{"id":352,"date":"2015-11-29T13:29:54","date_gmt":"2015-11-29T18:29:54","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/planet-fitness-fitness-for-everyone\/"},"modified":"2015-11-29T13:31:34","modified_gmt":"2015-11-29T18:31:34","slug":"planet-fitness-fitness-for-everyone","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/planet-fitness-fitness-for-everyone\/","title":{"rendered":"Planet Fitness: Fitness for Everyone"},"content":{"rendered":"

Planet Fitness was founded in 1992 with a simple mission \u2013 to provide a high-quality fitness experience in a welcoming, non-intimidating environment. Prior to their entrance into the market, fitness centers featured a lot of non-essential amenities, including personal trainers, group classes, pools, day care centers, etc. These high price add-ons were leading to expensive monthly rates that alienated a large segment of the population. By streamlining the gym concept and offering a correspondingly low $10\/month membership fee, Planet Fitness has been able to appeal to a much broader customer base and dramatically grow both users and total store locations.<\/p>\n

\"User<\/a><\/p>\n

Business Model:<\/strong><\/p>\n

Planet Fitness\u2019 business model focuses on \u2018fitness for everyone\u2019 by positioning themselves as a gym concept that is both accessible and affordable.<\/p>\n

Accessible: <\/em>One of the big draws of Planet Fitness is its community atmosphere. Their locations are all “Judgement Free Zones” where everyone, regardless of fitness level, can feel they belong. There is no prerequisite for fitness before joining and all members are applauded for achieving their goals, big or small. As a result, Planet Fitness has been successful in attracting both the occasional gym-goer and the ~80% of the U.S. and Canadian population who are not currently gym members, particularly those that find the traditional gym experience intimidating.<\/p>\n

Affordable: <\/em>For $10 per month, members receive unlimited access to a single Planet Fitness location. Alternatively, PF Black Card members have access to all Planet Fitness locations and the option to bring a guest at each visit (which further helps to attract new members) for $19.99 per month. Because of this low monthly cost, Planet Fitness\u2019s product offering can even be seen as complementary to other a la carte, higher priced offerings. In addition to growing its membership base, Planet Fitness is focused on shifting to a higher percentage of PF Black Card members in order to leverage its existing fixed costs and improve margins.<\/p>\n

Operating Model:<\/strong><\/p>\n

Store Level<\/u><\/p>\n

Low fixed costs: <\/em>Each store is typically 20,000 square feet which is about half the size of a full amenity gym. By removing extraneous service offerings, Planet Fitness\u2019 locations are able to reduce rent and overhead expenses while maximizing space to include more circuit and weight training equipment. As a result, Planet Fitness does not need to impose unpopular time limits on their machines and there is less overcrowding at peak hours.<\/p>\n

See below for a sample store layout:<\/p>\n

\"Store<\/a><\/p>\n

Low labor costs: <\/em>Similarly, lower labor costs are another value driver of the Planet Fitness model. By not offering expensive services including towels (laundry is labor intensive), classes (need to pay instructor and support scheduling) and daycare, locations are able to significantly reduce the amount of personnel needed on site. Further, removing personal training services also results in big reduction of associated employee costs.<\/p>\n

Low capital cost: <\/em>Planet Fitness locations are no frills, as their locations have removed personal trainers, juice bars, day care, spas and classes. Without these extras, there are less high fixed costs in the operating model that would weigh down operating margins and make property management more complex.<\/p>\n

Corporate Level<\/u><\/p>\n

As of June 2015, Planet Fitness has 1,014 locations. Of these stores, 956 are franchised and 58 are corporate-owned.<\/p>\n

Marketing: <\/em>Franchisees are required to contribute 5-7% of monthly membership dues to local advertising and 2% to the national advertising fund. These dues help Planet Fitness create significant brand strength, which in turn helps drive new member growth. Through their marketing campaigns, the company emphasizes its unique \u201cJudgement Free\u201d culture as a way to entice consumers to join its community. Planet Fitness\u2019 diverse customer base, both from an income and age perspective, is a testament to the success of its marketing campaigns and community.<\/p>\n

Ubiquity and scale: \u00a0<\/em>One of Planet Fitness\u2019 major competitive advantages is the sheer scale the company has been able to achieve in a short period of time as a result of its aggressive roll out and franchisee model. Planet Fitness is ~7 times larger than Retro Fitness, ~29 times larger than Blink Fitness, and ~10 times larger than Youfit, making it\u00a0the dominant player in the low-cost segment. This ubiquity is a main driver of new customer additions, as convenience is an important factor when purchasing a gym membership.<\/p>\n

Sale of equipment: <\/em>Planet Fitness required franchisees to purchase equipment directly from them at a mark-up. Planet Fitness negotiates directly with the equipment manufacturer and uses its significant scale to obtain equipment at a lower cost than any individual franchisee could on their own. This represents a significant revenue line for the business.<\/p>\n

Sources:<\/p>\n

http:\/\/www.sec.gov\/Archives\/edgar\/data\/1637207\/000119312515281167\/d888681d424b4.htm#rom888681_1<\/a><\/p>\n

http:\/\/www.sec.gov\/Archives\/edgar\/data\/1637207\/000119312515310710\/d29839d10q.htm<\/a><\/p>\n

\u201cPlanet Fitness, Inc.: Pumped up growth should lift valuation; Initiate Buy\u201d. BofA Merrill Lynch, Rafe Jadrosich. Aug 31, 2015<\/p>\n

\u201cPLNT: Differentiated Concept and Multiple Growth Drivers Put This Story in Good Shape\u201d. Credit Suisse, Seth Sigman. Aug 31, 2015<\/p>\n

\u201cPlanet Fitness: Initiating at OW; Pumped Up with Asset Light Growth\u201d. JP Morgan, Kevin Milota. Aug 31, 2015<\/p>\n

\u201cProven Model, Deep Pipeline & Strong Brand Provides Long Growth Runway; Initiating Overweight\u201d. Piper Jaffray Companies, Sean Naughton. Aug 31, 2015<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

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