LIFTS Episode 83 - FISA Insights, Tariffs, Trends & Planet Fitness Growth with Sal Pellegrino

0:00You cannot open up a club today and have 10 year old treadmills or 20 year old dumbbells. You just can't do that. The consumers are too smart. Gen Z and millennials coming in. Wow, they're taking as the baby boomers are moving up. They're filling the vacuum. We've seen people building new clubs going a little less with cardio, probably 20 to 30 percent less depending. Adding more free weight space, adding more turf area, open space, adding more half racks. I mean, if you ask me, how many half racks, power racks I would put in a club. I don't think I would have anything less than eight.

0:39Matthew Januszek:Welcome to this week's episode of Lyfts, where we talk about the latest fitness industry trends. I'm Matthew Januzek, and I'm here with my co-host, Mo. Mo, how are you doing today? I'm doing good. I'm in Vegas, where it is hot, but sunny. I think I had a resort, Matthew, that you've been at many times called the Cosmo. I bet you must be absolutely roasting outside. So you've not probably ventured out of the hotel too much. I have not. I'm going to be venturing out after this recording to a meeting, which is about 15 minutes away by car. I'm not walking. But last I checked, it was 101. Yeah. Well, enjoy.

1:16Matthew Januszek:Well, look, let's get into it. We've got a great episode today with a fabulous guest. I'm really looking to, this is sort of within my wheelhouse. So I'll let you do the introduction, Mike. We are joined by someone who I think has seen the industry from basically every angle, Sal Pellegrino, the executive director of FISA and one of the most respected voices in fitness. Sal's career spans decades from shaping strategy at Precor, and he was even there through the Peloton acquisition, to now leading the supplier side charge at Visa, which is a trade group at the center of a vendor and club collaboration.

1:57Really, really interesting concept. In this episode, we're going to touch on this market trend report, which they release. Sal will help us decode some of the signals which are out there. Sal and I actually collaborate quite frequently on another advisory call that happens once in a quarter on this very, very topic. We're going to cover what's happening with equipment pricing, market segmentation, and how suppliers are adapting to new customer expectations. We're also going to touch on topics of the week, Matthew, which you and I have put together, including tariffs, a company that we both know, which recently got acquired by another company that we know, the robust growth of the Planet Fitness stock and acquisition, which I was a part of, and one other final point around the digital convergence.

2:49So we've got a lot to cover. I think Sal's the perfect guest to have on this week. So let's get to it. Hey, I'm thrilled to be here. Thank you so much for the invitation, Matthew and Mohamed. I'm very excited about the discussion.

3:00Matthew Januszek:I thought a good place to start is FISA is a name that I've known for a long time. I also had a relationship with FISA back in the UK when I think Rob Barker may have had something to do with it in the early days. I may be wrong, but his name seems to be connected on some level. So probably a good place to start is give us a little bit of an overview of the purpose and mission for FISA for those that don't know the organization. Oh, great. Thank you, Matthew. Yeah, FISA is called the Fitness Industry Suppliers Association. 25 years ago, a group of fitness suppliers were at a conference and they were looking for some sort of alternative to a traditional trade show.

3:48So hence, they came up with this idea of FISA, which is a vendor-hosted event. Vendors pay X amount of dollars to FISA. And from that, we invite qualified buyers. You know, so it's just two and a half days of incredible engagement, two and a half days of one-on-one meetings. Imagine speed dating. Everyone gets 19 or 20, 20-minute meetings. And by the end of the two and a half days, you have just created such a relationship, taken existing relationships to a new level, or created new friends and new relationships. And as a vendor, I probably had done FISA 17 or 18 times. And when the founder, David Deniman, retired a few years ago, the board of directors asked me if I'd be interested.

4:40And I said, oh, my God, absolutely, because it was always my favorite event. So, again, a great thing. Now, above and beyond, we do three events. We do FISA East, which is coming up in November. We do FISA West in February in California. And then we do a YMCA event, which is really interesting because I sold to the Ys in the early part of my career and kind of was more on the club side for years. And boy, oh boy, is that a great event. We just had it in May. And amazing, amazing thing. 2 ,700 YMCAs in the United States. So it's a big segment. If you're not selling to it, you really should focus on it.

5:18And then also we do a trend report. And then we just did a partnership with a company called Murphy Research. And we did on our website, fisaNA.org, there's five reports that you can sign up for and send them out and just great stuff. And I think we'll talk a little more in depth about that shortly. But anyway, so that's the little nickel tour on on fisa i've never been to a fisa so i think we need to change that right oh yeah no no

5:45Matthew Januszek:absolutely i think that would be great one of the things that i was curious and i know um there's there's some sensitivity in terms of what you can share around this but one of the things i've been curious on um is is about this visa trend report i think i'd like you to to probably start off with saying uh or explain to any any people that are you know manufacturing selling your fitness equipment, you know, how they potentially get involved in this. And then second, you know, what are some of the, in the most recent ones outside of information that's not confidential, like what are you able to share about what sort of trends or things that maybe we, you know, maybe that are misunderstood in terms of what's, you know, what's trending up and what's trending research?

6:38Matthew Januszek:Well, you know, it's interesting. You're going to laugh at this, but I do not get a copy of it, all right, because I'm not contributing. It's very confidential. It's the suppliers that pay FISA dollars to run this report, and they submit data to a third-party accounting firm, and it's a deep dive. And I know at Precor, I'll be able to share some stuff from that perspective. I think it'd be interesting. But we participated at Precorp every year since this thing started. It was wonderful to see market trends, market share. You can see where you are. Now, we were an elliptical company, and the report for us was important because all of a sudden we started selling treadmills a number of years ago, and we wanted to see where the heck we fit in.

7:27So from that standpoint, it was great. The other thing that we did is from product development standpoint, we could see what categories were growing. And way back when we were watching stair climbers, this is going back probably 15, 18 years ago, and we're watching a category grow. After 30 years, the category is growing at double digits. And we said, my God, we should start creating a stair climber. And because of that data, we were able to get the money from our parent company to fund a project to develop a pre-course stepper. So that's a great example of the power of that trend report. Both the designers, the product development teams, the marketing people, as well as the sales managers at high level of the company, they're the ones that get it and they're the ones that digest the report.

8:21And if you go on our website, there's a little discussion about it. But again, we keep it very tight. We keep it very, very, very tight. Now, I can, you know, this other.

8:31Matthew Januszek:Come on, Tick, there must be some bits that you've you've gleaned about what's happening that you can share. I'll give you some a few items like coming out of COVID since 2021 or whatever. But, you know, treadmills are still a big dog. Right. And then I think, you know, strength has just been which, you know, you're in a strength business. Right. I mean, strength has just been going out of whack. I'm just stunned at how, and again, my opinion is, you know, COVID, people started getting their cardio elsewhere, whether it be at home, whether it be buying, you know, a Peloton or some sort of other connected cardio product or a treadmill or sort of walking outside or doing outdoor running or hiking.

9:16and so also but couldn't get as good a workout from a strain standpoint in your garage so i i think that that fueled so much activity on the strain side but then when you look at this gen z takeover which i'm calling it since 2021 when the young when the young uh you know gen zers both male and female especially female they came to clubs in a big way and and obviously that created this big rush and, oh, my God, I need more half racks. Oh, my God, I need more, you know, more benches and racks. I need more dumbbells. I need, you know. So I think just based on what I see and the discussions I have with a lot of very large, successful operators, you know, I think these are some generalizations that I think probably match that pretty well.

10:07But, you know, we've seen people building new clubs going a little less for cardio, probably 20 to 30 percent less, depending, adding more free weight space, adding more turf area, open space, adding more half racks. I mean, if you ask me how many half racks, power racks I would put in a club, I don't think I would have anything less than eight because of the usage patterns. From a cardio standpoint, treadmills are still the big dog. And then I think I've watched stair climbers just grow and grow and grow and grow. And from my observations, treadmills are number one, stair climbing, the revolving staircase machine is number two.

10:48And the bike's upright recumbents seem to stay the same. And ellipticals have flattened a bit. So I think that's it. And then obviously the manual cardio pieces, the air bikes, the manual treadmills, the rowers, the upper body ergometers, the cross-country ski erg. I mean, all these things have been wildly popular coming out. And again, to support that whole turf area. So I think that ties into a quick generalization of what's happening on the strength side, as well as on the cardio side. How much of this, Sal, do you think is more of a reset of where consumers are? coming out of the pandemic, you and I have talked about this many times that consumers have changed.

11:33And I think even we've changed in a lot of ways. Yes, we've gone back to some of our regular routines, but in a lot of ways, even how we think about fitness and wellness has changed. Then you look at the explosion of high rocks, which also happened post-pandemic. Again, that was there before the pandemic, but happened really the explosion of it happened post-pandemic. The addition of turf areas has a lot to do with the growth of high rocks, I would say, and other events that are like that. Do you think that the category and the trends that you're seeing, is this more of a reset and then we're going to be kind of at this baseline for the next 10 years?

12:08Or do you think that consumer preferences were now at this time that they're going to, because of influencers and preferences that every three years that clubs are going to really have to rethink and have the budget for either redistributing their equipment or changing the mix and so on. I'm just curious to get your thought. Yeah. Well, you know, it's interesting. I have a 33-year-old daughter, okay? And what she spends on fitness just blows me away, all right? She's got a fitness membership with a, I'm going to call it more of a functional CrossFit type of spot. Then she does Pilates one day week.

12:48She does yoga on Fridays. I mean, I don't know what she spends on her fitness wallet. She'll never tell me, but I'm assuming it's around 400 bucks a month. Okay. And, but it's all about the experience with her. And I think the influencers on social media, you know, I mean, someone sent me a link last night on burpees, you know what I mean? It just cracked me up. And it was, it was really funny because to me at my age, that doesn't sound remotely fun to me at all. but if you have a really good fitness influencer and they're doing something and then all of a sudden they're on their phone when they go to their gym they open space they're going to be doing that activity or that that movement so so i think you know the influencers and social media i think have a lot to do with it but boy oh boy i think we got this new uh this new um inventory of new members these younger members coming in now uh to the gym space i think it's healthy as hack.

13:46You know, these Gen Zs and, and I mean, yeah, Gen Z and millennials coming in. Wow. They're, they're taking the, as the baby boomers are moving up, they're filling the vacuum. So club operators got to be really dialed in to the demographics. And I, and I, I I'll go back to Murphy research because I think they're doing a great job at understanding fitness behaviors. They have a great newsletter. It's free. I'd highly recommend that, that listeners check them out, you know, murphyresearch.com. And, but they, they have just a really good sense of fitness behaviors and they break it down by the generations.

14:22And that's, that's been a fascinating study for me.

14:26Matthew Januszek:One of the things that I wanted to sort of move on to is, is, is the, I guess the macro pressures on, on equipment manufacturers. And, and I was actually going through an exercise just the other day, really looking at tracing back trends since the pandemic and how everybody that's been in the manufacturing side has had to deal with the changing from predominantly consumers or anybody that was supplying clubs made a pivot to providing things in the home. I guess everybody was forced to do that for survival. They then dealt with dealing with the factories opening back in the Far East. And for everybody's benefit, like pretty much even American-made products have probably got components or electronics and that that are made in the Far East or affected what's happening in the Far East.

15:22Matthew Januszek:So a lot of people are dealt with dealing with the factories being closed out there, reopening. We then had the container price increase where some of the containers were almost like 10 to 12 times our typical rate. So everybody had challenges in getting goods from Asia into the USA. And that created this sort of, I guess, lumpy demand for products and made it very, very difficult to forecast. We then had the challenges in the Suez Canal for a period of time where everything was put under pressure and delayed. And then recently, we've now got the tariff situation. And then to overlay on all of that um you've got this um changing in consumer demand for product which which uh even you referenced the murphy research about strength training and have we now sort of reached a crest of the wave on that so i think from a manufacturer that there's there's for the for the last sort of several years there's been a huge amount of of variation fluctuation and it's it's been very very difficult to look forward and to say well where's my business going to be in three years time because of all of these changes and to try and figure out sort of what, you know, you know, what, what is solid ground that we can now build upon.

16:36Matthew Januszek:So with that said, and I guess with you heading up the organization, which represents fitness, fitness industry suppliers, like what, what are you seeing? Number one, if you could sort of summarize how, how you would, you would explain the position for many of the manufacturers. And what are some of the, I guess, takeaways,

17:03Matthew Januszek:positive insights or any sort of ideas about kind of where that sector may be heading? First of all, great summary of all of the tsunami of COVID aftermath. I forgot about the container costs going up from like$5 ,000 to$30 ,000. I forgot about that. But, you know, I'll tell you, I mean, this year, it's all about the T word, the tariffs. Right. I mean, man, oh, man, I I've had so many discussions with suppliers about that. And, you know, and I think the biggest issue is how the hell do you forecast right when you don't know what the final tariff is going to be? I mean, I think that indecision, you know, in April, it's this and May, it's this, you know, in July, it's going to be this, we think.

17:48But, you know, so I would say that, first of all, the tariffs are adding, what, probably 9 % to 25%, you know, increase in cost that they didn't expect this in January or in fourth quarter when they were planning budgeting for this year. So that's the first thing is, you know, you feel bad for the senior level people that have to do the budgeting for things. And then, you know, we've seen people, you know, kind of be a little proactive, raise their prices a little bit in fourth quarter, do it again in first quarter to try to, you know, like 3%, 4%. And then I've seen people adding surcharges to the invoices, which, you know, I mean, that is certainly not a fun conversation to have with the end user, right?

18:32Especially if you quoted them something earlier and it's changed. So those are really big challenges for people. So I think then when government gets involved in business, you know that we always hate that because they always tend to screw it up a little bit. But I think that's really, really difficult. And the other thing is, you know, if a supplier, I mean, if a vendor, manufacturer rather, if, you know, they know what their prices are now, but their distributors, I feel sorry for some of the distributors, especially smaller ones. Because if they bought a container at X and then the tariff comes, you know, I mean, they can't charge more money for the engines or so.

19:14So, you know, that may be a real tough balancing act with some of those. So those are just some thoughts that I have on it. But I just think tariffs are the big, the big, big, big, you know, kind of tsunami that's hitting everybody this year. And honestly, if you add the big T, as you call it, with tariffs and how dynamic that is, but then you add other pressures like other competitors from China, as an example. Now these factories, you know, we talked about this, right? We go to FIBO and a lot of factories that we've worked with are now exhibiting on their own. Now, they don't have the user experience, the sales organization, the marketing muscle and all the things.

19:57But if you're a vendor and you are strolling down FIBO or HFA, you're like, well, this is a third of the price and it's the same manufacturer that makes this other product. Should I be looking at it? And of course, you might not always be thinking about everything else that kind of goes with the purchase. That's one. And then I would say technology and how disruptive technology has been. you have no idea how many conversations I've had with hardware companies to say, I'm just going to put a screen up. I'm just going to hire a freelancer to write the software. I mean, this is some very, very large companies that they don't think about.

20:35From a member perspective, the entire experience is on that screen. And you're going to, well, you'll have 20 engineers working on the hardware part. You're going to hire a freelancer from the outside to focus on the experience, and that's where they fall short. And when you look at some companies, I want to move on to this kind of related story, which is about active solutions, and which I know people in the industry knew that this was potentially coming, but it was finally announced that active solutions was recently foreclosed and shut down with its assets being acquired by Coil and Fitness, who I believe we all know Brian and Bruno and the team very well.

21:20And I think this is a continuation of some of those macro headwinds that we were talking about here. You know, one, Sal, to you, any thoughts on what happened to Active and what are some warning signs that both suppliers and vendors should be looking at, I should thinking about strategy for the next six, 12 months. Yeah. No, that's interesting. I mean, obviously, I don't have a whole lot of information to share on that. And I'm assuming the PR department at CORE can give you a heck of a lot more information than I can. But, you know, I think it's just, you know, and maybe it's a function of some of these smaller suppliers.

22:02buyers and you get hit with, you know, with the competitive issues and you have market changes and maybe they don't have enough money to go into product development to meet the rapid demands and the consumer behaviors. So maybe that's it, but that may have had something to do with it. But, but anyway, I, you know, it's, it's interesting. You know, some, you know, you got to be really small and profitable and you got to be really nimble. You know what I mean? And, you know, You got to have cash flow, I guess, right? I mean, so it's to weather a storm when you get it. So I don't know what happened there, but I do, you know, I don't like when people lose their jobs over something and things like that.

22:44But, you know, I'm happy that Core is picking up those assets, and I'm not sure if they're picking up people with it. But anyway, it's, you know, good to hear that they're stepping in.

23:01Matthew Januszek:Like you mentioned, the popularity of these turf spaces, which I think was a, I don't know too much about the active business, but I know they did a lot with their functional frames and products. And I think, you know, it was an area that we were very involved in back probably 15 years ago. And it's an area that's hugely competitive now. And I think when you look at those types of products and the margins and, as you said, Mo, the competition from China. And I'm definitely seeing a slowdown in the amount of these turf spaces that are going out compared to previously. Like, I think there's a lot of focus.

23:40Matthew Januszek:I think people are merging the strength half rack spaces with some of these turf spaces. And I think they've taken on a slightly different form to probably what they had previously, which I think, you know, if you look at the competitiveness of it, And I would say the change of how some of these gyms are being designed, I think there's definitely a big shift going on. And it's a challenge for a supplier, small suppliers, to keep up with those types of changes because to develop a product for a small company could take 12 months. And so if you don't really know where the market's going, it's difficult to predict what you should be investing in from a stock perspective.

24:25Matthew Januszek:And then you add in, as you said recently, the challenges with tariffs. And, you know, you're probably bringing in low margin products where you've paid a little bit more for the tariffs. It's tough business, I think. And you find yourself completely upside down. And the repercussions of that are felt throughout the entire supply chain, which is why, look, I think a lot of companies, you want to be chasing the trends and you want to try to get ahead of it. So you are ahead. Once the trend is taking off, you already have the product in line. I think the advice here is given what I would say is the shrinkage.

25:01And we talked about years ago that jet travel in the 50s shrunk the world. That's how we're interested in supply chain today, right? Supply chains are getting smaller and closer all the time, whether it is through local sources or whether it's China, there are factories coming over here. You've got to be constant on that. So if you're a vendor and essentially if you are procuring product and you're designing product, you're shipping it to China, bringing it here, you've got to really focus on what's that value that you bring because that ultimately is what people are going to be paying for. And as we're looking at the evolution of equipment and we're looking at kind of how things are changing, I want to shift to our next story here, which is around Planet Fitness and really the stories behind their growth.

25:46They had record stock prices about two weeks ago. They've continued that growth. There seems to be no stopping to Planet Fitness. I know, Sal, you and I in our other kind of forum talk about this on a quarterly basis. And it almost seems like no matter what type of headwinds Planet Fitness hits or expects, they somehow navigate around it. They amaze me. All right. I mean, I remember when Planet Fitness came into the scene, you know, in the early 90s, they bought a couple of world gyms. I was in New York at the time. And I just say, let me get this straight. $10 a month, right? Right. And everyone thought they were crazy.

26:24But what they were crazy as a fox. Right. Sly as a fox. And how do you add nine hundred thousand new members open one hundred ninety clubs in one quarter? How the heck you do that? You know, how do you hire one hundred ninety managers? Never mind all that. So they are the behemoth. And but you know what? It's interesting. I'll give you an example. I have a very dear friend has two goals gyms. and he competes with a plan of fitness in each of his markets. They did a second club, a planet in their market. The first time they lost almost over a thousand members. The second time they lost about 90.