Properties & Leasing

The economics of CrossFit: Paying premium prices to be in pain

Posted by: James Bruin James Bruin
on October 4, 2012

A runner for more than a decade, more out of convenience than a love of the sport, I had covered many hundreds of miles of pavement and motorized rubber on my treadmill like the world’s biggest hamster on a wheel. One Saturday this past winter I decided that I wanted a change from the monotony, and I had a destination in mind.

For several weeks, a “CrossFit … Coming Soon!” sign had occupied the entrance to the parking lot of a 5,000-square-foot former Wild Oats specialty market in the center of my suburban town. In just a month’s time, the sign had changed to “CrossFit … Now Open!”

CrossFit gyms work in many kinds of commercial spaces, unlike traditional fitness centers.

Having worked in commercial real estate for nearly two decades, I have seen a growing number of CrossFit gyms, called “boxes” by CrossFit aficionados, crop up quickly in seemingly random locations. Some boxes are located in industrial warehouses and some in retail strip centers or stand-alone parcels; some fit in less than 750 square feet and some, more rarely, occupy 7,000-square-foot-plus spaces approaching the size of a small traditional health club. CrossFit lore speaks of many boxes starting out of the trainer’s garage until the CrossFit owner garners enough clients to warrant renting a commercial space.

In contrast to the small-shop model of most CrossFit gyms, the traditional health club industry is dominated by franchised or corporate-controlled entities, like Equinox, Crunch, or LA Fitness, all of which possess a common look and feel to the interior and exterior that is integral to their marketing and brand identity. CrossFit insiders call these big-box clubs “globos.”

The CrossFit owner pays a $3,000 annual fee for the right to call their box a “CrossFit affiliate” and use the CrossFit name — an expense that has risen steadily in the past decade from $500 as CrossFit popularity has exploded. However, each CrossFit owner has considerable flexibility in the size, layout, and equipment within the gym, as long as they adhere to the movement’s core principals, which include avoiding mass-market cardio equipment. As a result, the range of commercial spaces that would work for a CrossFit gym is much broader than those suitable for a corporate fitness chain.

Beware of the man flipping a truck tire in your parking lot.

However, CrossFits do have a few challenges that traditional gyms do not face, such as noise and encroachment concerns with neighboring tenants. There are some exercises that must be done outdoors if the CrossFit space is not large enough, such as running sprints, pulling sleds and flipping truck tires — not activities that a landlord would want patrons on foot or in vehicles to encounter. Additionally, CrossFit incorporates free weights, and, with less money spent in the box on soundproofing than at a traditional gym, dropping weights can be noisy for adjacent tenants. To mitigate these concerns, CrossFit gyms are often placed in end parcels, outparcels or less trafficked areas such as the elbow or rear of the center. Vacant junior anchor spaces are appealing because of their high ceilings conducive for hanging climbing ropes. For the CrossFit owner, non-prime commercial space can translate into lower rents. In turn, the landlord is happy to collect rent for hard-to-lease spaces, with the bonus of minimal to no construction activity disrupting the center.

The CrossFit space in my town is currently the subject of a zoning dispute. The landlord wants to install a bank at this location, but current zoning does not permit this usage. In the meantime, CrossFit has moved in with very little disturbance to the space. If the membership base grows beyond what the space can support, the CrossFit owner will return the space to the landlord in an unchanged condition and look for a larger space within a three mile radius.

The upfront investment in a CrossFit gym can be 100 times less than for a traditional fitness center.

As I mentioned, there were no noticeable changes to the exterior of my local CrossFit other than the “Now Open” sandwich board in the parking lot and a CrossFit sign in the window. The interior had been stocked with the typical mix of CrossFit equipment — free weights, kettle bells, pull-up bars, medicine balls and a pair of rowing machines — but structurally was unchanged. Other than hanging several tan ropes from the ceiling for rope climbs (Remember your elementary school P.E. class?), and installing some scaffolding for pull-up bars, the owner did not make any permanent alterations to the space. No walls had been moved; no construction had been done to install, for example, shower facilities.

Compare this to what can be a multi-million dollar upfront investment and a significant runway for a traditional fitness center, which needs to make their new space look consistent with others in its chain, and, by the way, offers many more amenities than a CrossFit. Planet Fitness franchise owners, for example, whose spaces typically average 17,000 square feet per gym, can spend nearly $1.7 million in fit-out and inventory costs to open up a new location. This start-up cost is perhaps 100 times more than the cost to open a CrossFit box. The big-box price tag shoots higher for chains that offer swimming pools and kitchen facilities that provide members with food and beverage options. There are no juice bars at your local CrossFit. In fact, most CrossFit facilities don’t even offer shower facilities. On one popular CrossFit discussion board, a CrossFit proprietor said that he installed one shower at his gym, but finds that less than 5 percent of his customers use it. He concluded that he should have spent the few thousand dollars elsewhere. This logic is especially true because of the transient nature of many CrossFit gyms. CrossFit gyms are built for portability and will take retail space that is hard to lease. As membership grows beyond the capacity of the current space, the CrossFit gym will move, taking its loyal members with it — and you can’t take a shower with you.

CrossFit memberships are more expensive than at a big-box gym.

I took the free class for “newbies” that first Saturday morning, which included many of my old football drills and exercises from my elementary school Field Day. Along with 10 other men and women — yes, there were actually more women than men — we encouraged each other through sprints, squats, dips and a few sets of dreaded burpees, all while being instructed on proper form by our trainer. Despite protestations from muscles that had been allowed to blissfully slumber during my running career, I had great fun at the class and especially enjoyed the group dynamics. Along with several other newbies, I was ready to sign up.

I talked to Dolph — owner, trainer, and sales director of this very lean operation — about membership options. There were two choices: Pay $20 per class, or pay $175 per month for unlimited visits. Coming at least five times per week is strongly encouraged because there are prescribed workouts for each day that target different muscle groups. This price tag was a bit incongruous with the minimalist fit-out and concrete floors of the gym’s surroundings. At the fancier “health and wellness club” in town with the lap pool, massage room and gravity-defying cardio equipment, I could get a membership for $95 per month and probably get the $300 joining fee waived. At the more basic chain where I would have an all-hours access card and my only companion at 1 a.m. might be the blinking eye of a security camera, I could pay just $19.95 per month. Why would the monthly price at this CrossFit gym be so high?

Traditional gyms cost less because members who don’t show up subsidize the costs.

A fundamental difference between a corporate club and a CrossFit gym is that most members of a traditional gym will not use the facility regularly, while most CrossFit members come several, if not most, days per week. Of the approximately 41 million members of health clubs in the U.S., about 60 percent of members are not habitual users. Only 39 percent use their gym membership more than three days per week, or 100 days per year. Factoring in the initiation fees and cancellation charges that are a prevalent part of traditional gym fees on top of the monthly fees, traditional gyms are able to cover their fixed costs over a larger population than the facility could comfortably accommodate if all members were regular users. And the model is working for the health clubs.

According to a report released by the non-profit trade association International Health, Racquet & Sportsclub Association (IHRSA), membership dues for traditional gyms were up 2.8 percent in the first quarter of 2012, compared with the same period in 2011, adding the eighth consecutive quarter of improved performance. Total revenue, which includes profits from personal training, apparel, food and beverage and the like, was up 8.8 percent. Planet Fitness locations performing in the bottom 25th percentile of this profitable chain average about $100,000 per month in revenue.

In contrast, the owner of my 5,000-square-foot CrossFit affiliate has a solid 200 members and, at $175 per member, collects $35,000 per month in revenue or $420,000 per year. While the Wild Oats space might go for a market rent of $10 per square foot per year, the CrossFit owner negotiated a revenue sharing deal with the landlord. CrossFit owners need to watch the rent expense line very carefully, and, given capacity issues on memberships, cannot typically discount membership fees.

CrossFit is more like sharing a personal trainer with friends than belonging to a health club.

The CrossFit paradigm is constructed on a model of instructor-led group classes, which are ideally sized at between 10-15 participants per class. This fosters the tight-knit community that CrossFit thrives upon, while still keeping the size manageable enough that the instructor can monitor individual performance and form. The instructor-led model means that the capacity, and therefore revenue, of a CrossFit gym is not only bound by how large of a space the gym occupies, but also by how many trainer-led classes the gym can hold throughout the day.

Because CrossFit gyms don’t charge joining fees or cancellation fees, and because its members thrive on the sense of community bred by seeing the same familiar faces at their workouts, a CrossFit owner has to be more proactive in outreach to the existing membership base to keep them coming back. For the traditional gym, they get your money up front and will get another lump if you cancel early, so they don’t watch your whereabouts so closely.

In reality, the monthly fee for belonging to a CrossFit affiliate is more comparable to hiring a personal trainer, which would cost perhaps $30 each visit if shared with a friend, and that would be on top of the monthly health club membership fee. So despite the initial CrossFit sticker shock, I signed up.

In the six months since joining my local CrossFit affiliate, I’ve found it easier to rouse myself out of bed to make it to the 6 a.m. class for the Workout of the Day (“WOD” in CrossFit lingo) than it had been to run outdoors. And though I’ve never actually introduced myself to the thirty-something guy who is among the regulars at my class, we smile and wave like best friends when we see each other around town, members of a special club that enjoys the pain of box jumps and pull ups among friends than running like a zombie on a treadmill next to 20 strangers.

4 COMMENTS

Jim – Great post, thank you for sharing. I am curious, has Kimco completed many deals with CrossFit affiliates, and have they been quality tenants, when positioned appropriately in your shopping center(s)? Also do you require that they carry additional insurance, above what is typically required of your tenants? Last question, what have you found to be a healthy occupancy cost, or range of sales percentage dedicated to rent with this concept?

Thanks again,
DB

Davis Bennett

September 24, 2013

Hi Davis,

We’ve completed one deal so far with a CrossFit affiliate in Florida, which we believe complements the tenant mix at the center. As with all our leasing efforts, our approach is to create strong tenancy that supports the growth of the center overall, and we’ll look to complete other deals strategically to meet that goal. Our CrossFit tenants are required to carry their own liability and rental property insurance, which is what we typically require of all our tenants.

October 17, 2013

Hi Mr. Bruin,

I loved the post and saw a lot of good points and reasons to continue to open my own crossfit gym with another crossfit trainer I know. I was just curious if you had any advice you wouldn’t mind passing along that we may be overlooking as first time gym owners. Any help is greatly appreciated!

Ian Boone

November 6, 2013

Hi Ian,

Thanks for your comment. I’d recommend checking out Kimco’s KEYS Program, which offers some great benefits for qualifying first-time business owners who wish to open up at a Kimco center, including a year of free rent. This benefit would really be valuable as you build your monthly membership base and add toys to your box. Also, stay tuned for a future blog post featuring a gym operator tenant of ours, who will be sharing some tips that he’s found helpful. Good luck!

Jim

November 7, 2013


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