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ClassPass CEO on how COVID-19 has changed the fitness industry

Xponential Fitness has named ClassPass as the exclusive aggregator for all eight of their brands worldwide as the two companies team up for this multi-year deal that includes video and corporate wellness. The news comes as more and more fitness companies look to adapt to the new normal when it comes to working out. Fritz Lanman, ClassPass CEO, joined The Final Round to discuss. his outlook for the fitness industry and gyms and boutique studios slowly begin to open up and how he's had to adapt ClassPass's business model to fit user's needs.

Video Transcript

SEANA SMITH: Americans are changing the way that they work out in the midst of the coronavirus pandemic. And here to talk more about this and how the pandemic is changing the fitness industry overall, we have Fritz Lanman. He's the CEO of ClassPass. It's a platform, if you don't know, for online and in-person fitness classes. And Fritz, great to have you on the show. I know it's been a very challenging time for your business, for your industry overall. You, specifically at ClassPass, have had to make some tough decisions over the last couple of months, so talk to us just about navigating this very uncertain time and what you're hearing and what you're seeing, I guess, from your employees and also from your customers.

FRITZ LANMAN: Yeah, well, thanks for having me. Certainly, it's been a challenging year. You know, the fitness industry is sort of, you know, about as directly impacted by the pandemic as you can imagine. So, you know, what we did first when we saw this happening first in our Asian markets. You know, we have a presence in China and Southeast Asia, and then in Europe, and then in the US.

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And we were perhaps a little complacent in the beginning, because we saw what effective government responses could do in terms of preserving the retail economy and preserving people go to workouts in Singapore and Hong Kong. You know, these very rigorous test trace and isolate strategies. And so we assumed that that was going to happen everywhere else, since those playbooks were established, you know, six to eight weeks before the pandemic broke out in America, our biggest market.

Unfortunately, that's not what happened. The outbreaks, you know, were relatively uncontained. We had inadequate testing, and to this day, don't do anything near the sort of test, trace, and isolate strategy that we see in Europe and Southeast Asia and that have worked well.

So when we saw that that was going to be the response, we decided to take a very long term point of view and pause, proactively pause, everyone's memberships who are in these countries where the pandemic was sort of rolling out of control. In addition to that, we scrambled to launch this livestream platform. So now we have over 4,000 of our studio partners are just doing livestream fitness classes. You know, so you could go the same yoga teacher or the same boxing teacher in your town, you could just go in and start taking Zoom classes that you discover and pay for it through ClassPass over Zoom or Instagram Live, or you could be in a town like Seattle and take a class from an instructor in Singapore or New York City.

So we scrambled to get that up and running. ClassPass forewent any revenue commission on this livestreams revenue that we're sending out to these partners. You know, our goal is just to help the industry try to survive, you know, and take as friendly of a customer policy as we can and as friendly of a studio and gym partner policy as we could to help them get through the pandemic.

- Fritz, now that we have seen a lot of cities reopen their gyms, what kind of consumer behavior shift have you seen? Are you finding that those who were taking these online classes are now opting to go to the gym, or are people continuing with those streaming classes, maybe because they just don't feel comfortable?

FRITZ LANMAN: Yeah, great question. So we've certainly seen a massive uptick of digital fitness, right? We have upwards of 60% of our customers are now trying some sort of digital. But the majority of them still do not plan to pay for digital after the pandemic. They want to go back to these offline workouts, that social experience, that real time instructor feedback, the equipment sort of variety that you can get access to, is just, you know, superior for our customer.

That's not to say that Peloton and a lot of the connected fitness businesses aren't incredible businesses with great propositions. I'm a customer of several, but it's just a different customer than our customer. You know, they tend to have more space. They're willing to spend a few thousand dollars on equipment and are optimizing for maybe speed and convenience as opposed to having the most immersive experience you can, which is still offline.

In terms of what we've seen in terms of customer behavior beyond that is our customers will work out. The industry is very resilient. They'll go back to studios, they'll go back to gyms provided that their risk of contracting COVID-19 is low. You will see almost a directly linear correlation between the probability of getting COVID-19 in a zip code and how fast people are going back to workout.

So in markets like Australia or New Zealand or some of these South Asian or even now European countries, the fitness industry, you know, the reservations that we're seeing our customers do is up back to 60, 70% recovered from where it was before COVID and growing. In America and the UK, where it's, you know, uncontained relatively, we're not seeing that same level of rebound, and so we're trying to get innovatively launched new features like outdoor classes. So we've made it really easy for our studio instructors to go launch a class in a park, which we're seeing a lot of interest. We've seen that work really well, and actually, Amsterdam was like the pioneer of that.

And then the other thing we're doing is we've developed new features to expose what safety precautions are studios taking to protect people from going into these classes. Are they doing temperature checking? Are they enforcing mask wearing in the waiting areas? Are they enforcing social distancing? And when our customer has that information, they tend to feel a bit more comfortable. So we're doing what we can, but really, we're going to need to see COVID more contained to see the, you know, the markets bounce back to where they were before.

RICK NEWMAN: Hey, Fritz, Rick Newman here. My gym opened up recently. I've been back, I'm happy to be back. Temperature checks, sanitizer everywhere. But one thing, working out in a mask sucks, and I'm sure this is going to deter some people from returning, or if they do return, from really participating that much. So the question is, are there any innovations to address this problem? What can you do about a mask that just adds another 10 degrees to, you know, how hot you feel and steams up your face?

FRITZ LANMAN: Unfortunately, you know, our understanding is that the mask efficacy is sort of inversely correlated to how comfortable it is, right? So I think you're right. I think there's going to be a significant headwind while masks are being required to be worn during workouts. We know. We've asked our customers, and the majority of them don't want to work out in that way. So, you know, the innovations, there's some innovations in terms of the sanitation side of things.

You know, there's a lot going on there where you can kind of disinfect using UV light, you know, your studio really quickly when people aren't there. These contactless temperature tests. I'm hoping these rapid cheap antigen tests that will get production scaled up enough so that you could take a test and get a result in five minutes just before going to the gym. But outside of that, you know, it's really, the innovation is really on how to keep you safe, and that's going to be, you know, on letting you know if there's outdoor classes, letting you do video classes, or at least letting you know if the studio or gym you're going to is following the rules and following them stridently.

ANDY SERWER: Hey, Fritz, quick question here. You mentioned halting the fees, I think, for your customers. But I'm wondering, you know, obviously, a lot of gym companies got bad names here, because they didn't, or they made it very difficult to halt fees. They're your partners too, so how did that affect your business model, and what do you think of those guys?

FRITZ LANMAN: Yeah, look, I think we're fortunate in that we don't have like retail expenses and rent and equipment costs and stuff, so we're in a bit of a privileged position, where we could take a longer term view. We also raised a large round of financing, 285 million in December, which allows us to take a long term view. And thankfully, we have a board that took a long term view and said, you know what? Let's optimize for not turning out our customers, keeping them all, waiting things out until it's safe.

And for partners, we're just trying to do everything we can to drive cash in their pockets so that they can have more friendly customer policies. That's why we're forgoing commissions on this livestreaming revenue. And the ones who are really embracing video and livestream and building brands and building businesses there, they can be a little bit more generous with their customers than those who are on the ropes, you know, have no income coming in and have rent to pay.

So, you know, for the most part, I think we've earned a lot of goodwill from our customers for taking that approach. I think we've earned goodwill from our partners for doing everything we can to kind of keep them alive and in business. We've been soliciting the government. I think the government's going to have to really either step up or you're just going to have years of litigation, you know, in terms of defaulted ranch or people not paying their rent and how that's all going to work. So, you know, we've done what we can, and I'm proud of the approach we've taken, but, you know, it's been painful for us as well.