Chinese Fitness Industry Landscape

2023 is undoubtedly an extraordinary year for the Chinese fitness industry. As people’s health awareness continues to grow, the nationwide increase of popularity in fitness remains unstoppable. However, changing consumer fitness habits and preferences are posing new demands on the industry. The fitness industry is entering a reshuffling phase - fitness is more diversified, standardized, and specialized , revolutionizing the business models of gyms and fitness clubs.

According to the “2022 China Fitness Industry Data Report” by SantiCloud, there was a reduction in the total number of sports and fitness facilities with approximately 131,000 across the nation in 2022. This includes 39,620 commercial fitness clubs (down 5.48%) and 45,529 fitness studios (down 12.34%).

In 2022, the major cities (including first-tier and new first-tier cities) saw an average growth rate of 3.00% for fitness clubs, with a closure rate of 13.30% and a net growth rate of -10.34%. Fitness studios in major cities had an average growth rate of 3.52%, a closure rate of 16.01%, and a net growth rate of -12.48%.

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Throughout 2023, traditional gyms frequently encountered financial difficulties, with the most notable being the top chain fitness brand TERA WELLNESS CLUB whose assets worth nearly 100 million yuan were frozen due to loan disputes. Similar to TERA WELLNESS CLUB, numerous well known chain gyms faced closure, with negative news about founders of Fineyoga and Zhongjian Fitness absconding. Meanwhile, LeFit co-founder and co-CEO Xia Dong stated that LeFit plans to expand to 10,000 stores in 100 cities nationwide within the next 5 years.

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It is evident that top chain fitness brands are facing a wave of closures, while small fitness studios continue to expand. Negative news has exposed the ‘fatigue’ of the traditional fitness industry, slowly losing faith from the public. However, this had led to more resilient brands, now dealing with more rational consumers, are forced to self-innovate, and continuously improving their business models and service systems.

According to surveys, ‘monthly membership’ and ‘pay-per-use’ are the preferred payment methods for gym users in first-tier cities. The monthly payment model, once viewed unfavorably, has now emerged as a popular topic and is gathering considerable attention.

Both monthly and annual payments have their pros and cons. Monthly payments offer several benefits, such as decreasing the cost of acquiring new customers for each store, reducing club’s financial liabilities, and enhancing the security of funds. However, transitioning to a monthly payment system more than just a shift in billing frequency. It involves broader operational considerations, impacts on customer trust, brand value, retention rates, and conversion rates. Therefore, a hasty or unconsidered switch to monthly payments is not a one-size-fits-all solution.

In comparison, annual payments allow superior management of brand loyalty among users. While monthly payments might lower the initial cost of acquiring each new customer, they can inadvertently lead to an increase in overall expenses. This shift from annual to monthly payments indicates that the effectiveness of a single marketing campaign, traditionally achieved on an annual basis, could now require up to twelve times the effort. This escalation in effort significantly amplifies the cost associated with acquiring customers. 

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Nevertheless, transitioning to monthly payments could signal a fundamental change for traditional fitness clubs, involving a restructuring of their team framework and performance evaluation systems. This evolution moves from content-focused to product-focused, and finally to operations-focused strategies. It underscores a shift towards service orientation, marking a transition in the industry from a sales-driven approach to one that prioritizes customer needs. At the core of monthly payments is the concept of service enhancement, necessitating a greater focus by brands and venue operators on customer support. In summary, whether adopting monthly or prepaid models, changes in payment methods are indicative of a broader shift from a sales-centric to a service-first business strategy.

Future gyms are evolving towards youthfulness, technological integration, and diversity. Firstly, in our society today, fitness is increasingly popular among young people, serving as both a social activity and a means of personal development. Secondly, advancements in AI and other new technologies are set to revolutionize the sports and fitness industry.

Thirdly, there is a growing trend of sports enthusiasts broadening their interests to include outdoor activities such as hiking, and marathons. Fourthly, there is a notable convergence of industries, with the lines between sports rehabilitation and fitness becoming increasingly blurred. For instance, Pilates, traditionally part of the rehabilitation sector, has gained significant traction in China. Baidu data indicates a strong momentum for the Pilates industry in 2023. By 2029, it is forecasted that the domestic Pilates industry will achieve a market penetration rate of 7.2%, with a market size surpassing 50 billion yuan. The graph below outlines the detailed information: 

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Furthermore, in terms of business operations, it is likely that the norm will shift towards continuous payment structure under contract, financial supervision through venue and bank collaborations, and government regulation of prepaid policies. Future payment methods in the industry might include time-based charges, per-session fees, or payments for bundled class packages. The future prominence of monthly payment models in fitness industry is yet to be determined. However, what is evident is the industry’s pivot from a sales-centric approach to a customer service-oriented model. This shift represents a critical and unavoidable trajectory in the evolution of China’s fitness center industry by 2024. 

Feb. 29 – Mar. 2, 2024

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