Fitness & wellness collabs
With near-term uncertainty around how fitness & wellness consumer behavior will normalize, cross sections with massive, proven adjacent markets present a new flavor of opportunities to explore
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While the pandemic has undisputedly helped accelerate the adoption of digital fitness via connected hardware, digital class platforms and digital coaching, we’re still not exactly sure how much staying power these channels will retain once the world fully normalizes. In terms of how and where consumers choose to exercise, the answer will most likely be a hybrid model - although, whether that means 70% IRL / 30% digital or vice versa is still to be determined. For those that live in major metropolitan areas, I personally think it’s some flavor of the former as consumers shed their recency bias and refamiliarize themselves with how effective working out at a gym or studio is, but still also value the ability to sneak in a 30 minute Peloton or Tonal at home when the schedule gets tight. However, my inclinations could be considered as good as a finger in the wind as identifying consumer patterns within the fitness space has been filled with contradictory signals recently. Just look at some of the biggest headlines over the past couple months.
📉 “Brick and mortar gyms are still struggling”
Equinox reported that the upscale gym operator made less from membership fees in the first six months of 2021 than in the same period in 2020, despite the reopening of a majority of its clubs1
As a result, cash strapped Equinox has obtained $255M in new financing commitments from some of its lenders this month as it seeks to bolster its liquidity. The financing will also serve as a bridge as the gym chain explores a potential transaction with a special-purpose acquisition company (SPAC)
After burning through much of its $250M post-bankruptcy loan that the company received in July of last year, 24 Hour Fitness has agreed to borrow up to $70M in a transaction that will help the company fund its operations into next year
According to court filings, the company didn’t project that it would need additional capital when it exited bankruptcy last year, indicating a slower than expected return of its customer base
In order to entice lenders and to get the deal filled, 24 Hour Fitness agreed to let investors in the new loan leapfrog the liquidation preference of existing creditors - an approach typically taken by companies in financial distress2
📈 “Brick and mortar gyms are back with a vengeance”
Planet Fitness recently reported all-time records for member growth and revenue for its franchise segment in the third quarter
Xponential Fitness, a curator of leading boutique fitness brands such as Rumble and Pure Barre, reported third quarter earnings that showed robust revenue growth YoY and a 60% and 70% YoY increase in actively paying members and visitation rates, respectively
📉 “Consumer interest in digital fitness is waning”
In its most recent earnings call, Peloton reported that hardware sales fell 17% to $501M and average monthly sessions fell 36% from pandemic highs to 16.6 in the company’s fiscal first quarter as customers started to head back to IRL gyms
📈 “Digital fitness..this is the way”
While Peloton reported a dip in connected hardware revenue and average monthly sessions, subscription revenue for its digital product grew 94% YoY to $304M in the company’s fiscal first quarter, with over half of members being digital-only subscribers (i.e., they don’t own hardware such as the bike or the tread)
In other words, digital fitness content for at-home workouts is still very much valued even if workout frequency is down as hybrid models start to emerge
Digital fitness creator monetization platform Talent Hack raised a $17M Series A this month. This raise makes Talent Hack the most well-funded, pure-play digital fitness creator monetization platform in the industry by a long shot
The raise serves as an indication of bullish investor sentiment around the future of digital fitness ~creators~
So...how are we feeling?
In addition to the contradictory signals listed above, market saturation and feature parity across emerging digital fitness platforms only exacerbate the difficulty of betting on the right horse within the pure-play fitness ecosystem. However, you could argue that as an investor, my job is to distill out compelling opportunities amongst the noise based on my perception of a founding team’s unique skill set and my bullishness on the overall fitness & wellness TAM that’s driven by increasing interest and share of wallet from emerging generations. Sure. You wouldn’t be wrong, but I personally believe that one of the most interesting parts of working at a thesis-driven fund is looking outside the pure-play fitness & wellness ecosystem and applying our endemic knowledge to “thesis stretching” opportunities. Borrowing from streetwear culture, I call this dynamic fitness & wellness collabs. In other words, where are there opportunities outside of the pure-play platforms that fuse fitness & wellness with massive, proven adjacent markets? By tapping into a new and growing demographic of health conscious and wellness focused consumers, these massive, proven markets could provide a more de-risked flavor of fitness & wellness opportunities to explore while we wait for consumer behavior to normalize. Below are a handful of my favorite collabs.
💳 Fitness & Wellness X Consumer Credit
Full digitization of the way we save, earn and spend our money is inevitable and progress toward achieving that vision has been significantly accelerated by the effects of COVID-19. Fintech and ecommerce are two industries that have benefitted most from the pandemic-forced digitization, spawning new disruptive companies, technology and investment opportunities as a result. As it relates to fintech (we’ll talk about ecommerce a little later), VC investors have already poured $54.8B into financial technology start-ups as of Q2 this year, compared to $43.7B in all of 2020 and just $2.3B a decade ago, according to PitchBook. Many investors are now making bold predictions that these start-ups will upend big banks, established credit card providers and, in some cases, the entire financial system.3 According to Plaid’s annual Fintech Report, the percentage of US consumers using fintech swelled to 88% this year, compared with only 58% in 2020. Fintech’s ability to drive financial inclusion, to make personal finance more social and to integrate finance into people’s everyday lives is the foundation for the permanent shift to digital.4
Consumer credit, a subset of the broader fintech market, has received a lot of exposure on the back of the 'buy now, pay later' (BNPL) market explosion that leveraged the confluence of significantly increased ecommerce penetration and a distribution advantage that is built into the broader customer experience. But let’s not forget about the other long standing product within consumer credit - credit cards. As markets resume normal activity, the revival of the credit cycle will offer new opportunities for new-to-market lenders to provide innovative, personalized credit products that are not always cost-efficient for traditional banks to stand up. Rewards- and credit building-based cards offer compelling value to Millennial and Gen Z consumers who have demonstrated an increasing appetite for credit products. We all know that Millennials love “experiences” and travel, leading to the smashing success of travel-based cards like Chase Sapphire (I myself am a cardholder). However, Millennials and Gen Z also care a whole lot about fitness & wellness, especially with travel sidelined over the past year and a half. In fact, Gen Z is the most health-focused generation yet, increasing their health & wellness spending by 5% compared to Millennials over the past year.5 If the theme isn’t clear yet, I’m very excited about those building at the intersection of fitness & wellness x consumer credit (and greater consumer finance for that matter). Credit products that are designed to meet emerging consumers where they are most passionate (e.g., fitness & wellness) and that incorporate well-aligned rewards can serve as a new wedge to drive preventative health in society.
Paceline is a retail health and wellness platform that incentivizes consumers to live a healthy lifestyle. Paceline’s mission is to bring the worlds of physical and financial rewards together by incentivizing people to be active with curated offerings from health and wellness brands that yield healthier people and more valuable customers to partners of all kinds. The company most recently launched its first credit card offering in which cardholders earn tailored, high-value rewards for their physical activity (150 minutes of elevated heart rate a week) in addition to their spending. The company hopes to create a new category that encourages consumer wellness, both health and financial
Ness is a credit card offering that allows cardholders to earn rewards for healthy purchases and access exclusive perks to complement one’s active lifestyle. While the beachhead product is a fitness & wellness-based rewards credit card, the broader vision includes card offerings that incorporate supplemental health insurance or comprehensive coverage. Decoupling insurance from the employer and instead providing it through a more centralized wedge like consumer credit is an interesting bet that could combat issues such as increasing employee sponsored insurance (ESI) premiums, a highly-mobile workforce (median tenure of Millennials at a single organization is now only 2.8 years, down from a median of 10 years for the Baby Boomers) in which switching jobs resets one’s ever increasing HDHP threshold, and the rapidly growing number of creators and gig workers (i,e., 1099 workers without ESI) that will drive the US to become a majority freelance economy by 2026. Dare I say triple collab with the addition of Healthcare?
😇 Fitness & Wellness X Embedded Insurance
As mentioned earlier, embedded products within fintech and insurtech have been on fire recently with most of the awareness being driven by the success of BNPL behemoths such as Affirm, Klarna and Afterpay. While embedded finance has been gaining critical mass, it’s still early days for embedded insurance as embedded premiums only make up ~2% of the $1.28T of net premiums written in the US.6 Just like embedded finance, embedded insurance benefits from aspects such as a distribution advantage in which it can be purchased where customers are and with brands they trust and the ability to delight the customer in delivery given it’s part of a broader offering.7 For third-party organizations, embedded insurance can enhance value propositions and create new revenue streams.
The most common embedded insurance products on the market today live within the Property & Casualty space such as homeowners, auto, renters and pet insurance as well as extended warranties on consumer goods. However, offerings within the Life & Annuity space, specifically accident and health insurance, are few and far between. Tying this back to our collab discussion, I'm very excited about those building at the intersection of fitness & wellness x embedded insurance. Whether that means supplemental coverage for accidental injuries or healthcare, there is a ton of opportunity to incorporate this novel form of insurance distribution into new offerings within the world of sports and health.
Imagine if Red Bull or Nike created an insurance company. Spot aims to be the first brand-first insurance company built for athletes. The company has found strong product-market-fit within the outdoor market, providing embedded accidental injury insurance for activities such as skiing, skateboarding, cycling and many more. Through innovative distribution agreements with partners such as Telluride Ski Resort and US Cycling, just to name a few, the company can offer single day coverage to users at the POS or incorporate longer term coverage into a pass or membership product. In addition to having expansion opportunities to amateur sports, the company’s long-term goal is to leverage embedded insurance as a top-of-funnel for offering a “build your own” healthcare insurance product in which a policy holder can craft coverage based on their specific needs (e.g., activity level, chronic disease)
🎮 Fitness & Wellness X Gaming
2.7B gamers around the world spent over $150B in 2020, representing more than double the revenue generated from both the music industry and film industry combined. By 2023, gaming research firm Newzoo forecasts the global games market to exceed $200B (+8.3% CAGR). More importantly, gaming experiences have become the de facto venue for social interactivity and culture for digital natives, who prefer to hang out with friends within the digital realms of Fortnite, Roblox or Animal Crossing over IRL. With 87% of Gen Z playing video games at least weekly, gaming is the favorite media and entertainment activity amongst the generation, trumping other activities such as watching TV at home, listening to music, browsing the internet and engaging on social platforms.8
In my last piece, I broke down Genopets and how the project can function as a gateway to a healthier future through an exercise-to-earn gaming model that financially incentivizes players to stay fit while having fun doing so. Even before Genopets, Pokemon Go proved that a game design that incorporates IRL movement with a parallel virtual world can lead to significant increases in physical activity. As data interoperability becomes more accessible to companies through easy-to-integrate APIs that sync with wearables and connected hardware, I’m excited to see how gaming experiences, and eventually metaverse experiences, leverage fitness, wellness and health data to help drive a healthier future.
Disclaimer: Next Ventures and/or Partners at Next Ventures are investors in Genopets.
🗣 Fitness & Wellness X Social Commerce
In addition to greatly accelerating the digitization of fintech, COVID-19 also served as a boon for ecommerce. There was $795B of US retail ecommerce spending in 2020, representing an increase of 32% YoY. At the height of the pandemic, 10 years of ecommerce growth happened in just 90 days.9 Even with brick-and-mortar sales expected to rebound from pandemic lows over the next couple years, ecommerce sales are forecasted to eclipse $1.2T and to exceed 25% penetration by 2024.10
Social commerce, a subset of the broader ecommerce market that includes experiences such as live-stream shopping and group purchasing, has grown at an even more rapid pace in the US since the start of the pandemic. This shouldn’t come as a surprise given the increase in ecommerce penetration and the resulting development of new channels to sell through. Global cross-pollination is likely a big driver of social commerce’s growth in the US as innovators took note of its success in China (e.g., Taobao, Pinduoduo), which has the highest ecommerce penetration rate of any country in the world (~28%). China’s social commerce market sales are expected to reach about $363B in 2021 which is 3x its 2018 figures.11
While still a nascent market here in the US, social commerce startups are seeing rapid growth and adoption since the start of the pandemic. For example, WhatNot, a community-driven, live-stream marketplace for buying and selling collectibles, was the fastest growing company, based on GMV growth, on a16z’s Marketplace100 in 2020. Since the start of this year, WhatNot has gone on to raise over $220M in new capital across three separate financings (Series A, Series B and Series C) and has reported that GMV is up 30x since March.12
Given the outsized engagement and purchasing activity through these social-driven channels, incumbent social media companies and large retailers are scrambling quickly to attain market share. Just this month, Twitter and Instagram launched live-stream shopping features on their platforms while Amazon, Walmart and Nordstrom have either stood up native live-stream shopping platforms or partnered with social media platforms to disseminate live-stream shopping campaigns (e.g., Walmart<>TikTok, Walmart<>Twitter). However, whether the outsized reach of these incumbents comes at the expense of intimacy and ability to craft an engaging shopping experience based on a true understanding of a vertical-specific customer is still unknown. For live-stream shopping startups, the playbook will continue to be to build a platform endemic to one vertical, own that market segment and expand horizontally from there. Live-stream shopping consumers in China have indicated that the two most important factors within a live-stream shopping platform are price and exclusivity.13 For those out there building at the nexus of social commerce and fitness & wellness, perhaps this means leveraging key opinion leaders (i.e., influencers) within the space to offer live-stream shoppers group-driven discounts on personalized nutrition products or on small-batch holistic skincare. Or maybe they provide exclusive access to limited-supply workout apparel from the trendiest brands that is only available to those who join the live session. With the number of emerging wellness brands growing exponentially, social commerce can offer a new way for consumers to watch, connect, and shop exclusive, new products in health and wellness from leading experts and creators.
If you are building or investing at the intersection of any of the fitness & wellness collabs discussed in this piece, I’d love to chat! Please reach out to email@example.com, or I can be found here.