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Retail Doldrums Providing an Rx for Fitness Clubs

Planet Fitness Eyes 500 Openings in Next 3 Years; SoulCycle Prepping IPO for Expansion
March 9, 2016
Dorvin Lively, CFO of Planet Fitness, isn’t bemoaning all the headlines of retail store closures. To him, they just mean that retail real estate available for his chain of fitness centers is getting cheaper and more plentiful.

The Newington, N.H.-based firm surpassed its 1,000th location in June 2015, and completed its initial public offering shortly after that. It ended the year with 1,124 stores after opening 209 locations in 2015, including 84 in the fourth quarter alone.

The recent rapid expansion was driven by a group of well-capitalized Planet Fitness franchisees, who opened all but three of the 209 locations and were responsible for more than doubling the company’s store count over the last three years.

The fitness center firm has a pipeline of more than 1,000 new locations it plans to open over the next seven years, more than 500 set to open in the next three years.

"Pre-[2009], we were competing [for store locations] with the Old Navys, Dick's Sporting Goods and Best Buys for example,” Lively said on the company’s earnings call this past week. “Where you fast-forward to today, even just this past week with Sports Authority's announced closing stores, with Walmart closing stores, it continues to be really good for us.

“Frankly what may come out of it is that there may be some cheaper real estate and more real estate locations down there for us to open up more and more stores,” he said.

Even in energy-distressed markets such as Houston, Planet Fitness is finding that people are not stopping their work-out programs. Instead, many are opting to trade down from higher-priced clubs to more affordable health club options. Planet Fitness memberships start at $10.

For retail firms such as Lively's, the issue isn't the numerous new options becoming available in the market, but rather it's having the discipline not to rush to commit to a Class B location when the likelihood is that an A+ spot may be opening up.

"It’s just being disciplined to not just open some location that is available but to make sure it's really the spot we really want to be for the next 10, 20 years,” he said.

Planet Fitness claims to be the fastest growing health club chain, but it’s not the only one.

SoulCycle is a newer entrant in the crowded field, but also rapidly growing boutique fitness club that has also filed to go public. As of Sept. 30, 2015, it had 48 locations in eight metro locations.

Where Planet Fitness’ clubs range from 20,000 to 25,000 square feet, SoulCycle's stores are a cozy 2,000 to 5,500 square feet.

Because of its smaller size, SoulCycle believes it has one of the greatest opportunities to continue to drive growth in both existing and new U.S. markets, with both urban and suburban locations, with the goal growing its domestic footprint to at least 250 studios.

In its IPO filing, SoulCycle plans to use some of the proceeds it raises in a stock sale to open at least 10 to 15 new studios per year over the next several years.

With expansion of health clubs underway, Gramercy Property Trust is in the process of marketing some of its specialty retail health club holdings.

Last summer, the REIT acquired a portfolio of 10 Life Time Fitness facilities for $300.5 million. It sold one of those assets last year but still owns nine others totaling almost 1.8 million square feet.

Last month Gramercy said it had another one on the market that was generating healthy investor demand and will likely be sold, buts has not decided on a strategy for the remaining assets.

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