Being overbuilt by a competitor is arguably the biggest risk to a box retail format like discount gyms. This is when an entrant builds a site closer to customers than the incumbent’s existing sites. Given gym members mainly care about location, this causes the existing gym to be further away from customers and less competitive. We discussed the nature of competition for discount gyms in a recent research piece.

The risk of being overbuilt typically comes from a new, smaller format. One that didn’t exist when the company was building out its store estate. A small coffee hatch at the bottom of the office building rather than on the high street coffee shop, for example. For discount gyms, such risk may stem from smaller franchise gyms like ènergie and Anytime Fitness. Both formats have units under half the size of discounters to reduce the equity outlay required by franchisees:

The model was born as a small box model, inspired by the success of Anytime and Snap Fitness in Australia and us. The idea was to have a smaller footprint, making it more affordable for franchisees. As the model grew, the focus was on maintaining the smaller footprint while expanding into niche locations. - Former ènergie Fitness Director and Franchisee
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