Fitness Carter: British gym sector returns to fitness

Like many of its newest members, the gym industry is full of good intentions.

Andy Cosslett, the man tasked with turning round Fitness First’s fortunes, aims to broaden the group’s appeal beyond gym rats who want to lift lumps of iron.

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“The industry has been dominated by fitness people and equipment manufacturers,” says the former chief executive of InterContinental Hotels ^[1] Group. “But you look at all of this [equipment] and you think: ‘It’s all bollocks.’ ”

Instead, Fitness First has focused on offering more space for group classes rather than an extra bank of treadmills as it spends the best part of £44m sprucing up its clubs.

“Most people are time-poor,” says Mr Cosslett. “We will see the industry move away from the box. We will see pop-ups, parks, a series of boot camps, a lot more ad hoc informal training. Innovation is starting to come through.”

After painful years of restructuring and retrenchment, the industry has just about got itself back in shape following an unhappy flirtation with public markets in the noughties and a mixed relationship with private equity.

A debt-for-equity swap left Oaktree Capital and Marathon as owners of Fitness First in 2012, with the company narrowly avoiding administration ^[2] . It has since cut a third of its 150 or so clubs in the UK and renegotiated rents.

David Lloyd Leisure, the tennis and health club, in September completed a long-awaited change of ownership, with private equity firm TDR Capital taking over the group in a deal worth about £750m ^[3] .

The new financial stability among the largest players in the sector has freed them up to try new things – and, for some, even weigh up an entry to the public markets.

Following its recent sale, David Lloyd Leisure is looking at launching smaller studio gyms in high-street locations across the UK, offering group training for time-strapped consumers. Scott Lloyd, chief executive and son of the eponymous company’s founder, says: “It’s about having the capacity to invest.”

“We think it’s highly scalable,” says Mr Lloyd of the 2,000-3,000 sq ft micro gyms, which can be set up for a low-six-figure sum and at short notice.

Fitness First is also considering setting up small, high-street locations near people’s work. Small, independent gyms offering group training such as pilates or yoga are also springing up across the UK.

The push away from the traditional gym model of having a large room full of treadmills and a stack of heavy objects to pick up and put back down comes as established players in the sector come under attack from budget operators.

The proportion of Britons with a gym membership rose from 12.1 per cent to 12.6 per cent last year. But “virtually all” that growth came from the low-cost sector, according to David Minton, director of the Leisure Database Company.

To combat the threat of cheap and cheerful budget gyms – whose monthly charges outside London leave change from a £20 note – the bigger companies are focusing on service, offering consumers convenient locations and more appealing locations.

Others think that the UK market is saturated. “I wouldn’t do another [gym] in the UK,” says Matthew Bucknall, president of Virgin Active, which has avoided the debt troubles of its rivals over the past decade.

Virgin Active has bigger things on its mind. The group is considering an initial public offering in the next few years, banking on expansion in both southern Europe and Asia.

Despite Italy’s economic slump, Virgin Active has done well there: its club in Naples is close to turning away members because it has too many.

Historically, the public markets have not been kind to gym companies. A series of gyms – Fitness First among them – went public in the 1990s. Within a decade, they had been taken private again, loading up on debt that the sector is still digesting.

“The unfortunate episode was that market demanded growth at all costs,” says Mr Bucknall, adding that gym companies rushed into poor deals in bad locations.

Mr Bucknall is confident that Virgin Active can avoid the historic mistakes made by its peers. Its performance has been one of steady growth over the past decade, with acquisitions growing the group’s top-line. Revenues rose from £391m in 2009 to £642m last year, with earnings before interest, tax, depreciation and amortisation rising from £101m to £124m over the same period.

Fitness First also wants to grow in Asia, doubling the 80 clubs it has in the region over the next three-to-five years. Its head, however, is in no hurry to drag the company back to the public markets. Outside the US “most fitness companies are small and relatively volatile,” says Mr Cosslett.

“They don’t therefore fit with the profile generally preferred for public ownership. This will probably change if and when companies get larger with more predictable performance.”

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