From the rise of commercial gyms and aerobic exercise videos to personal training and boutique studios, the fitness industry has steadily transformed. Technology has accelerated this change as top brands, such as Peloton, Nike and Apple, introduce digital offerings to meet consumer demand for a connected experience. Here, J.P. Morgan Research takes a look at the key drivers that are changing up the fitness industry’s routine.
The subscription economy flexes its muscles
As consumers become more health conscious, the global wellness market continues to rise and reached $4.2 trillion in 2017, according to the Global Wellness Institute (GWI). Additionally, GWI estimates that the physical activity economy reached $828 billion in 2018, and is expected to surpass $1.1 trillion by 2023. “In the U.S., fitness spend has grown high-single-digits each of the past five years, and increased during the last recession,” says Doug Anmuth, Head of J.P. Morgan U.S. Internet Research.
This significant market opportunity has seen the introduction of at-home streaming fitness subscription platforms. “The move to subscription in the fitness industry reflects what we are seeing more broadly, as consumers move away from ownership in favor of recurring access,” said Anmuth. “The subscription model is here to stay. The key is to regularly refresh the content to create more value around that subscription.”
Interactive fitness platform Peloton pioneered this shift with a unique model that aims to improve the experience through convenience and cost. The company’s investment in creating dynamic content has generated increased member engagement year-over-year. Non-cycling classes represented 35 percent of classes in 2019, an increase from 22 percent in 2018. Peloton’s programming continues to expand with the introduction of yoga, meditation, bootcamp and more, along with detailed performance metrics such as cadence, resistance and output. For consumers who do not own a Peloton Bike or Tread, a digital-only subscription is available that offers access to live and on-demand classes through personal devices.
The move to subscription in the fitness industry reflects what we are seeing more broadly, as consumers move away from ownership in favor of recurring access.
Doug Anmuth
Head of U.S. Internet Equity Research, J.P. Morgan
Global physical activity economy reached $828 billion in 2018
Note: Numbers do not sum to total due to overlap in segments
Source: Global Wellness Institute Move to be Well: The Global Economy of Physical Activity, 2019
As the connected fitness landscape continues to take shape with new market entrants and enhanced products from more established players, Anmuth expects the key drivers of market share gains will be ongoing improvements in content, a seamless experience and increased recognition of Peloton’s value proposition. “Peloton retains control over the entire member journey, which allows the company to deliver on its members-first mission and ensure a positive experience,” he says.
Peloton’s connected fitness subscribers
Estimated to grow more than 60% from 2019-2021
Source: Company reports, J.P. Morgan estimates
Athletic brands build upon their core strength
Top athletic apparel brands have also been investing in digital services to expand their core offering. In the past few years, Under Armour acquired three workout and nutrition apps — MapMyFitness, EndoMondo and MyFitness Pal — to build out its Connected Fitness subscription platform. While technology and innovation continue to drive overall growth in retail, an overarching dynamic is influencing how the sector is engaging with consumers. “Every few decades, a mega trend emerges and right now it is health and wellness,” says Matthew Boss, Head of J.P. Morgan U.S. Retailing, Department Stores & Specialty Softlines. “Consumers are becoming more aware of their personal fitness data, and athletic apparel brands are seeing this as an opportunity to become more embedded in a consumer’s lifestyle.”
Every few decades, a mega trend emerges in retail and right now it is health and wellness.
Matt Boss
Head of Department Stores, Specialty Softlines and Leisure, J.P. Morgan
Searching for “Nike” in the mobile App Store will deliver a broad portfolio of options, a key component of the company’s digital evolution. These range from tracking exercise with both Run Club and Training Club, to shopping with the main Nike app and early access to footwear with SNKRS. “It is no longer enough to have a good product,” says Boss. “The key is to offer services that naturally fit within a consumer’s daily activities.” Last year, Nike enhanced its Training Club app by launching a subscription option: Premium. According to the company, Premium provides “access to workouts and nutrition tips by elite trainers who work with Nike athletes.” To enhance its own digital content, Nike has recently formed partnerships with health and wellness-focused companies including ClassPass and Headspace.
The future of footwear is also playing a role in what connected fitness means for consumers, as companies explore new ways to increase personalization. Under Armour’s HOVR shoe connects with MapMyRun through Bluetooth, providing gait coaching and data tracking to help consumers achieve their goals. Last year, Nike released its Adapt BB shoe, which features an electronic lacing system that can be adjusted for a customized fit through the Adapt App. “From smart footwear to smart sleepwear and workwear, we expect to see more technology and innovation infused into apparel this next decade,” says Boss.
Wearables stretch beyond basic tracking
As more smart watches and fitness trackers appear at work, at home and at the gym, the global wearables market is expected to reach more than 500 million units shipped in 2024, according to the International Data Corporation. “This rise can be largely attributed to the convergence between fitness and health,” says Samik Chatterjee, Head of J.P. Morgan U.S. Telecom & Networking Equipment/IT Hardware. “Advanced technology is driving this change, with tracking capabilities evolving far beyond the number of steps taken on a given day.”
Worldwide wearables forecast
Overall market expected to grow between (2020-2024)
Source: IDC WW wearable computing device forecast 2020-2024
CY 1Q20, Doc #US45811920, January 2020
With more wearable devices coming to market, Chatterjee expects this strong growth in hardware to continue for the next five to 10 years. However, he notes that “the real opportunity is layering in the software.” In recent years, Apple has partnered with a number of fitness clubs to help enhance the member experience through its GymKit. The technology syncs the Apple Watch with cardio machines, providing real-time data points such as heart rate, pace and distance.
“We are seeing a rising consumer demand for all health and fitness data to be in one place, so that trends can be viewed without gaps on any given day,” says Chatterjee. Last year, Fitbit launched a new premium subscription service that provides personalized programs and coaching across physical activity, sleep and nutrition through its devices. Additionally, Apple has increased their focus on the significant health care opportunity by acquiring sleeptracking companies and establishing several medical research partnerships through its Research app. Recently, the company secured three patents to focus on monitoring heart rate.
In the coming years, Chatterjee expects increased participation of health research activities through personal devices to become a longer-term trend: “We are seeing increasing engagement from all demographics, with greater focus on making a social impact, and there is potential for this to continue.” Chatterjee also predicts digital coaching to gain traction as data becomes more precise, as well as smarter technology that recognizes when exercise begins – and automatically starts tracking the data. “The strong growth market in wearables presents an opportunity for multiple players, but establishing products that can deliver both fitness and health information will see success,” adds Chatterjee.
The rising wearables market can be largely attributed to the convergence between fitness and health data.
Samik Chatterjee
Telecom & Network Equipment/IT Hardware Senior Analyst, J.P. Morgan
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