In the midst of the craziness of 2020, the connected fitness equipment industry has emerged stronger and more promising than ever – demand has skyrocketed given temporary gym closures and a general unwillingness to be physically close to other people, stock prices have seen meteoric rises (Peloton up 500% since March 14!!!), and other players like Tempo, Tonal and Mirror have raised money / been sold at valuations of hundreds of millions of dollars.
Connected fitness equipment (distinct from pure fitness / wellness subscription apps and wearables) refers to technologically enabled at-home fitness equipment (that’s usually accompanied by a subscription of some form) – think Peloton, Mirror, etc. The pandemic alone hasn’t caused the success of these companies in recent times. Rather, they’ve all succeeded in creating strong cult like followings / ridiculous brand loyalty, making workouts fun and challenging by fostering competition among users, and building strong business models with low churn owing to customers being ‘locked in’ with high upfront purchases among many other factors. This market is expected to hit $4.3B by 2021, and I honestly believe this is just the start. There truly is a shift in mindset of what home fitness can achieve – and with product prices probably moving down over the years to come, home fitness is here to stay.
Leading the charge of this trend is the big daddy of the connected fitness industry – Peloton. Unless you live under a rock, you already know what Peloton is. With over a million connected fitness subscribers and almost 2 billion dollars in revenue this past year (Source: SEC filings), Peloton took the world by storm with its bikes and treadmills.
There’s plenty of evidence and documentation that Peloton’s stationary cycling and running workouts are great cardiovascular exercise. Users swear by the changes Peloton has brought about in their lives, reporting enhanced levels of fitness and weight loss results. For a variety of fitness goals, Peloton does seem to be a fairly comprehensive solution.
‘Fitness goals’ themselves are interesting to think about, and obviously a primary factor of consideration when thinking about the connected fitness landscape. 183 million people around the world are members of gyms / health clubs, and needless to say, have an extremely broad variety of objectives – losing weight, looking better, improving strength, and even finding a new partner (apparently a Kettler study found that 10% of people signed up for the gym just to meet people of the opposite sex).
While Peloton is great for a variety of these objectives, I do believe it falls short in several others. For starters, you can’t find a girlfriend on Peloton (although maybe you’ll vibe with someone over being ‘members of the community’ and maybe meet them at a studio or something – I guess I’ll take that back). More seriously, Peloton isn’t adequate if a certain amount and type of weight / resistance training is essential to your fitness objectives –not just if you’re a professional athlete, or one of those big guys in the gym – if you’re someone looking to put on muscle mass, a Peloton simply isn’t enough. And putting on muscle mass is essential to general fitness objectives of certain key demographics – which I’ll get to in a bit.
Peloton already recognizes this, and has a rebuttal to this argument – namely, their fitness app and their Bike+. Peloton’s digital fitness app comes with several full body and strength training workouts that make use of accessories like dumbbells and resistance bands that they sell separately. Moreover, last month they released the ‘Bike+’, a new model of their classic bike, and accompanied it with a bunch of literature about how this facilitates cardio + strength training simultaneously, why strength training is important, etc.
The jury is divided on how effective at-home bodyweight / dumbbell / band training (such as what Peloton provides) is at muscle building. While I’m not a fitness expert, I struggle to understand how a handful of bands and weights can replace the variety of weight amounts, machines, and movements one can use / perform in a more comprehensive gym-like environment. There must be significant limitations and constraints in what Peloton’s strength options provide.
All this considered, I believe there’s a certain demographic that Peloton just isn’t the best option for – let’s call them the ‘city bachelor’. Here’s who I think the city bachelor is –
- 22 – 30 years old – There’s a couple of reasons why I think the missed demographic consists of people in their 20s. Firstly, Peloton’s steep price point (>$2000 + $40 subscription per month) probably results in more comfort in a purchase so large later on in one’s life, after the accumulation of more wealth (that said, Peloton’s S-1 stated their fastest growing demographic is people under 35 – could be partially attributed to the financing plans they aded?). Secondly, I think fitness goals in one’s 20s are different than those in later stages of life. When you’re older you want to lead an active lifestyle and avoid the problems associated with sitting in a chair all day – and for that Peloton could be great. But when you’re in your 20s, goals usually skew towards staying fit and looking good – more on this later.
- Unmarried – On the same point of price, I think Peloton becomes way more affordable / meaningful when it can be shared by a couple / family – the price of the bike or the subscription does not increase with additional users. While you could probably argue that roommates / housemates could share these bikes, this adds the complexity of questions like who keeps the bike when one moves? A Peloton bike is around a 3-year commitment, and it’s hard for a 25-year-old to even know where they’d be or who they’d be living with in 3 years.
- Lives in a city – Space is the obvious factor here – for people living in a city, pieces of connected fitness equipment do take up a significant amount of space, especially when you’re in your 20s and don’t mind smaller living spaces to save on rent. In these situations, connected fitness is a winner take all game – even if people in cities decide to spend the money for one of these machines, more likely than not they will cap it at one purchase – which begs the same question again – is Peloton the one piece of equipment they want?
- Views muscle building to be an integral part of fitness – The city bachelor doesn’t believe that cardio or the levels of toning that at-home workouts provide are enough for their fitness needs. This could happen because their motivations behind going to the gym / working out aren’t just general physical activity but extend to putting on muscle to ‘get big’ and ‘look good’ – that’s their idea of general fitness. Speaking from personal experience as someone in my 20s, this is what a majority of my gym-going friends are aiming for – their idea of looking good involves putting on a fair amount of muscle mass. In my experience, this population does tend to skew male (although by no means exclusively), especially when thinking about achieving levels that at-home toning cannot provide.
I wish I had sizing on this, but I’m going to go ahead and assume that the city bachelor is a fairly big market, and an opportunity that connected fitness has yet to completely address. There definitely are players – I’d argue that Tempo or Tonal’s offerings are better suited for the city bachelor than Peloton. These machines have better facilities and are better set up for weight training, especially Tonal (although there are still some limitations like Tonal offering a maximum of 100lb resistance per hand). But this is a market within connected fitness that in my opinion is yet to see a clear winner.
If Peloton wants to be the one stop solution to at-home fitness the way we see leaders in other industries attempting to define themselves (Uber wanting to be the household name for transportation , Airbnb having similar ambitions with travel / hospitality / entertainment), which I’m going to go out on a limb to assume they are (the CEO’s target of a 100 million subscribers, more than half of the world gym-goers, implies to me something along those lines), they need to find a way to address this gap. Peloton is a smart company with several smart people leading the way, and I’m sure this is something they’re thinking about. I think this will go one of a few ways –
Peloton will continue to innovate with different workout types and newer accessories to further their claim that what they have now is enough
It’s possible that Peloton just continues to sell more dumbbells, resistance bands, weights or other one-off pieces of fitness equipment. Maybe they’d develop new work out routines that more effectively could in any way help build more muscle and strength, and get closer to completely wiping out the need for complex resistance movements. I still think that this approach will ultimately have limitations, it’s just impossible to replace some key strength movements without more extensive equipment than what Peloton could offer in the form of accessories.
(It seems like this is the route they’re currently claiming to take, based on this interview.)
Peloton will launch entirely new products to compete more directly in the strength training space
Last month Peloton launched a couple of new products (a cheaper treadmill and a more expensive ‘Bike +’) earlier this month. There have been multiple rumors about whole new categories of Peloton products – from a rower to some form of a strength machine. While the CEO has said they want to keep their product line fairly consistent and not come up with a hundred different products, it would be surprising if we don’t see a strength training specific device come out from them at some point. Unless,
Peloton will make an acquisition to quickly enter the space
Could Peloton really acquire Tempo / Tonal? Apparently rumor has it that Peloton approached Tempo earlier this year with interest to buy them. They have been generally reported to be interested in a few acquisitions over the next couple years and do have over a billion dollars in cash on their balance sheet from their relatively recent IPO – soo…maybe? There are a few questions with this route too though. One of Peloton’s greatest strength is it’s cult like following and loyalty to the Peloton brand – would the target products be rebranded to Peloton? If so, what happens to the already sold / shipped out products? (dynamics are different here compared to other consumer brand acquisitions since there’s both a subscription element / continuous live content as well as a piece of hardware that sticks with you for years). If not, how can Peloton fully leverage its brand value into the target?
Peloton, satisfied with the status quo, continues to convince people that full body workouts / resistance training it already has is enough
Maybe my assumptions are off, maybe Peloton’s resistance bands are enough, maybe the city bachelor opportunity isn’t as big as I believe it is and Peloton thinks it’s a waste of time to go after it, maybe Peloton is perfectly content with specializing in cardio and wants to leave proper strength training to the others. I do believe that in order to be the true household name in at home fitness and to reach their goal of a 100 million subscribers, this option is just not doing them any service. Only time will tell.