How ClassPass and Mindbody Are Killing the Big-Box Gym

I resisted fitness studios for a long time. Instead, I preferred the isolation of big-box gyms, the nationwide chain types: warehouse-like spaces full of so-so equipment and plenty of cable television. Within the sweating crowds at my big-box gym, each of us was alone, earbuds in, drowning out our neighbors’ grunts and rep counts. But eventually, the monotony of this routine wore thin. I found myself wandering amid the ellipticals and leg presses, uninspired by their lifeless, silent shapes.

There was only one true advantage to this setup: the price. For a mere $25 a month, I enjoyed a great, big box full of equipment — of which, I used maybe 3 percent. But after years of loyalty to my self-sustained workout routine, I caved and finally attended a studio class with a friend. It was something called “power sculpt”; I (wrongly) thought that because it was labeled as a yoga class, it would be easier than my usual routine. It was not easier. There were many burpees (so many burpees), and squat jumps and weights. The class absolutely destroyed me, but the hour flew by, a very welcome alternative to my gym experience, which was starting to feel like a silent, lonely slog.

I am not the only one interested in trading in my big-box gym membership for something new. With the largest growth of all fitness sectors, studios are chipping away at the big-box gym, and now hold about 40 percent of the market. The traditional concept of a gym is suffering in the wake of boutiques, but the real beneficiaries are the technologies that are enabling their popularity — in some cases, to their disadvantage. Today, working out is a lifestyle, and it comes at a higher cost.

Gold’s Gym, which opened in 1965 in Venice Beach, is largely credited with kick-starting the business of gym chains. Well-known clubs like 24 Hour Fitness and LA Fitness were founded in the ’80s, and the fitness franchise model held steady through the next decade, essentially giving consumers a way to rent expensive equipment, all housed in one gigantic, sterile space. In recent years, though, studio fitness has challenged this model. A white paper by ClubIntel, a forecasting and analyst firm focused on the fitness and club industry, reports that what was once a healthy market is now hurting. While budget (think Planet Fitness) and premium clubs (think Equinox and Crunch Fitness) have continued to grow, boutiques like SoulCycle and S10 Training have exploded by over 90 percent over the past few years. Stephen Tharrett, cofounder and principal partner at ClubIntel, says that as midmarket big-box gyms suffer, studios are beating their competitors across the board. Brands like CorePower Yoga, Barre3, and Orangetheory Fitness are largely responsible for swaying longtime gym rats away from their ellipticals, and these businesses are benefiting in the short term. In the long term, however, it may be the technology companies that provide the infrastructure that actually win out.

Mindbody is a tech veteran; it launched in 2001 as a scheduling and management system for fitness and wellness companies. On the surface, that isn’t so exciting, but as Mindbody quietly raised round after round of series funding over the years, it also acquired a handful of startups that would help it solidify its service as a go-to for booking fitness and spa services from a desktop or smartphone. It works as both a stand-alone, consumer-facing app and as a back-end solution for studios. Forty million people used Mindbody to book 600 million classes and spa/salon appointment sessions in 2017.

“We’ve seen it coming for a long time,” says Mindbody senior VP of consumer product Doug Hecht, about the need for tech to connect consumers to fitness options. Hecht’s former company, Lymber Wellness, a fitness reservation system that focused on dynamic pricing, was acquired by Mindbody in March 2017. “What we saw was that 50 percent of the inventory was going unused every day — empty spots in classes. So what we were seeing was that there were a lot of people who were saying, I want to go [to these fitness studios] three or four times a month, but that membership at $100 a month doesn’t make it worth it,” Hecht says. He says Lymber Wellness offered the underutilized studios to people who wanted to take drop-in classes but experienced initial sticker shock. Then, studios could decide whether they wanted to decrease the price of less popular classes or class times to encourage more casually interested or frugal customers to come. Dynamic pricing works the other way as well. “If that 7 a.m. class with the best instructor is really popular, you could charge more for that,” says Hecht, “because if someone wants the best experience, they’ll pay for it.”

The quality of time spent, Hecht believes, is what’s at the heart of the studio boom. “You look at Airbnb, it’s kind of similar, right? What they’re pitching you is a local community. Stay local and be part of the community instead of staying in a hotel, which can be kind of sterile,” Hecht says. “I think we’re seeing the same thing with the gym. People want to go in and get an experience where it’s more personalized, where someone’s monitoring their progress, encouraging them to continue. There’s just a demand for an experience.” Hecht says millennials are largely driving the trend; after all this is a generation that values experiences over things. That attitude change parallels huge leaps in technology, as well. Those two factors combined have shifted the fitness market, both in how consumers want to spend money and how businesses sell to them. “We always sort of blame millennials, but I think it’s also the rise of technology,” says Hecht. “[Millennials] are just more in tune with technology in general.” Look at Uber, or Netflix, or Hulu, or Spotify, Hecht says. “People are becoming used to picking and choosing and getting what they want, and I think this boutique model lends itself well to that.”

Consumers are no longer satisfied with one-size-fits-all models; everything from cellphone plans to cable-cutting options to music downloading allowed people to pay for only what they wanted. Studios wisely picked up on the trend. At the big-box gym, class options and schedules are limited, and everyone has access to the same things. Boutiques, on the other hand, focus on individual convenience and offering classes at multiple times. But their real trump card is that you don’t have to commit to them. While fitness studios offer monthly or yearly memberships, just like big-box gyms, they also sell classes one at a time, or in packages. This way, customers can float around to different studios, with access to different workouts and schedules. It’s a far more customizable and travel-friendly experience with no upfront costs or lengthy commitments, providing a freedom that customers now expect.

On-demand economy apps like Uber and Postmates have altered how consumers think about things like ownership, membership, and purchasing. I wrote about this change last year, and talked to Nathan Stringer, trends consultant at consumer trends research agency Foresight Factory. Stringer told me that the very act of clicking around a website and “building” your own package (we were speaking about monthly subscription box companies like Le Tote or Blue Apron, but the same could be said for building your own workout regimen) gives customers a sense of agency. “People will be loyal to the service because they are loyal to what they’re creating,” he said. “I’m actually the one creating this. There’s a sort of cocreation experience.”

Mindbody is not the only company that sensed a shift coming in consumer behavior. In July, ClassPass raised a series D round of $85 million, bringing the company’s total funding to $255 million. Share price and valuation are also on the rise for ClassPass, which began as a fitness-class aggregator platform when it launched under the name Classtivity in 2011. The company’s director of public relations, Ashley Hennings, tells me that founder Payal Kadakia came up with the idea while sitting at her desk job and trying to find a local dance class. “After a couple of hours of frustration, she never made it to class,” says Hennings. “Originally, she was really trying to solve the question: ‘How do we aggregate all of these classes that are happening in New York and centralize them all in one place?’” From there, Classtivity iterated and expanded, rebranding itself as ClassPass and switching to a subscription model in 2014. ClassPass saw that people were using its platform to look up classes but they weren’t necessarily booking them. The switch to subscriptions prompted an uptick in classes paid for and booked, and also served as a way to tie users in to ClassPass’s system.

FitReserve, Dibs, and Reserve With Google are all competitors in this market, but Mindbody and ClassPass are easily leading the charge, incorporating tools beyond basic booking. ClassPass, for instance, went through a period of trial and error that eventually led the company to land on its current system, in which users purchase monthly credit packages that they can use at fitness studios in their towns (credits were introduced in March). The cheapest option is around $35 a month (or $45 if you live in NYC or L.A.). That rate yields two to five classes; the most expensive, at around $100 a month (and more in NYC and L.A.), gets you 10 to 15. A ClassPass membership allows customers to hop around different studios and build a workout routine that is anything but, and allowing them to be untethered to one entity … except to ClassPass, of course, which like all good internet middlemen hopes to retain members without making people feel like it’s holding them hostage.

There are also options for traditional gyms to join the ClassPass platform. A feature called Gym Time allows users to spend a few credits and book a couple of hours at participating gyms without having to sign up for a membership, but there is a limited number of chains available on the service. “Studios is where we see our growth, and it’s always been the bread-and-butter of our business,” says Hennings, who believes the market will continue to rise. Certainly, ClassPass’s expansion will only help that happen: The company is also a full-fledged management tool for fitness studios. “What we do to benefit studios is we fill their remnant inventory. We’re really more of a yield optimization engine,” says Hennings. Like Mindbody, ClassPass uses dynamic pricing to fill empty slots. Basically, ClassPass can tell studio managers when to drop prices on a class that isn’t filling up. (It’s the same concept used by apps like HotelTonight, for lodging, and TasteBud, for restaurants.) The studios will then charge less than they normally would for those spaces. ClassPass also offers studios comprehensive marketing and management tools, including an algorithm-based system that can tell them when to release spots in a class or when a class is getting full and they should pull back. Hennings says that many small studios are run by people passionate about fitness, not business, which is why ClassPass’s savvy can offer a major assist to its partners.

But ClassPass’s swift dominance of the market also comes at a cost to some studios. Studios need to fill classes to make money, and ClassPass helps them do this, but they also rely on memberships: people who buy class packages or even yearly memberships to their studio and their studio alone. ClassPass flies directly in the face of this pursuit, allowing users to jump around. It completely benefits the consumer, and helps larger brands like CorePower Yoga fill empty slots in classes.

It’s more complicated for smaller, local fitness studios. Amy Bond runs San Francisco Pole and Dance, a pole-dancing fitness studio in the Bay Area. When she started the business, ClassPass immediately reached out to her to encourage her to use the platform. “I looked to my left and I looked to my right, and everybody else was using it,” says Bond. She was hesitant, but signed up, figuring she would use it for six months to drum up attention. But Bond quickly realized that classes booked through the service were significantly discounted; her drop-in rate is $30, whereas ClassPass’s for her studio was $11. “It was unsustainable,” she says. “If that was the rate that everybody was paying, I wouldn’t be able to run my business.”

Eventually, after ClassPass’s premium package was released (which let users pay extra to go to a studio as many times a month as they wanted), Bond complained about the discrepancy in a blog post and emailed the company. ClassPass relented, telling Bond that it would turn premium off for her studio. “But they only did that because I called,” she says. “So I’m sure there are all these other studios out there who don’t realize that they’re being competed with by ClassPass.” Bond says that she was a ClassPass user before launching her studio, and she understands the benefit. “I was like, this is the greatest thing ever! I used it as a customer because I love fitness, I go to a lot of classes, and I wanted to try out a bunch of things. I was like, how is this so cheap?” As a business owner, her relationship with ClassPass is decidedly more fraught.

Bond’s dilemma is not an isolated one, nor is it restricted to the fitness industry. Whether consumers should be more loyal to distributors or to the actual creators is a cross-market issue, giving cataloging platforms an edge over the players they enable access to. Still, it’s undeniable that ClassPass has had a positive impact on the fitness studio boom. As of July, it’s completed 55 million reservations and has more than 10,000 partners. In a 2015 interview, Kadakia said her company had paid out more than $30 million to studios. Bond is opening an Oakland location soon; she says one of the first calls she makes will be to ClassPass. “What I learned is that a very high percentage of students coming through my door learned that we even existed through ClassPass,” she says. “They’re great in terms of marketing and getting my studio in front of students … but then the question is, are they the right kind of students? They’re willing to pay $10 a class, but are they willing to pay $30? Because that’s where I actually make money.”

The fitness instructor-cum-Instagram-influencer is by now an internet trope, but it’s just one of the many ways this new fitness era is using technology to entice a generation of consumers who have grown weary of the gym and its faceless, personality-less enterprise. There is also something of a “cult of personality” factor. Troy Manandic is a former gym-goer who says he didn’t feel like he got what he wanted out of his membership; the gym was always too crowded and he spent too much time just waiting to use a machine or a set of weights. And he wasn’t motivated moving from station to station by himself. Then, a little over three years ago, he was introduced to CorePower Yoga, the largest privately held yoga chain in the country (it’s been referred to as “the Starbucks of yoga”). He was hooked. “It was just something different. Something where I could clear my mind at the same time as getting a physical workout,” he says. Manandic was so enthusiastic about CorePower, he decided to join the studio’s instructor training course “on a whim.” Now he teaches Sculpt, a combination high-intensity-interval-training-weights-yoga class, at two CorePower studios in Hawaii, where he’s amassed quite the student following. “My Monday classes have gotten to the point where the line is out the door. It’s crazy,” says Manandic, who’s also a certified spin instructor.

Manandic has a significant Instagram following. Popular studio instructors leverage their social media followings not only to inspire students to attend their classes (and potentially buy memberships to their studios), but also to seek out ambassador opportunities. The Instagram accounts of companies like Barre3, ClassPass, and CorePower Yoga are artful and aspirational, with attention to color schemes and a focus on wellness and self-care mentality. (Let’s just say there are more pictures of avocados and acai bowls than there are of people sweating.) This strategy cultivates a sense of community and tribalism that extends past the 30 minutes to an hour someone spends wandering a big-box gym alone.

Fitness studios’ enviable Instagram accounts are far from their only innovation. Historically, the fitness industry is not known for its technical savvy. “There’s a term called ‘digital Darwinism,’ where technology and consumer use of technology grows faster than a business’s ability to adopt it,” says Tharrett. “In our industry, we’ve always been slow. We’re a dinosaur,” he says, referring to clubs. Studios, on the other hand, went all in on upgrades, implementing easy-to-use booking and payment options, partnering with companies like ClassPass and Mindbody, buying touchscreen sign-in portals, and even offering or integrating with personalized heart-rate tracking devices for in-class use.

These tools are no longer options for fitness brands; they’re required. Small studios, with their social media fluency and more nimble management style, ably incorporated these elements while many of their larger competitors tried to play catch-up.

The fitness landscape has changed wildly, and the effects of this extend beyond consumers having access to more dynamic, diverse workout options. Working out is more personalized, more social, and more experiential — inarguably positive improvements. I can personally attest that the studio fitness system is far more satisfying and effective; I hope it’s easy to imagine that a heated yoga-meets-HIIT class filled with 30-some people set to energizing music with a regimen that changes every night is more interesting than plopping yourself on a treadmill and queuing up the S-Town podcast for a repeat listen. My body and brain are more stimulated in these classes, and having the option to sign up for them across town and during times that work for me is an added convenience. But all of this comes at a significant cost. The price for one class is usually $20 to $25 — around the same as the membership cost for an entire month at the big-box gym closest to me, LA Fitness.

“I feel like you get what you pay for,” says Manandic, who says that while you can take yoga classes at big-box gyms, most pale in comparison to the high-intensity, more disciplined workouts at studios. Hennings also admits that fitness studios are much more expensive than big-box gym memberships, but notes that it’s important to consider the value a customer receives from their money spent. “The way [traditional gym] membership works is you pay a certain amount of dollars per month and you get locked into a contract, and gyms have traditionally made their money off thinking that people are not going to show up,” she says. It’s a well-known strategy that has earned chains like Planet Fitness ample contempt.

Gym chains have also earned the ire of consumers with complicated cancellation and payment policies. Planet Fitness won’t allow people to cancel via phone or email; customers must write a letter to or visit the original gym they signed up at to cancel their membership. In 2017, 24 Hour Fitness agreed to a $1.5 million settlement with 255,000 members who were charged more for their memberships than their contracts stipulated. The previous year, LA Fitness settled out of court for “misrepresenting” renewals. Clearly, traditional gyms partially have themselves to blame for consumer uninterest and frustration. Yes, they are cheaper, but the cost-to-value-gained ratio seems to be tipping in fitness studios’ favor. (This doesn’t apply to nonprofit gyms, like the YMCA, which tend to cost more than budget gyms but also provide community benefits beyond exercise — and of course, are not for profit.)

Still, it’s impossible to deny that there are economic consequences to the rising cost of studio fitness. The self-care and wellness movements have inspired a new population to invest in themselves, which includes their own health and fitness. But many of them are part of a generation with an ever-older retirement age and an inability to buy homes. Beyond just millennials, a staggering amount of Americans can’t afford the costs of middle-class living. It seems the current state of consumers’ bodies and minds takes precedence over their economic future. According to the Global Wellness Institute, the worldwide wellness industry was a $3.7 trillion market as of 2015. The “fitness and mind-body” category came in at $542 billion.

“[Millennials] are very conscious of their health, what they put in their bodies, what types of products they use, and we certainly notice that with our members,” says ClassPass’s Hennings. To wit, ClassPass is expanding beyond fitness into the wellness arena. Hennings says the company is testing the additions of meditation, massage, recovery classes, cryotherapy, and wellness retreats in New York, and that there’s been “tremendous traction” with them. Mindbody also partners with spas and salons. The companies fueling this new fitness economy also capitalize on tribe mentality. Studio fitness encourages people to get out and take group classes, follow trainers on Instagram, and even vacation together. “There’s this broader trend of [millennials] really focusing on taking good care of themselves,” says Hennings. “And they’re willing to spend more money to do it.”

While the current swing of the fitness pendulum has consumers spending more, leaving their homes, and signing up for pricey studio classes (and even wellness retreats), the next swing could reverse all that. Advancements in virtual reality and augmented reality are causing companies across the board to consider how their businesses will change, and fitness is no exception. Forecasters believe that this next frontier could push more and more people into virtually led workout studios, where members work out together in a group, but the trainer is beamed to them via VR or AR, or simply via a streaming service and a screen. Companies like Peloton and Daily Burn are leading this charge. Right now, industry advancements encourage people to be together, and by creating more demand for studios and classes, they open up more instructor jobs; what if what happens next has the exact opposite effect?

In many ways, companies like MindBody and ClassPass that aren’t operating their own brick-and-mortar studios and hiring instructors and employees to run them are best positioned for a potentially all-digital fitness future. “We’ve dipped our toe into the digital category,” says Hennings of ClassPass. That’s putting it lightly: In March, the company launched ClassPass Live, an at-home, on-demand workout platform. ClassPass hired instructors and produced the videos, and subscribers who choose to upgrade their memberships to include ClassPass Live (it’s an extra $10 a month) get a starter kit that comes with a heart monitor and a Chromecast. The software also reads input from the heart-rate monitor, so that users are motivated to keep going even without the actual presence of a trainer. There’s also ClassPass Go, an audio-only app, which guides users through a variety of workouts. Clearly, ClassPass is prepared for the possibility that digital workouts will take over the industry. Still, Hennings insists that the company takes cues from the businesses it supports. “We look to our studio partners to set the trend,” she says. “We’re the middleman in some ways; our studio partners set the trend, and we support them in that.”

The digital takeover of fitness could actually be a boon to struggling gyms. Hecht points out that some middle-market facilities are making use of digitally instructed classes, where members show up to take spin or Zumba from someone on a screen. It requires a lower overhead than the employment of actual instructors, and it makes good use of a big-box gym’s large footprint. And as ClassPass and its ilk expand their footsteps, it seems likely that more big-box gyms will partner with them — or, at least, vital that they should. There is certainly a sizable game of catch-up to be played, though.

A VR, or AR, or video fitness future could be a challenge to small studios. At the moment, technology and cultural trends have tipped the scales in their favor, but what’s next may not. Studio owner Bond is confident, however, that new technology won’t erode her business. In fact, she films videos for a fitness streaming service, and she pays for online tutorials as well. But that can’t compete with what she’s creating. “I go to a studio because that’s where all of the people I love and do what I love are,” she says. “When I think about building my business, it’s always about community first — because that is my competitive advantage.”