Athlete. Legend. Warrior. Rockstar. Renegade. SOULCYCLE.
How an indoor cycling class in a dark room with scented candles grew into a multi-million dollar phenomenon.
In early 2006, talent agent Julie Rice and real-estate broker Elizabeth Cutler left their jobs to open an indoor cycling studio in the basement of a building on the Upper West Side of New York City. Designed with dim lighting, candles, and a 45-minute workout intended to help riders exercise both their mind and body, SoulCycle was born. Nearly ten years later, SoulCycle operates 52 studios across New York, Boston, San Francisco, Los Angeles, and several other markets. As it’s grown, SoulCycle has established itself as a premium lifestyle brand built on a cult-like foundation of dedicated customers. Annual revenues currently top $100 million as the company heads toward an IPO in 2016.
How have they done it?
The Business Model: Selling Lifestyle Fitness at a Premium Price
The SoulCycle business model is to deliver an extremely high-end fitness experience and generate intense brand loyalty to sell classes at steep prices. SoulCycle aims to provide a holistic experience that offers riders a sense of therapy, inspiration, and strength both inside and outside of the studio. The company focuses on providing service and hospitality every bit as much as it provides a spin class. Everything is high quality, from the design of the space, to front desk service, to class instruction. An intentionally constructed community ethos extends from the studio — where riders move together to the beat of the music — to new retail collections each month that dress riders in a common uniform. The carefully crafted experience effectively hooks new customers and turns them into regulars and ambassadors that evangelize the brand within their own networks.
The value created by producing this premium experience is captured through premium pricing. Unlike standard gym memberships that are billed on a monthly cycle, SoulCycle classes are sold on a per-class basis that varies slightly by market ($34 per class in New York). Someone who works out an average of four times a week may end up spending over $500 a month — significantly more than even the most high end gym memberships. On top of paying a steep price for classes, many devoted customers also spend a significant amount of money on SoulCycle merchandise and apparel. A tank top typically retails for $50; a sweatshirt for over $100.
SoulCycle’s Operating Model Delivers Quality, Service, and Customer Experience
Studio Design
The SoulCycle studio is modeled after the Apple store with smooth white surfaces, sleek lines, and a very clean feel. The space is impeccably maintained with cleaning crews working full time. Every detail is cared for, down to the Orbit gum and extra hair ties at the front desk. Overall the space feels more like a spa than a fitness studio. The Apple-inspired design gives the studio a very high end feel and reinforces the hospitality side of the business model.
The cycling studio itself is also carefully designed to reinforce the business model. Bikes are packed closely together to generate the community, “pack” feel. The lights are dimmed low and scented candles burn to emphasize the spiritual, therapeutic elements of the experience. After each class the maintenance staff comes in and resets the room with clean towels on each bike. The SoulCycle mantra is emblazoned in big block letters on the wall: Athlete. Legend. Warrior. Renegade. Rockstar. SoulCycle.
The net effect is a powerful, immersive experience.
Site Selection
SoulCycle studios are located in a select number of markets in affluent areas to best reach the target customer — primarily teen to middle aged women in higher income brackets. Market coverage is limited to New York, Boston, Chicago, LA, San Francisco, DC, Miami, and surrounding metro areas. 97% of revenues for the year ended December 31, 2014 came from New York, LA, and SF, reflecting the strong focus on upscale, urban communities which value status, image, and healthy lifestyle. Within all the target markets, studios tend to be located in very high-end neighborhoods, close to other premium brands including Equinox, which entered a partnership with SoulCycle in 2011. In these areas, SoulCycle capitalizes on the density of people likely to buy into the brand image, exclusivity, and aspirational message — customers who will pay the high price for a class.
Instructor Selection and Training
SoulCycle instructors are world-class fitness professionals who tend to be highly charismatic and personable people. After being selected through an audition process, instructors temporarily move to New York City where they go through an eight-week proprietary training program. To build the sense of community in each SoulCycle market and deliver a personal experience, instructors are expected to connect with their riders. Instructors can track who’s taking their classes through SoulCycle’s bike reservation management system and it’s not uncommon to see an instructor “shout out” regular riders during class. This aspect of personal connection intensifies brand loyalty and keeps riders coming back. Employing the best in the business also amplifies the perception of quality and prestige.
Digital and Social Media Presence
Aside from playing in the fitness and service/hospitality spaces, SoulCycle also excels in the digital media business. Both the corporate team and individual instructors produce a significant amount of content that promotes engagement with the SoulCycle brand. Centrally, the marketing team maintains a community page at soul-cycle.com which is essentially a blog filled with articles on health and nutrition, instructor profiles, and inspirational stories of SoulCycle riders. SoulCycle instructors are expected to be active across social media platforms — primarily Instagram and Facebook — where riders can engage with them. This digital presence creates an air of celebrity around the more popular instructors, which further boosts the brand image and premium perception of the experience. SoulCycle has also successfully embedded its brand in popular culture. In November 2015, The Chainsmokers released a music video that is set at a SoulCycle studio and features SoulCycle instructor Karyn Nesbit as the star and object of their affection.
Sources:
SoulCycle S-1 Form, Securities and Exchange Commission
Spencer Rice, SoulCycle CMO – Keynote Speech at HBS Marketing and CPG Conference
Racked.com – “10 Incredible Facts SoulCycle Revealed in its IPO Filing”
WSJ – “How I Built It: Cycling Chain SoulCycle Spins Into Fast Lane”
Extensive personal experience!
Great post. Really interesting and comprehensive description of the business and operating models. How did they manage the operational challenges involved in scaling so fast??
Well done, Jenny! Exercise seems to be particularly prone to fads. How worried are you about the long term sustainability of SoulCycle? They’ve scaled so fast and continue to open new studios in new locations.. do you worry that the because SoulCycle is so “cool” right now, that maybe they’re expanding too fast? What if their coolness wears off and they become just another spin class? Will there be enough demand for that? Or is being cool and different and exciting so baked into the SoulCycle DNA that they’ll find ways to innovate and keep themselves hip forever?
Great post, Jenny. SoulCycle is clearly a elite cycling experience, and I can see why the target market would chose it over your normal-gym indoor cycling class. I actually think the bigger competition is with other premium cycling offerings, namely Flywheel. I know Flywheel has also experienced tremendous growth recently. Do you see Flywheel as a threat to the success of SoulCycle and, if not, what do you think differentiates the two?
Love the part about creating a celebrity status for popular instructors. This again helps separate the experience from your typical community gym spin class.
Shocker that you wrote about Soulcycle, wasn’t sure you had heard of the company before. Positive it’s not publicly available, but would be neat to see stats on the user base (e.g, how much of their revenue comes from the top x% of customers, % of revenue in each year from churned customers vs. existing etc.). Curious how much of the growth they have seen is truly sustainable – are they still in the honeymoon period of people trying the classes since they are still popping up in new locations or will they continue to experience growth and maintain their cult following on “jennys”? You also laid out the demographics well–i wonder how many markets they can enter given their customer profile – fascinating how concentrated the revenue is today I had no idea.
Love this post and love the business model. The economics of spin studios are unbelievable. A few years ago, I looked pretty seriously at trying to open a couple of spin studios in the Boston area with a group of friends when the only option was a studio called Recycle (SoulCycle and Flywheel weren’t in Boston yet). While we didn’t ultimately see it through, it seems that an outrageous number of boutique chains have popped up since (e.g., HandleBar here in Harvard Square, Velo-City in Back Bay, B/Spoke, Pursuit Boston, etc). My understanding is that the only capital required is ~$2K per bike plus some relatively modest upgrades to a relatively small facility in which you can fit 40 or so bikes. A couple people I talked to suggested that spin studios reminded them of frozen yogurt chains — they tap into the health & wellness trend (spin more than fro-yo though..), have very low barriers to entry, and have very attractive unit economics.
Over time, I struggle to see how SoulCycle keeps their edge and manages to continue to convince customers to pay such high rates for each class. Your comments about instructor recruiting and training seem to be one key point of differentiation that may not be that easy to replicate. The real estate component seems critical too as rent expense is by far the largest expense — would be interesting to know what value Related adds there (Related is a large real estate investment & development firm that owns a stake in Equinox – so indirectly SoulCycle as well). It seems like they’ve managed alright so far — will be interesting to watch!