A popular gym brand has raised the cost of its basic membership for the first time in nearly three decades, a move that is likely to set a new price floor for the industry amid inflationary pressures.
A new CEO and higher membership fees are enough to unsettle even the most confident company, but with membership approaching 20 million, Planet Fitness has solidified its position as a leader among big-box gyms in the high-value, low-cost (HVLP) segment, analysts say, and they predict the move should be a good thing for Planet and the gym industry as a whole.
The past 12 months have been somewhat tumultuous for Planet Fitness, with the abrupt firing of former CEO Chris Rondeau last September, macroeconomic pressures like inflation and rising interest rates impacting new construction timelines, and, perhaps most notably, a boycott movement that spread on social media sparked fears of membership cancellations.
Planet Fitness has positioned 2024 as a “year of transition” for the brand, and the gym giant made good on that promise in May, announcing that for the first time in nearly three decades, it would raise the price of its Classic membership from $10 to $15 per month.
News of the Classic Cards price hike wasn’t a surprise — the HVLP gym chain revealed earlier this year that it was experimenting with different price points — but confirmation of the move sent PLNT shares up 5%.
Planet Fitness is in a quiet period since new CEO Colleen Keating took over as CEO and is due to report second-quarter earnings, but it appears to be off to a good start.
Athletech News spoke with several leading financial analysts to get insight into the gym giant’s new pricing model and how it will impact Planet Fitness, its franchisees, and the fitness industry as a whole.
Use it or lose it: The hidden benefits of Planet’s price hike
Given that price is a big factor in gym churn (a recent study found that 41% of fitness consumers who canceled their membership did so due to cost), price increases must be carefully considered and tactfully implemented, especially in the HVLP industry, which prides itself on low-cost memberships.
Given the economic environment consumers have become accustomed to, analysts agree that Planet Fitness’s $5 increase in initiation fees for new members is unlikely to scare fitness consumers away, but it could boost membership retention.
“Consumers are experiencing significant inflation in all areas of life, so a $5 increase in monthly membership fees is not going to come as a surprise or have a significant impact on their decision to join a gym,” said Brian Smith, managing director at Piper Sandler.
As Simeon Siegel, managing director at BMO Capital Markets, points out, the price increase may encourage current Planet Fitness members to stay with the gym chain in a “judgment-free zone.” Existing Classic cardholders will continue to pay the $10 per month fee for the duration of their membership, a “lifetime fee” model that Planet Fitness has said it will emphasize.
“If executed well, price increases can deter customers from churn and increase customer retention by preventing the loss of low prices,” Siegel said.
It’s a sentiment echoed by Abe Thomas, managing director at Piper Sandler, but added that the new $15 price still represents “great value” for consumers.
“We do not anticipate a significant increase in member churn or a significant decrease in overall membership at any given location,” Thomas said, “and in fact, the price increase may improve churn at existing locations, as current members will inherit the legacy $10 pricing structure and will not want to give up that price.”
Baird analyst John Komp said Planet’s recent price increases will have a moderate impact on new member retention, but will have an overall positive impact on total membership spend, same-store sales and store profitability.
“There are variables that will affect how much of the price increase will be reflected in net value, including how often Planet uses its $10 promotional pricing during a given period,” Comp said.
Premium membership boost?
As consumers become increasingly interested in recovery methods and amenities, Planet’s Premium Black Card membership, which costs $24.99 per month and comes with perks like access to massage chairs and hydromassage beds, could be even more appealing to prospective members compared to the Classic membership.
Notably, over 60% of Planet Fitness members join as Black Card members, a figure that is likely to grow thanks to the new base membership price.
“Maximizing penetration of our full-amenity, higher-priced Black Card membership is a top priority for all Planet Fitness franchisees, and we expect the increased Black Card tier will be an added benefit of the increased pricing for Classic memberships,” Smith said. “By narrowing the price gap between Classic and Black Card memberships, we expect consumers to choose the more expensive Black Card option.”
TD Cowen analyst Max Lakrenko also factors in the possibility of a black card and believes that overall, higher prices will be a big positive for Planet Fitness.
“As the prices of classic cards increase, the value proposition of black cards increases significantly,” Lakrenko said.
Franchisee’s perspective
The move to increase Black Card prices should please Planet Fitness franchisees, as rising build-out and operating costs put pressure on store-level profit margins and the revenue profile of new store developments.
Comp said the move to increase prices was linked to a decision to restore unit economics for franchisees who were most affected by rising construction costs.
“While we are wary of raising prices at a time when many consumers are struggling with persistent inflation, we hope that risk is mitigated by Planet’s strong value proposition,” he added.
Will competitors follow suit?
With competitors like Crunch Fitness, Blink Fitness and others making moves to beef up their membership offerings, there’s no doubt that the HVLP gym industry is heating up.
While most brands in the HVLP category have maintained a $10 entry point price to compete with Planet Fitness, Planet’s price increase could encourage other brands to follow suit and increase their own unit-level profit margins.
Siegel sums it up succinctly: “When the dominant operator in an industry raises prices, other operators are likely to follow suit.”
LaCreno believes Planet’s price increase will lead to a number of adjustments.
“I think there will certainly be companies that follow Planet’s lead,” he said, “although I don’t think the good operators really need to do that. They’ve actually done a great job of attracting members to their higher tiers, and only a small number of members are paying the $10 price right now, so they don’t need to raise their starting price, especially if they’re aggressive with their marketing.” ‘Hey, we have a price range of $10, right now below Planet’s $15.“
As Comp points out, other gyms are likely facing pressures that are impacting their unit economics as well.
“From this perspective, the industry is expected to maintain a similar price differential to Planet in the long term, which likely means that Planet has raised the industry floor price,” he said.
And when it comes to the fitness industry, Gen Z, Planet’s target demographic, is coming on strong.
“The data we’ve seen, including TD Cowen’s own monthly surveys, shows that younger members are healthier and we’re seeing higher gym membership rates among Gen Z, which is definitely one of the big drivers of long-term enthusiasm for the industry,” Lacrenko said. “Younger members appear to be healthier, and as long as this trend continues, it’s a good boost in the long term.”