In the past, the success of many fitness stocks revolved around their gym memberships. However, with less people entering the gym and more increasingly exercising at home and outdoors thanks to the Covid-19 pandemic, the investment landscape for fitness stocks changed significantly.
During the onset of the Covid-19 pandemic, the idea of stepping into a gym became far less appealing. In some cases it was impossible to go to the gym regardless of the potential risk, as numerous gyms closed for long periods of time globally due to quarantine mandates.
The key players in the space began to shift from well-known big box gyms like Planet Fitness (NYSE:PLNT) to companies like Peloton Interactive (NASDAQ:PTON), which offer high-tech at-home gym equipment that also enables its users to interact with others. The combination of stay-at-home exercise and socially distanced socializing led to great initial success for companies like this during early quarantine periods.
With the details of the “new normal” after Covid-19 still ambiguous, many began to speculate that gym-going would soon become a thing of the past. Although the logic here seems sound enough, the longer-term impact and subsequent outlook for the fitness industry is actually far more complex.
With that in mind, here’s a closer look at some of the key catalysts and risks involved with investing in fitness stocks in the years to come.
Pandemic’s Long-Term Impact on the Fitness Industry
The Global Health and Fitness Association (IHRSA) reported the following fitness industry related statistics in the aftermath of 2020:
- “17% of clubs permanently closed”
- “Industry revenue fell by 58% relative to 2019 sales”
- “44% of the fitness industry workforce lost jobs”
Although the industry has managed to regain some of its footing with the arrival of vaccinations putting customer’s concerns at ease, and more people returning to the gym in 2021, the damage has not yet been mended entirely.
In 2021, gym franchises saw enthusiasm from their customers with more than 80% of them returning to the gym. At the same time, demand for fitness equipment for at-home workouts increased dramatically — as did the number of people visiting national parks for outdoor exercise.
While there are plenty of signs to indicate gym-going is here to stay, one thing is undeniable: The fitness industry has experienced a massive fracture within its customer base.
There have always been proponents of at-home workouts, but the justification for many to avoid the gym is now more profound than a mere difference in training philosophy. The reasoning for many is now based in personal safety and avoidance of potential infection by others.
This newfound justification for avoiding the gym will undeniably affect the popularity of gyms moving forward.
Main Challenge for Fitness Stocks Today
We’re not certain how long Covid-19 will endure, or if it will even come to an end entirely. But the rise of new variants, like delta and omicron, immediately threaten some investors in fitness stocks with flashbacks of long shutdowns and devastating quarantine periods.
We should expect this uncertainty to endure throughout the fitness industry for the foreseeable future. However, that does not mean there are no promising catalysts for fitness stocks ahead. Rather, we might adjust our expectations and investment approaches moving forward.
The fact that many gym-goers have returned to the gym shortly after shutdowns is a positive indicator that big box gyms are not entirely doomed. There will always be a number of people who prefer group exercise and gyms offer an easy means to bring these people together. Furthermore, not everyone has space to fit gym equipment in their home.
However, there are mixed reports about the impact of omicron on the typical increase in gym subscriptions we see at the start of the new year. (Gyms often see a spike in memberships in January as people make the New Year’s resolution to get into shape). While some gym owners reported an increase in memberships in the New Year, data suggest a decline in foot traffic that coincides with the new variant.
One thing is clear: It’s impossible to predict how far-reaching the impact of Covid-19 will be on the industry moving forward. As such, the fluctuations in gym-going enthusiasm will likely continue until we develop a greater understanding of Covid-19’s longer-term impact on the world more broadly.
Focusing on the outcome of that trend might be a lost cause, but something is certain: The interest in fitness is here to stay.
Long-Term Catalysts for Fitness-Related Companies
The future of gyms in a post-Covid-19 world is murky, but there are some trends investors looking at fitness stocks should consider:
The increased interest in personal wellness synergizes well with demand to maintain physical health to diminish the threat of a Covid-19 infection.
Likewise, as more people participate in these activities, demand for the clothing suited for the activity should endure. This should help support the long-term case for companies like Lululemon (NASDAQ:LULU) and Nike (NYSE:NKE).
Diving a bit deeper, we should expect interest in fitness to maintain — if not grow — in the years ahead. With people becoming increasingly health conscious amid the Covid-19 pandemic, there’s an increased likelihood that they will add physical fitness to their routine. Now, it’s simply the exercise method, tools used and location that might change more dramatically as fitness companies continue to innovate.
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