Fit for purpose
With gyms reopening after the enforced limbo, can the sector shape up for the new normal? Ben Gartside
Boris Johnson is encouraging Britons to shed a few pounds in the ongoing battle against obesity – a war that puts the health and fitness industry on the front line. Despite their important role in helping Britain shake off the dubious honour of being one of the least healthy countries in Europe, many fitness firms feel they have not been given enough support to help survive one of the toughest economic episodes in living memory.
Richard Darwin, chief executive of the Gym Group, says many customers carried on working out until the last moment before gyms were forced to close. “Events happened very quickly – there was no immediate impact with usage or membership levels before the end of February, then there was limited impact in city centre sites, and only a week before lockdown was there a notable impact.”
Christian Rose, the boss of Powerleague, highlights the difference in demand between corporate and individual clients: “We saw slightly different customer behaviours – corporates dropped off, while social footballing and our leagues continued as normal right up until the lockdown. Our customers are quite male biased, aged 18 to 40, and they were eager to play football and didn’t want anything to get in the way of that.”
It’s a similar story from Sophie Lawler, head of Total Fitness, who says customer visits held up before dipping by 10pc to 20pc in the fortnight before lockdown, and then halving in the last few days. The company had started the year by “trading exceptionally” but “we were stopped in our tracks” by the pandemic. In early February, Total Fitness started daily crisis meetings with Lawler, the chief financial officer, operations director and head of finance – they only five staff who worked throughout the past four
months. “We furloughed 99pc of staff on day one, no questions asked. You go into a cash preservation mode – that was the focus.” Neither Total Fitness nor Powerleague were able to obtain government-backed loans as banks rejected their requests.
“Property and people are our two cost drivers”, says Lawler. “We had four months of no revenue, and we expect six to 12 more months of significantly eroded revenue – we need government support.”
Powerleague, meanwhile, turned to investors. “As we are in a Company Voluntary Agreement, the banks were extremely unhelpful,” Rose says.
“Despite making £2.8m last year, and being on track to make £3.6m without the pandemic, we had to make money from investors.
“We eventually made £4m from different places and investing in our sites and our people.” Although 12 staff are in the process of being made redundant, Rose hopes they can be found new roles.
“We’re looking to expand with our investment raised, and
I’m optimistic unless there is another catastrophe. This business has an extremely positive future, with new sites in London and the Netherlands being set up.
“We have to monitor risk management, but I’m optimistic.” Meanwhile, the Gym Group found itself in a curious position. Despite being one of the more exposed companies given their flexible membership option, analysts believed it could weather the pandemic well. Citi analysts said in April that it was one of “the strongest players in the longer term”, while their Liberum counterparts concluded said that the company was “fighting fit, but not immune” and rated their shares a buy. Darwin says the Gym Group’s masterstroke was immediately freezing all charges as lockdown loomed. “We thought [continued membership payments] would lead to an increase in members leaving. “Ours is a flexible style of membership and people can leave at any time, and that’s one of the reasons we’ve grown so rapidly,” he says.
“Just before closure we had 870,000 members, and by July 8 we were down to 692,000. We would have seen that exacerbated and more significant losses if we hadn’t opted to freeze.”
The Gym Group moved to secure a £30m debt facility with its three banks and raised a further £40m in equity, with Darwin describing the move as wanting to be sure it could survive “any scenario”.
While all three firms are cautiously optimistic, there is widespread concern at the Government’s communication strategy during the pandemic. Rose raises concerns about the impact of shutting down small-sided football with other leaders in the sector. Studies in France have shown that close contact periods during a game are far below the amount required to spread the virus between players. He and the other signatories did not hear back from the Department for Digital, Culture, Media and Sport for another four weeks, at which point they were sent a copy and paste letter with links to the DCMS website.
Total Fitness’s Lawler, meanwhile, says the gym sector was only informed that it would not be reopening with the July 4 first wave hours before the initial announcement, which made meetings with stakeholders and creditor negotiations “exceptionally difficult”. Although she says government financial support has been very helpful, unclear communication about the continuation of policies such as rent support has not been useful when many landlords have been taking a “difficult” line in discussions. Regardless of the obstacles, all three firms are eager to welcome customers back. Darwin says half of Gym Group customers felt their fitness levels have deteriorated and want to get back to working out, while Rose highlights the “egalitarian” role of football as exercise and how it creates a “sense of belonging”.