Exercise Equipment Industry Overview U.S. fitness-equipment manufacturers serve two enduser markets in the $10 billion industry: consumer and institutional (which includes health clubs, apartment and condominium complexes, and hotels). The consumer market is by far the largest of the two markets; over 80% of manufacturers’ shipments of exercise equipment is for home use. The industry has experienced significant growth since the 1990s, though specialty retailers have declined in number and face tough competition from sporting goods stores and mass merchants (Sporting Goods Manufacturers Association, or SGMA, “Recreation Market Report,” 2005 Edition; “Marketing Ideas,” Norbert J. Kuk & Associates, February 2004). In recent years, millions of consumers decided that having exercise equipment at home was important and made room in their bedrooms, dens and basements for exercise machines. The most popular piece of equipment in home gyms is the treadmill. An estimated 11.6 million Americans report that their indoor exercise routine includes either walking or running on a treadmill. In addition to treadmills, home gyms, exercise cycles, and free weights are very popular. Elliptical machines, also called cross-trainers, have surged in popularity -though they still represent less than 6% of the total equipment market (Consumer Reports, January 2005). Fitness-equipment specialty stores sell primarily top-ofthe line equipment, while mass merchants and general sporting goods stores sell many of the lower- and midpriced lines. There has been a significant amount of erosion of specialty fitness-equipment retailers’ share of the market. Specifically, Sears easily leads retail sales of treadmills, and its merger with Kmart only increased that lead (Sporting Goods Business, June 2005). Sears sells more fitness equipment than any other retailer in the U.S., and the merger of Gart Sports and Sports Authority resulted in expanded treadmill and elliptical equipment offerings at general line sporting goods stores. But higher-income and more athletic consumers still shop primarily at specialty fitnessequipment retailers. The models they carry tend to be heavier and more durable -- and more expensive -than the units sold by mass merchants (National Sporting Goods Association or NSGA, June 2004). The influence department stores, Sears in particular, in the sale of treadmills indicates how much ground other retailers must make up if they are to take a larger share of the most popular piece of fitness equipment. The following chart illustrates this point: Home Exercise Equipment In Wholesale Dollars and % Market Share, By Type of Equipment Treadmills $1.05 billion 33.1% Home gyms - 9.9% Exercise cycles - 6.0% Other* $840 million 26.5% Retail Treadmill Sales: $2.8 Billion (% of Dollar Volume, by Type of Retailer) Free weights - 6.0% Elliptical trainers - 5.7% Benches - 5.0% Ab machines - 4.8% Ski machines - 2.8% * Other includes stair-climbing machines, aero gliders and other equipment. Source: SGMA Recreation Market Report, 2005 Edition. Department stores (primarily Sears) $1.38 billion 49.4% Full-line sporting goods $449 million 16% Fitness equipment specialty $352 million 12.5% Other* - $619 million 22.1% *Includes mass merchandisers, warehouse clubs, Internet sales, etc. Source: NSGA, June 2005 press release. 5.1 Issues and Trends Retailers and direct marketers of home-exercise equipment -- many of which sell equipment through infomercials -- have benefited from manufacturers’ increased development of products for home use. The reasons consumers buy exercise equipment include: Convenience Improved health Weight loss Privacy in working out The downturn in the economy in 2001 interrupted a long-term pattern of growth in the exercise-equipment industry, according to the 2002 and 2003 “State of the Industry Reports” published by the SGMA. Sales rebounded in 2002, increasing by an estimated 7%. Sales remained relatively flat in 2003, but a healthy 4% increase for 2004 mirrored the strengthening U.S. economy (SGMA, “State of the Industry,” 2005). Growth in the industry has been driven by an increased awareness of the benefits of exercise and the dangers of sedentary lifestyles. The U.S. Surgeon General’s office has consistently issued reports urging Americans to become more physically active, and many have listened. Many consumers, wanting to spend more time at home with family, are also interested in looking and feeling better and are working out more at home. According to data gathered by the National Sporting Goods Association and Money magazine (February 2005), their purchases of fitness equipment have increased steadily, and are forecast to rise to $5.1 billion in 2005 (at the retail level). An estimated 33% of all U.S. households own and use exercise equipment. This broad category includes yoga and pilates mats, hand weights, barbells and exercise equipment like treadmills and stationary bikes. Everstressed for time, equipment for home use balances consumers’ need for activity with their desire for convenience (Atlanta Journal-Constitution, January 10, 2004). The American Council on Exercise, the largest nonprofit fitness certification and education provider in the world, lists a few helpful tips before buying fitness equipment, such as making sure of versatility, checking on size in relation to home space, making sure maintenance is straightforward, insuring ease of use will not be a problem and covering all safety concerns. Women, in particular, have embraced the “exercise at home” concept. Between 1987 and 2002, the number of women participating in home exercise routines increased by 113%. One of those taking advantage of that trend is Donna Savage, the President and CEO of Fitness EM. Her company, which licenses the Danskin name and offers equipment designed with women in mind, has grown by leaps and bounds (Sporting Goods Business, January 1, 2004 and March 5, 2005). The Outlook for Home Exercise Equipment Resistance trainers -- Nautilus’s Bowflex or ICON’s CrossBar, for example -- still sell well, but sales were down slightly in 2004. Stair steppers, or stair climbers, are a home-fitness trend that continues to grow. They are simple to use and small enough to store out of sight. Demographics seem to favor the fitness industry over the long run. Americans aged 55 and older have come to enjoy exercise (or at least participate in it) in extraordinary numbers, and are the fastest-growing segment of new health-club members. They also represent nearly one-quarter of the households in the U.S. in which exercise equipment is owned and used. Sales of elliptical trainers are going strong. They were introduced to the retail channel a few years ago, and sales have been impressive; in many regions, sales of elliptical machines are on par with sales of stationary cycles. Sales increased nearly 20% in 2004. Many exercise equipment dealers have hired personal trainers as sales reps. Their knowledge of how the use of exercise equipment affects different parts of the body helps make customers comfortable purchasing high-ticket machines. Dealers emphasize that most personal trainers must be coached to develop their sales skills and should be trained by manufacturers on product characteristics. Both Omni Fitness and Fitness Experience have personal trainers on staff. Used exercise equipment is a growing market, with 2004 sales of $855 million. It’s a niche that many independent dealers have found to be profitable. Manufacturers are introducing equipment that is far more technologically advanced than ever, keeping consumers’ interest level high. Marathon-friendly treadmills, for example, have features such as on-deck computers with built-in 26.2-mile “course,” with a 15% incline. Or video and DVD workouts can play on the screen. On other models, data from heart monitors helps marathoners set training goals; there are also customized units for runners with long legs, allowing them to take longer strides. Sources: Health and Fitness Business, January 2004, July 2004; The Wall Street Journal, October 8, 2004, October 1-2, 2005; Money Magazine, February 2005; Sporting Goods Business, July 11, 2005, NSGA press release, June 2005. Top 4 U.S. Specialty Equipment Retailers Gym Source, based in New York, New York, has 26 stores and $40 million in 2004 sales. LA Gym Equipment, based in Arleta, California, has 13 stores and $26 million in 2004 sales. Omni Fitness, based in Moonachie, New Jersey, has 46 stores and $28 million in 2004 sales. Fitness Holdings, based in Torrance, California (which also owns and operates Busy Body), has 44 stores and $68 million in 2004 sales. Source: Sporting Goods Business, June 2005. 5.1 In the advertising that is placed by fitness-equipment stores, there are several factors that are mentioned to motivate people to call or visit, or to make them feel comfortable doing business with the store. Some can be categorized as “confidence factors,” and some as “convenience factors,” examples of which follow. Confidence Factors Mentioned In Ads Gurantees/Warranties Size of Inventory - Selection Years in Business Complete Service Center Certified Technicians "All Fitness Questions Answered" Spa-Quality Equipment Experienced Staff Treadmill Specialty "Try Before You Buy" Factory-Authorized Service "Our Only Business" Source: 2004 Comparative Ad Analysis Survey, Norbert J. Kuk & Associates. Convenience Factors Mentioned In Ads Large Display/Showroom Free Delivery and Set-Up Multiple Locations Open 7 Days Large Selection in Stock Ample Parking Toll-Free Telephone Number Free Consultation Website Promos In-Home Service/Repair Assembly/Installation Free Brochure/Catalog Some of the new marathon-friendly treadmills that hit the shelves in the Fall of 2005 are NordicTrack’s Apex, priced at $1,999 to $3,299, and the T518 LC by Nautilus, which retails for $3,200 (The Wall Street Journal, October 1-2, 2005). Average prices for some popular types of exercise equipment range from $400 to $700 for exercise spinners, $300 to $500 for high-end dumbell sets, and $750 to $1,500 for home gyms with in-place weights. Critical Success Factors Among the factors that exercise equipment retailers said they consider to be critical for success in the industry are many that relate to good customer service. These include making sure the customer is comfortable with the equipment purchase, following up to make sure customers encounter no problems, honoring warranties when something breaks down, and selling customers what they want to buy, “not what is in stock that you can sell to them.” Other key factors in the formula for success follow: CSFs for Exercise-Equipment Stores Source: 2004 Comparative Ad Analysis Survey, Norbert J. Kuk & Associates. Value of Products and Services in the Industry Articles in Consumer Reports and Health Magazine (both January 2005) provided a sampling of prices for some of the equipment that was tested by their staff members. Life Fitness Treadmill T3i $2,800 Horizon Fitness Elite 5.1T $1,800 Schwinn 418 Elliptical Trainer $1,100 Reebok Elliptical Crosstrainer $600 Parabody GS6 Weight System $3,000 Concept2 Indoor Rower Model D $850 Thorough knowledge of all products carried and what they are capable of doing, to help troubleshoot if something malfunctions after installation. Timely delivery of equipment once it is ordered. Carrying products with the latest technology, to differentiate from mass merchandisers, which typically carry less sophisticated models. Stocking a wide variety of products in addition to equipment, to attract a wider audience and provide opportunities to “upsell.” Industry Resources Sporti ng Goods Busi ness 770 Broadway New York, NY 10003 646-654-4500 www.sporti nggoodsbusi ness.com SGMA 200 Castlewood D ri ve North Palm Beach, FL 33408 561-840-1165 www.sgma.com NSGA 1601 Feehanvi lle D ri ve, # 300 Mt. Prospect, IL 60056 847-296-6742 www.nsga.org Sporti ng Goods D ealer 22 Paterson Avenue Mi dland Park, NJ 07432 201-612-6901 www.sgdealer.com 5.1 Background Media Marketing, Inc., creators of imMEDIAte® software, has been in the forefront of sales presentation systems since 1987. The imMEDIAte suite, a state-of-the-art consultative system, is used by hundreds of media reps every day to create compelling presentations and expert media proposals. Built on Microsoft Office® technology, the imMEDIAte system provides a complete solution to your media sales needs. Media Marketing is the exclusive distributor of Profile America’s IndustryIQ reports. Sales and marketing teams embrace these industryknowledge reports because of their concise, easy-to-read style and rich store of information. Regular use of IndustryIQ reports creates a relationship-building, consultative environment. 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