• Market Crumbs

Are Fitness Chains In Trouble?

Image via Danielle Cerullo on Unsplash

In the age of social media, many people want to look and feel their best. Exercising is one of the most popular activities among many Americans. The popularity of fitness has led to gyms popping up in shopping centers all over America.

As a result of the outbreak of COVID-19, gyms across the country were forced to close in an effort to promote social distancing and limit the spread of the virus.

The effects of these closures are now being felt by 24 Hour Fitness, the nation's second-largest fitness chain based on revenue and fourth-largest based on the number of locations. The company has reportedly hired advisors at investment bank Lazard and law firm Weil, Gotshal & Manges to explore its options, with bankruptcy among them.

24 Hour Fitness, which closed its gyms on March 16, is sitting on more than $1.3 billion in debt with less than $1 million in cash. Moody's recently downgraded the company's debt, citing "negative membership trends, very high-interest burden and negative free cash flow prior to the coronavirus outbreak, as well as approaching maturities to provide limited flexibility to manage through the crisis."

While the sources say the gym may not ultimately file for bankruptcy, it begs the question of how the fitness industry will look after the coronavirus passes.

Until there is a cure for the virus, many people may simply choose to not work out in crowded gyms. A study by FitRated found that the level of bacteria in gyms is worse than most would probably think. The study found exercise bikes have 39 times more bacteria than a plastic reusable cafeteria tray, treadmills have 74 times more bacteria than a water faucet and free weights have 362 times more bacteria than a toilet seat.

Despite the Trump administration saying gyms would be among the first businesses to reopen, not everyone is convinced they should be.

"We need to limit indoor activities that are purely recreational, especially those where there are a lot of shared surfaces that can be contaminated," former FDA Commissioner Dr. Scott Gottlieb said. "Bars and gyms fall squarely in that category."

On the other hand, recent job losses may cause some people to determine their budgets no longer afford them the ability to continue paying for gym memberships. With some gyms providing their customers exercises they can do from home, it's possible some people may find exercising at home adequate for their needs.

Although Peloton, with its $2,000-plus bike and monthly subscription fee, is more expensive than most Americans can afford, its recent stock performance is indicating that the future of exercising may be from the comfort of your home. The stock fell with the overall market before rebounding more than 100% to hit all-time highs this week.

While not everyone is going to dump their gym membership when things return to normal and not everyone is going to buy a Peloton, the future of how people choose to exercise after this crisis will be just one of the areas to keep an eye on as people readapt to their normal routines.

Leftover Crumbs

  • The new normal? Walmart, the largest private employer in the U.S., will now require all of its employees to wear masks or face coverings at work. Walmart will also encourage customers to wear masks or face coverings. "We have evolved our policy on face coverings from optional to mandatory as public health guidance has shifted," a memo to employees read. "With this knowledge, we believe it is simply in everyone’s best interest to use masks or face coverings to curb the spread of this disease."

  • Facebook wants in on gaming. Facebook is reportedly set to debut a gaming app today focused on live streaming that it hopes will compete with Amazon's Twitch, Google's YouTube and Microsoft's Mixer. Facebook Gaming was supposed to launch in June but has been moved up to capitalize on people being confined to their homes because of COVID-19. "Investing in gaming in general has become a priority for us because we see gaming as a form of entertainment that really connects people," head of the gaming app Fidji Simo said. "It’s entertainment that’s not just a form of passive consumption but entertainment that is interactive and brings people together."

  • Swab production to ramp up. U.S. President Donald Trump said the latest good to be manufactured under the Defense Production Act will be swabs needed for coronavirus test kits. Trump did not disclose which companies will manufacture them, but the administration is close to finalizing a deal with one manufacturer to produce 10 million swabs per month, while he is preparing to use the Defense Production Act on another to increase its swab production by over 20 million per month.

  • We're going to space. NASA is teaming up with SpaceX on the launch of Demo-2, which will mark the first launch of NASA astronauts from U.S. soil since the Space Shuttle program ended in 2011. The launch, which is scheduled for May 27, will be the first crewed launch for SpaceX. "We need access to the International Space Station from the United States of America. Commercial Crew is the program that’s going to make that happen. It’s essential for our country to have that capability," NASA administrator Jim Bridenstine said.

  • AMC raises debt. AMC Entertainment, the largest movie theater chain in the U.S., intends on raising more than $500 million in debt to strengthen its balance sheet as its theaters remain closed. As of the end of March, AMC had about $300 million in cash. "After giving effect to the proposed notes offering, we believe the company will have sufficient liquidity to withstand a global suspension of operations until a partial reopening ahead of Thanksgiving," AMC said.