Tuesday, October 4, 2011

THE BUSINESS OF FITNESS

Annbeth Eschbach of exhale
        After a long career of managing high-end spas across the country, in 2002 Annbeth Eschbach noticed a trend.  With more women working in high powered jobs, trying to balance home and work life, she spotted a need for “urban spas,” so that women could de-stress or get fit a few hours a week rather than spending a week at a destination spa. As the daughter of a renowned kidney specialist who devoted his life to healing, Annbeth also wanted to emphasize a “holistic approach to transformation and healing moving away from beauty and pampering.”  She also recognized high level of investor interest in the spa space.  So she put together a business plan and model for a company  called exhale, to offer  relaxation, wellness, and fitness through yoga, core classes, spa therapies and wellness programs. A private equity firm stepped up to fund her; she remains Founder and CEO with a minority equity stake.
       Today the exhale brand operates in 18 units in 9 cities with 1400 employees. Following the 2008 economic decline, when the traditional spa market reported sharp declines, exhale entered an active expansion phase. Specifically exhale partnered with the hospitality and real estate industry to house spas in upscale hotels, such as Gansevoort in New York, Epic in Miami and Fairmont in California. For the past two years, revenues have grown over 20% a year.  Annbeth, who besides her daily yoga  and core fusion class  recently added ice hockey to her exercise regimen to impress her thirteen-year old son, has also developed successful retail space in her spas, which  generate revenues of $1500 per square foot. 
      Looking ahead, Annbeth Eschbach  plans more  brick and mortar expansion, including global growth, continued development of the apparel business, a bigger internet play,  as well as potential licensing of the exhale brand. “We have built a brand in the wellness and fitness space, which is different from the traditional fitness business, so I see lots of arms and legs to our future growth.”
Julie Rice and Elizabeth Cutler of Soul Cycle
      The sport of spinning, or cycling on indoor bicycles, has also gone  boutique.   Elizabeth Cutler and  Julie Rice saw something lacking in the fitness market: a venue for cardio fitness that was both effective and fun which led to the founding of Soul Cycle in 2006. Elizabeth Cutler had been a real estate broker with good financial savvy who also had a practice in jin shin jyutsu, a Japanese method for releasing tension, in Telluride. When she had her first child and moved to New York, she met longtime cycling instructor Ruth Zukerman, and Julie Rice, a talent agent recently transplanted from California, who, like Elizabeth, also had a 5-month old baby.  With their shared vision for more fun in exercise, something they didn’t find in New York, the three  clicked over lunch and with “a little bit of divine intervention” in 2006  opened their first studio, which they found on Craig’s List, on the Upper West Side of Manhattan. Elizabeth herself supplied the majority of funding for their start up, thanks to her successful investment in Izze, a fruit juice company purchased by Pepsi.
     When the Soul Cycle partners arrived to set up shop, they were hit with the news that they couldn’t put up a sign on the landmarked building, so they bought a rickshaw on eBay, spray-painted it in Soul Cycle’s signature silver and yellow with an arrow pointing to their front door, a ploy that continued to cost them daily parking tickets. “I knew if we could just get a 100 people in our door to see what we were offering, the word would spread,” Elizabeth predicted. 
    Apparently the rickshaw did the trick. Soul Cycle offers customers  a 45- minute high energy spinning session on stationery bikes, 40-70 per darkened room, with candlelight, energizing music and dynamic  teachers which creates what Julie calls “a healthy night club experience.”  Classes cost $32 a session.  With eight  locations in Manhattan, the Hamptons and Westchester.   Elizabeth Cutler, who oversees business development, while Julie supervises programs and teacher training,  projects  Soul Cycle will soon open studios, in Hollywood and Los Angeles, and expand to over 40 locations in the next five years.  To help fuel expansion, this past spring  Soul Cycle was acquired by Equinox, a fitness gym with over 51 locations throughout the US, although Soul Cycle will continue to operate separately with Julie and Elizabeth remaining as heads to oversee further expansion.

Ruth Zukerman of Flywheel  
    Meanwhile, in early 2007 Ruth Zukerman, ceded her equity position in Soul Cycle  to her two other partners,  but stayed on as a teacher for the next few years.  But in 2010, backed by equity partners, she started  a competitive cycle business, Flywheel Sports.  Now with seven studios in Manhattan, the Hamptons, Chicago and Boca Raton. Ruth, who started her professional career as a modern dancer, prides herself on her emotionally charged classes, with “choreography calibrated to the music.” Additionally, her studios, which have a stadium-architecture with three tiers so that students have unobstructed views of the instructor, feature technology monitors on each bike to measure  resistance levels and speeds. An optional incentive is a wide screen that ranks the top ten female and male ten cyclists within the group.  Ruth says that her best advertisement are customers who see results in pounds lost or strength gained because “we are an authentic athletic experience with good customer service; for example, reservations can be made online and check in is done through computers to eliminate waiting in line.”  By the end of 2011, Flywheel will open three more studios, then expects to double locations in 2012. 

     With the cost of pricey urban real estate, fast changing  trends,  a fragmented market, plus the challenges of running a high service business, the fitness business faces many hurdles.  Let the competition begin!
   

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