COVID survival strategies, growth plans, and a belief that government is finally recognising the value of the fitness sector. The Gym Group CEO speaks to Kate Cracknell

What’s your response to the third national lockdown?
I think it was inevitable once the new variant was identified and it became clear how quickly it was spreading. However it is a big blow to the entire sector to miss the important Jan/Feb months and to our members, many of whom rely on the gym as an important part of their daily routine. All eyes now are on the speed of the vaccine rollout – the big difference with the previous lockdowns is that we can seen some light at the end of the tunnel – the vaccine should reduce transmission rates of the virus and enable restrictions to be removed and gyms to reopen.

What do you think of the government’s announcement of additional grants of up to £9k per site?
Any government support is helpful and once again the Treasury has moved quickly in announcing this additional support for individual properties. However it’s very clear that the government needs to go further.

Some immediate things they can do are to extend the rent moratorium, extend the timing on the VAT payment scheme and extend rates relief for at least an additional six month period. This last one – a bit like the property grant – has the best transmission mechanism to get cash and rebates to those properties that have been forced to close.

I don’t think the government should wait until the budget in March to make these further announcements – businesses need the ability to plan and the more visibility we have while we’re closed, the better.

It was all going so well!
Yes, before the third lockdown started, we were open in all 183 sites that we operate across the UK.

We launched our Oxford Street club on 2 December – a club we acquired from easyGym and have since redesigned and refurbished. As with all city-centre sites, it’s been a bit constrained by the number of people coming into their offices, but I’m confident it will be a really good site for us in the future.

The home working trend hasn’t put you off city centre sites?
COVID only accelerated an existing trend: we were predominantly locating new sites outside the centre of big metropolitan areas anyway – in residential areas on the edges of towns and cities as well as in some of the smaller commuter hubs. 

While a third of our estate is inside the M25, only five clubs are in central London Zone 1, and across the UK, only 18 of our 183 clubs are city centre. Even when we do locate new clubs in city centres, it’s generally because we think they’ll be good student sites. 

All that said, one of the benefits of having scale in our business is that, if people do more permanently adopt a hybrid working model – home a couple of days a week, in the office for the other two or three days – we can offer multi-site access in a very affordable way. Just £4.99 extra a month puts you in our Live It membership tier, allowing you to work out both close to home and close to the office. I think we’ll see even greater take-up of that product moving forward as a result of flexible working patterns.

Tell us about your COVID journey so far
COVID-19 wasn’t something anyone was properly prepared for. However, we realised we had to make some decisions really quickly to ensure the business was in good shape to weather the crisis and emerge successfully from it. 

First and foremost, that meant raising money. When we went into that first lockdown, we obviously didn’t know how long it would be. What we did know was that liquidity would be key. We used the fact that we’re listed on the London Stock Exchange to raise £40m from our shareholders; we’ve always had a really supportive shareholder base. We also extended our debt facilities by another £30m. 

Meanwhile, we’d frozen all memberships and had virtually no revenue, so we made some cost reductions, as well as taking advantage of government schemes such as furlough and rates relief. For the first time in the history of the business, the cost cuts sadly included some head office reductions.

And of course, while we were closed, we designed our COVID-secure procedures to enable us to reopen.

Once we were open, between the end of July and the end of October, we were profitable and cash-generative. Our listed status helped here, because we don’t have much leverage at all, meaning cash generated can be retained in the business. That’s really important in terms of being able to say we were both profitable and cash-generative in the three months we were open.  

We did lose members though. The reality of the low-cost model is there’s no contract, so people can leave at any time. Meanwhile, new member acquisition is more limited in lockdown periods: who joins a gym when the business is closed? By the time we got to 31 October, just before we closed again, we had around 639,000 members. That’s about 80 per cent of where we were at the end of 2019. 

But the members who stayed with us were active. After the first lockdown, average visits per member initially fell below the levels of the same period in the previous year. However, it caught up after about six or seven weeks and ultimately slightly exceeded previous levels. It stayed around that higher level until the third lockdown kicked in. That’s partly because there’s less for people to do at the moment, of course, but I do also think it demonstrates the growing importance of health and fitness in people’s minds.

Was the second lockdown any different from the first?
Interestingly, our members seemed more vocal around the importance of their gyms being open second time around. And I think the sector as a whole was much better at communicating its value to government during lockdown #2. We’ve been able to articulate how important health and fitness is to the whole nation, and how important gyms are to the over 10 million members of health and fitness clubs. ukactive has also presented compelling data to show that gyms are safe. We need to continue this work in lockdown 3.

It’s taken time, but I feel as though government has understood the importance of physical activity for our members and the beneficial impact that gyms being open has on people’s mental as well as physical wellbeing.

How did you prepare for the third lockdown?
We have the framework now to deal with a closure period: we know what to do and we know how to do it.

With the vaccine roll-out, there’s also light at the end of the tunnel; it does now feel that it’s just a matter of time before normality returns. But I do think it’s important that gyms are allowed to open as soon as possible, as maintaining good levels of physical activity is part of the solution to a health crisis.

Let’s talk about the projects you were working on before all this happened...
One of the first things that happened, in the first year I took over, was the roll-out of a project already started under the leadership of John Treharne, [Gym Group founder and former CEO]. This was our New Gym Team model, where we put around 1,500 of our PTs on contracts for 12 hours a week, calling them Fitness Trainers. Outside of those 12 hours, they’re self-employed and pay rent. This initiative has set the business up to deliver great member service and gives us a proposition that attracts the best PTs.

As it turned out – not that we had the benefit of this foresight, of course – it’s also meant we’ve been able to support our team through COVID, by putting Fitness Trainers on furlough.

I wanted to make sure we could accelerate our expansion, too, and we did a piece of work with PwC to define the market potential for low-cost gyms. At that point, there were around 700 low-cost clubs in the UK and it was felt the market could double in size, to around 1,200–1,400 locations. I wanted to ensure The Gym Group would take its share of that market growth opportunity.

To do so, we realised we couldn’t just rely on the large box model – the 15,000–16,000sq ft format we’d been rolling out up to that point. We also needed a small box model, so we could go into smaller towns with catchments of fewer than 70,000 people. 

We therefore created a small box concept in 2019 – around 8,000sq ft in footprint – and launched two sites that year, followed by a third at the beginning of 2020.

I also wanted to give a renewed trading focus to the business, making sure we were focusing on the right metrics: not just how many new members we recruit but, for example, how engaged our people are in the business and how satisfied our members are. And then financially, looking at how successful we are at translating the members we have into profit, by staying true to our low-cost ethos and not allowing cost-creep to come in. This proved very successful in 2019, when we delivered strong financial results that put us in a robust position as we went into the COVID crisis.

And the other notable project: we began to raise our profile, doing TV advertising for the first time as part of our January campaigns. 

But underpinning all of this, we worked hard to maintain the culture of the business. As we grow, it’s important that we hold on to what’s unique about The Gym Group. I think it speaks volumes that, the very first time we went for Investors in People, we came out with a gold rating. Our culture is very important to us.

Any initiatives for post-COVID?
Something we were working on already, but that we’ll be pushing ahead with in 2021, is the development of our group exercise offering.

To date, all our classes have been live instructor-led, but we have a virtual GX trial going on in Tottenham White Hart Lane and in Oxford Street, to sit alongside the live offering. We’ve done a deal with Fiit – an online fitness provider in the App Store – to provide virtual content in those two locations, and in time we’ll look to roll this out further. 

We also offer Fiit to our members to use at home, through their app, for an additional £7.99 a month. But increasingly, we expect people to come and enjoy the Fiit product within our gyms, so we’re also trialling Fiit Pods: just connect your phone and follow the on-screen workout, in your own space but within the gym environment.

In terms of our live classes, as we reopen, we’ll be looking to introduce a bit more conformity in the classes we offer, as well as how we train our PTs and Fitness Trainers to deliver them. We’re aiming to have a core set of classes, plus some specialist classes in the clubs where that’s feasible: the 30 clubs with a separate studio, for example.

Are you expecting any long-term changes as a direct result of COVID?
I don’t think we’re ever going back to a world where we take out the blue paper towels, the sanitisers, the ability to wipe down machines. There’s been good member acceptance and take-up of that. 

Equally, the busyness of gyms has become a focus thanks to government restrictions on the number of people allowed in at any one time. We’ve put more information into our members’ hands in this respect: you can see how busy your chosen gym is right now, just by logging on to the app. At the moment, this is vital information because we have capacity constraints. However, I think it’s something we’ll always provide now: it’s just good information that helps members plan when to work out.

Tell us more about your tiered membership structure
We pride ourselves on offering a really competitive price point, even compared to other low-cost brands. Our base membership, Do It, averages about £18.50 across the country, with the maximum being £34.99 in places like Oxford Street and Monument. That gives you 24/7 access to your chosen gym – at least, it will once COVID restrictions are lifted – as well as access to our group classes, and I believe it represents excellent value.

Then there are optional add-ons, so members can build the exact product they want. For an additional £4.99, you get our Live It membership: multi-site access to the whole estate, the option to bring a friend up to four times a month, and access to FitQuest body composition and fitness testing. 

Live It was launched around three years ago and has been very successful for us.

Then there’s Fiit access, which you can add for £7.99 a month, and YANGA sports water, which costs an extra £3.99 a month. At some point in the future, as we develop our group exercise offering, we may also offer an upgrade for some specialist classes.

What’s your development pipeline?
We launched 20 clubs in 2019, including two small box sites, but obviously paused our roll-out when the pandemic hit: we opened eight sites in 2020, but that’s nowhere near the 20–25 we had planned.

Moving forward, though, I’m bullish about the growth prospects in the low-cost sector, and our own growth and positioning within that.

We’ve restarted our roll-out programme – we’re on-site in York, Chichester and Sydenham – and we’re actively looking for other sites. We haven’t announced a projected number of new openings for 2021 yet, but we aren’t sitting on our hands. We’re actively building our pipeline.

The opportunity is very, very clear for us and we’re finding some great sites, assisted by the structural issues the retail sector is facing. We’re being offered great locations on retail parks, for instance, at affordable rents that work for our business model and our economic model. The new club in York, for example, is being built in an area of the city that we’ve been looking to get into for the last eight years or so. Suddenly a site has become available at an acceptable rent and we’ve been able to take advantage of that. There’ll be more sites like that. 

Any plans to go international?
As we emerge from this crisis, there’s huge opportunity in the UK market and we’re in a strong position: we’re number two in terms of market share and the best capitalised business in the sector. We have the ability to expand rapidly. Our immediate focus is therefore to recover the business, in terms of membership numbers, and ensure we take advantage of the UK roll-out opportunities. 

I’m sure there will be international opportunities in the future, but we feel it’s about doing things at the right time. 

Any plans to sell the business?
The Gym Group plc is the UK’s only listed health and fitness operator and our job is to create value for our shareholders, all of whom have been extremely supportive over a five-year period. I can see us being on the market for many years.