About Us







Here’s Why Over 1 Million People Have Quit Planet Fitness Since July – Motley Fool

Posted: November 13, 2020 at 9:58 am


If you peek inside a Planet Fitness (NYSE:PLNT) gym location these days, things look busy. Granted, it might not be as busy as it once was, but members are nonetheless exercising despite the ongoing COVID-19 pandemic. Management says that its usage rates (how many people are actually present in the building) are currently 67% to 74% of what they were last year at this time.

The usage rate appears to be trending in the right direction. But it doesn't tell the whole story for Planet Fitness, and the next stat should give investors pause. Since July, the company has lost over 1 million members.

Image source: Getty Images.

Gyms weren't considered an essential business when government decision-makers were trying to determine what could stay open shortly after the COVID-19 pandemic began. As a result, all 2,000 Planet Fitness locations were closed at some point in 2020. However, somewhat surprisingly, the company lost relatively few members while gym locations were closed.

Planet Fitness charges a monthly membership fee, but the fee was waived while gyms were closed. This gave members very little incentive to cancel their memberships early on. However, as gyms started reopening, the company started to bill people once again. And once this happened, there was a mass exodus.

In the conference call to discuss third-quarter results, Planet Fitness management said it noticed a lot of losses during the second-month billing. This seems to imply members were charged for the first month after their local gym reopened, perhaps unaware it had started back up. But they made sure to cancel before having to pay the second bill.

Membership for Planet Fitness peaked in the first quarter of 2020 at 15.5 million. This was an incredible jump from the prior quarter when it had 14.4 million members. But the timing of this jump makes sense. With the dawn of a new year, many people resolve to exercise more frequently.

This 1.1 million-member jump came on the heels of a hot 2019. In 2019, Planet Fitness added a whopping 1.9 million members. Totaling it up, from the end of 2018 to the start of the COVID-19 pandemic in the U.S., the company had added 3 million members -- up an impressive 24% over just five fiscal quarters. Then the coronavirus derailed the train.

As of October, Planet Fitness was down to 14 million members. The last time the company had just 14 million members was in the second quarter of 2019.Back then, there were 1,859 locations. Now there are 2,086. So, not only has membership fallen, but members per location have plummeted dramatically.

Image source: Getty Images.

Planet Fitness may have merely lost low-commitment members. The company expressly targets these casual, first-time gym users. The goal is to motivate them to sign up, and its value-price proposition helps in this regard. But many don't actually wind up going to their local Planet Fitness all that much.

For proof, consider what we already looked at with the usage rate for Planet Fitness. Roughly seven out of 10 people who were using the facilities last year are using them now, despite a steeper drop in members per location. Putting two and two together, there were a lot of members last year who simply weren't showing up.

Management says the membership-exodus situation is stabilizing, with local cancellation rates slowing by the third month a gym was open. Many gyms have been open over three months now, so one would not expect membership to fall much further in 2020. This is one crucial piece of the puzzle moving forward and something to watch when the company reports next quarter.

Taking it a step further, Planet Fitness's management believes its million-member loss can be recovered once advertising resumes. The company had cut back -- there's no reason to advertise if your gym is closed. But now it's targeting a big ad campaign centered around New Year's Eve celebrations in Times Square in New York City. The company has the 11:30 p.m. to 1:00 a.m. slot.

If Planet Fitness can leverage the exposure, perhaps it can quickly regain lost ground. After all, it added over a million members last year over New Year's Day. But this presupposes that people will feel comfortable using a gym. On that note, management said there seemed to be uneasiness as coronavirus cases increase around the country. In other words, it may not be as simple as running a new ad. People will need to feel it's safe to join a gym.

Planet Fitness stock recently surged with news of a coronavirus vaccine candidate, nearly touching all-time highs. But until that vaccine is widely available, it's possible it's still too early for this company to resume its growth story.

More:
Here's Why Over 1 Million People Have Quit Planet Fitness Since July - Motley Fool

Related Post

No Comments

No comments yet.

Sorry, the comment form is closed at this time.