On the surface, negative press for Planet Fitness (NYSE:PLNT) would make sense. After all, it's one of the leading firms—arguably the leader—in the whole gym market, and it's also in one of the most vulnerable industries around right now. We saw just how vulnerable recently, when a critique in a Wall Street Journal column sent the company's stock price on a downward slide.
It's Not Like It Doesn't Have a Point
The word came out of Spencer Jakab's “Heard On The Street” column, which contained a sound castigation of Planet Fitness' business practices, particularly back during the early days of the COVID-19 affair. While Jakab cited Planet Fitness' business model, which gave it access to rapid growth, Jakab also pointed out several issues with how the company operated that hurt its long-term chances.
Perhaps the biggest issue cited was a “tactical error” in March, in which the company required members to pay dues despite the fact that most Planet Fitness locations had been shuttered by state mandate. Worse yet, membership cancellations were required to be in person—difficult if not impossible due to the early-stage lockdowns seen—or by letter. Even with gyms reopening, cancellations still can't be staged online or by phone.
With membership dropping from 15.5 million in March, to 14 million by Halloween night, the move not only served to depress membership and unleash a river of social media flame, but also, hit third-quarter results hard.
Screaming At A (Mostly) Empty Room
Jakab's position doesn't exactly have a lot of support, however, from the broader analyst community. Our latest research reveals that the company has a consensus rating of “buy”. While that support has been slipping over the last three months, it's still present. The company currently enjoys two “sell” ratings, four “hold” ratings, and 10 “buy” ratings. Last month, the ratios were identical, but there was one more “buy” rating. Three months ago, there were no “sell” ratings at all, and there were 13 “buy” ratings.
The price target has also slid a bit over the last six months, going from $77.13 back then to $70.20 today. Respectable, but still clearly a number in decline. The picture has been mixed, meanwhile, in recent days. Yesterday, BMO Capital Markets boosted its price target on the company from $70 to $80, and back in early November, DA Davidson hiked the price target as well from $66 to $80 per share. Though it wasn't all good news; Exane BNP Paribas initiated coverage mid-November that called Planet Fitness an “underperform” with a $55 price target.
Bulking Up in the Off-Season
It's safe to say that Planet Fitness did make some mistakes. Back in the early days of COVID-19, many mistakes were made, some of which are being repeated to this very day. Worse for Planet Fitness, the rise of the “everything-at-home” phenomenon has hit gyms as well, and the rise of companies like Peloton (NASDAQ:PTON) have made exercising at home a much richer experience. That's going to hurt gyms, even once vaccines start rolling out in earnest and people are finally allowed out of their houses by state mandate.
Planet Fitness, however, will not be caught flat-footed here. It's already made several moves that should help get it restarted once all the training wheels come off. The company is offering a line of limited-edition pinatas to take advantage of the almost-certain-to-happen New Year's Eve-at-home parties, some of which will even offer free one-year memberships once broken open. Additionally, the company is opening several new locations, and offering discounts to get new customers in as well.
A little more focus on keeping current customers wouldn't hurt here, but trying to win back the lost with special discounts can't hurt much either. The only real problem for Planet Fitness right now—aside from all the government intervention—seems to be that it's only competing on price. To win back all those lost customers, it should likely put some attention on the “product” side of the marketing mix. That's “product, price, place, promotion” for those unfamiliar, and some will add “people, process, and physical evidence” to that as well. Price is an excellent competitor, but only so many people make buying decisions based on price alone. Broader value is a better indicator to many, and offering a richer experience, even for higher costs, will often draw customers.
Right now, Planet Fitness has to compete with a gym that requires no travel, has the safest possible conditions, a one-time membership fee forever (unless subscription services get involved), and more credibility than ever before: the home gym. If it can start offering some things the regular user can't readily substitute, and the government restrictions depart the picture, then Planet Fitness' comeback trail is all but assured.
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