Some 600 athletic clubs and gyms went out of business in the first half of 2020 due to the restrictions imposed by the government in a bid to contain the coronavirus pandemic. Gym chains in Israel, and around the world, are now fighting to survive, as the financial damage they’ve sustained is only expected to intensify. Despite the promising results in coronavirus vaccine trials, the sector’s future is still unclear.
Holmes Place Israel, the country’s only publicly-traded gym chain, plummeted 55% in March, and since then has recovered somewhat, although it is still 35% under its price as of the beginning of 2020.
Fitness chains around the world have shown similar results. For instance, the New York-traded Planet Fitness plunged 65% in March but has since been on a long path to recovery, which picked up speed after the promising vaccine news.
The sector fears long-term damage due to the closure of gyms in the spring and now again in the fall. (Israel’s gyms have still not been permitted to reopen.) An economic review prepared by consulting company Team Finance found that 30% of pre-pandemic customers don’t plan to renew their gym memberships even once gyms reopen. The sector forecasts that 1,000 gyms will go under by the end of the year – more than one-third of the 2,700 gyms in Israel before the pandemic.
The industry had annual turnover of 4.7 billion shekels ($1.4 billion) in 2019, and some 1.35 million customers. Another 3.5 million people frequented pools in the summer months. In total, gyms and pools served some 47% of Israel’s citizens.
The businesses in the sector are comprised of 58% gyms, 26% exercise studios, 15% country clubs (sports club complexes that typically include a gym and a pool) and 1% other forms of businesses. Some 28% of all outlets are operated by five major chains – Holmes Place, Studio C, Profit, Great Shape and Space. The remainder are small businesses with one to four outlets.
Team Finance found that due to the cancellations during the pandemic, the market is forecast to shrink by 1 billion shekels even once the sports facilities reopen. Furthermore, given that customers currently make a long-term commitment that is paid over the course of a year, businesses will struggle to bring revenues back to what they were pre-pandemic.
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The shrunken market is particularly fateful for workers. The research found that 25,300 workers out of 110,000 in the sector – including trainers, instructors, lifeguards and pool operators – are losing their jobs. This will cost the country 139 million shekels a month, presuming employees receive unemployment pay equal to 70% of their previous salary. Many of these workers will be hard-pressed to find new employment, the report found.
The crisis is clearly reflected in Holmes Place’s financial reports, which were published Monday. The company reported a 20 million shekel loss in the third quarter. Revenues for the quarter were down 45% to 60 million shekels compared to the parallel quarter in 2019. Holmes Place’s facilities were closed for 40% of the first lockdown in the spring, but even when restrictions started being lifted, the chain’s gyms were still closed aside for some activities in studios and the pools at nine facilities. Now, the facilities have all been shut since the second lockdown began on September 18, two weeks before the end of the second quarter.
Holmes Place CEO Keren Shtevy claimed that sports clubs are closed because they’re an easy target without a lobby. “Only 146 people reported being infected at gyms,” she said. “That’s nothing given the more than 100,000 epidemiological investigations conducted in Israel.”
Being forced to freeze customers’ memberships gave Holmes Place a 20 million shekel loss due to ongoing activities, and caused it to violate financial obligations dictated by its lenders, Phoenix Insurance and Mizrahi Tefahot Bank. Phoenix charged Holmes Place symbolic interest, while Mizrahi Tefahot has not yet decided whether to grant the company grace.
The chain took out a 20 million government backed loan, and is demanding its landlords reduce its rent. It received 5-6 million shekels in discounts for the third quarter.
The Great Shape chain is also struggling. Owner and CEO Yaron Sela complains that the industry has been open and shut four times already this year, and that currently there’s no forecast or date for reopening.
Much like hotels, which need to fill a certain capacity in order to not lose money, sports clubs also need to be at at least 70-80% capacity to not lose, he says. “Due to massive cancellations, it will take significant time until we bring back the mass and build up new customers,” he says.
Sela says that the government’s compensation program doesn’t take the industry’s cost structure into account. The Team Finance report notes that the industry is unique in that most of the costs are for operating the facility, while the expenditure to serve each individual customer is low. Just opening for the first customer costs the club some 60-80% of its regular expenses, which are comprised 25-45% from rent and equipment maintenance and another 25-35% from the manpower required to be open. During the lockdown, the gap between the institutions’ fixed expenses versus government compensation created a 86,000 shekel monthly loss per outlet.
The losses will only deepen in the months immediately after sports clubs are allowed to reopen, the report states. Each outlet on average is forecast to lose 160,000 shekels a month upon reopening, and will ultimately lose 480,000 shekels until revenue returns to sustainable levels.
Some businesses are expected to shut down due to the losses they will incur from reopening.
However, Shtevy says she’s optimistic about the future. “I’d forego 2020 if I could, but I believe that within two years Holmes Place will be in a very strong position. This isn’t our first lockdown, and every time so far we’ve returned to a relatively high number of members. They’re the same people who went shopping at malls when everything reopened. The lockdown raised awareness of fitness and people are complaining they’re gaining weight. Thus at the end, people will rush back to the gyms. I forecast that we’ll be back in operation by the end of the first quarter in 2021. The vaccines are on the way.