exclusively on recurring payments like memberships and others supplementing their revenue streams with on-site retail offerings like personal training, smoothies or group exercise. None of these sources have fared well during the pandemic, however, as public health officials are still advising against visiting public spaces, and many governors have ordered nonessential businesses — including fitness centers — to temporarily close. Several states’ attorneys general have also instructed fitness providers to let customers cancel memberships, issue refunds for unused services or suspend fee collections while they remain closed.

“For many [clients], their point-of-sale transactions have just gone to zero,” Ryon Packer, chief product officer at fitness industry-focused payment and club membership management software provider ABC Financial, told PYMNTS in a recent interview. “The industry is just shut down, [and more than 95 percent of it] is literally closed and has stopped billing.”

At-home or remote workout content streaming is not new to club operators, but the closures have dramatically accelerated the adoption of these solutions. The businesses are focusing on these offerings so they can bring in revenues during the pandemic and prepare for new commercial realities once they reopen their physical locations, Packer explained. He said he believes the industry will rebound but that its businesses will not look the same in the post-COVID-19 era. Payment companies must therefore be ready to help their fitness center clients shift their revenue models to suit the new commercial landscape.

Flexibility Training for Business Formats

Reaching out online is helping clubs endure the shutdown. Some are asking loyal customers to donate the amounts they would have spent on memberships, for example, and are launching online payment capabilities to enable this, Packer explained. These centers are also looking to capture some of their physical operations’ core appeals and deliver them virtually, creating online classes to keep customers engaged with their favorite instructors and workouts.

“[The physical] club can no longer just be that single brick-and-mortar destination, and online classes allow the club to extend into members’ living rooms or hotel rooms,” Packer said. “The physical club retains the role of being the hub of the members’ fitness world. The club can still provide education, training, community, inspiration [and] motivation.”

Instructors are now working to stream classes online in real time or on demand, and trainers are staying in touch with clients via phone or video calls. Some clubs are even lending gear to members to help them complete workouts at home, Packer added, keeping them more engaged with their instructors and fostering loyalty that might inspire them to donate now and return to venues once they reopen.

Payment facilitators can be key to offering clubs access to new business models, Packer said, helping them provide an array of revenue cycle management services, including automated recurring billing processes, delinquencies remediation and streamlined member-facing support and communication. Payments facilitators also can offer dashboards and reporting functions that enable businesses to get sales insights and make decisions. These payments companies need to have detailed knowledge of their clients’ industries to serve them well, he added.

“It’s too easy to apply universal risk ratings that can cripple … your client[s] [in certain] industries and not provide enough coverage for [clients in] others,” Packer said.

Current economic uncertainties have prompted some payment providers to reassess such risks and hold more of their clients’ funds than usual, though. Customers might file chargebacks if their accounts are charged while clubs are closed, for example, or if they believe fraudsters made payments using their payment details. Payments facilitators may be concerned that their clients will experience higher-than-usual chargeback volumes while also receiving little new revenue to pay them. They must thus balance holding onto larger shares of clients’ received payments with not retaining so much that they stymie fitness clients’ recovery efforts.

“We’ve heard of different [payment] companies [that] have … put almost punitive types of holdbacks against the fitness industry, and these excessive holdbacks then become contributors to putting the clubs’ businesses at risk,” Packer said. “[That’s] because if their revenues are being held back by their payment providers, [gyms] aren’t getting the revenues in the door to be able to pay employees or handle the additional cleaning requirements that are being brought about by the [Centers for Disease Control and Prevention] and other guidelines.”

Serving the fitness sector still carries risks, but payment providers may be overestimating their extent, he added. Fitness centers’ revenue streams are often less secure than those of grocers, for example, because the latter provide necessary goods. Workout enthusiasts are generally consistent in their desire for exercise offerings, however, and a notable share will likely continue spending with these businesses once life returns to normal.

“[Fitness clubs] have a higher risk factor associated with them compared to recurring-revenue businesses [that operate with fixed-length customer contracts],” Packer acknowledged. “The health and fitness sector is certainly a different business model, but the risks are manageable. [Payment facilitators] need to understand how the industry works and how to judge that so [they] are treating [these businesses] correctly and not overstepping [their] bounds.”

Recognizing customers’ purchasing patterns will help facilitators set more reasonable holdback levels. Those with good understandings of their fitness clients’ businesses can more accurately determine how much money to keep in reserve. They should also extend payment capabilities that support gyms and clubs designing new revenue models to put these businesses on faster tracks to recovery.

Aiming for Active Recovery

The COVID-19 pandemic has inspired more gyms and fitness centers to offer digital classes and content, but some had ventured into virtual offerings prior to the outbreak. Customers at that time still showed interest in visiting clubs in person even while taking advantage of virtual offerings, indicating that they are likely to return to using multiple channels to access services once the pandemic ends, Packer said. He said he believes that clubs’ social environments will hold continued appeal to consumers, giving physical offerings staying power. He thus predicted that the fitness industry will become more omnichannel, requiring health clubs to compete by presenting both in-person and virtual offerings.

“There’s [already] been a move toward omni-fitness or a hybrid type of approach that can combine what you want to do in a health club with what you do outside of a health club,” he said. “The pandemic has certainly pushed and accelerated that move substantially.”

Physical clubs’ social environments are likely to remain the main draw for consumers, but Packer said he expects these businesses to continue extending digital offerings. Those that launched online training video libraries during the pandemic are likely to keep them available and may even continue offering new digital classes. Payment facilitators can help fitness clients provide both digital and in-person services, too.

“The last thing [club operators] want is to say, ‘I have this great idea that I think will make me very successful in the marketplace,’ and have their payment partners say, ‘Those are really cool ideas, but we can’t do that, so you can’t do that,’” Packer explained. “They need the flexibility to really be creative to differentiate in their markets and pull all these capabilities together to build something that will allow them to recover and perform above their peer groups.”

The public safety needs created by the COVID-19 pandemic are stressing the industry, but fitness clubs and members are looking to stay active and engaged with their gym communities. Consumers are embracing digital offerings to get remote access while they cannot work out at physical locations, but they will likely return to in-person gym services and more connected exercise opportunities as soon as they can. They will likely still take advantage of digital offerings to keep them moving when they do not have the time to visit in person, too.

This means that the fitness clubs that can work with their payment providers to offer services now have better chances of emerging with new digital strengths and omnichannel propositions.