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How Covid-19 pummelled Virgin Active

In SA, 30% of its members are on ‘freeze’ – with much hinging on this month-end.
The group is rolling out digital content in an effort to ‘remain relevant’. Image: Suzanne Plunkett/Bloomberg News

Fitness chain Virgin Active, with operations in southern Africa, the UK, Italy and Asia Pacific, has lost over 100 000 members globally since the beginning of this year. To say the Brait-owned business has been “significantly impacted” by Covid-19 lockdowns around the world would be an understatement.

So far, revenue is down 50% from last year and Ebitda (earnings before interest, tax, depreciation and amortisation) for the first nine months is negative – standing at -£8.4 million, versus £102.4 million for the prior period.

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It will be lucky to break even (on an Ebitda basis) this year.

Nine months to Sep 30

Revenue (constant currency) Year-on-year change
South Africa £83.9 million -51%
Italy £63.4 million -33%
UK £53.8 million -58%
Australia £17 million -39%
Thailand £10.4 million -35%
Singapore £7.6 million -44%

Given how lockdowns were implemented across the territories in which it operates, there was a wave of reopenings, beginning in Italy in May, then Australia (and Thailand and Singapore) in June, the UK in July (“later than expected”) and finally South Africa in August.

Read: Virgin Active ‘disappointed’ by 50-person limit but plans Monday reopening (Aug 20)

The company says that as of September 30 (the current reporting period), all clubs had reopened apart from seven in London and three in Australia. These are all in central business districts and, given the absence of office workers, are unlikely to reopen until the situation returns to something resembling ‘normal’. The recent second round of lockdown measures implemented in Italy and the UK means gyms are currently closed in those countries.

The signs had been looking positive, with Brait saying “usage levels gradually improved across all territories as member engagement increased pre the second European coronavirus lockdown”.

There remains untold pressure on the number of members and active members, however. In August, Moneyweb suggested that “it is not inconceivable for Virgin Active to end 2020 with under one million members globally”. For context, it had 1.2 million members at the end of February. By end-September this number had fallen to 1.026 million, 11% lower than last year.

Read: How bulletproof is Brait’s crown jewel, Virgin Active?

But this tells only part of the membership story. No membership fees have been charged while clubs are closed and many members remain on ‘freeze’.

This means memberships are “retained without members having to make payment during the freeze period, resulting in no revenue generation for most territories”.

In South Africa, memberships could be frozen from reopening (in late August) until the end of October, but customers had to opt-in to this. It says “a high percentage of members chose to remain on freeze”, while the UK, particularly in London, “experienced higher than anticipated terminations and members on contract freeze, which has impacted yield and membership levels”.

As at the end of September, a quarter of the group’s members worldwide are not currently “active” (in other words, paying their gym memberships).

Total members Active (paying) members Difference On freeze as % of total
South Africa 685 000 482 000 203 000 30%
Italy 142 000 130 000 12 000 9%
UK 138 000 107 000 31 000 22%
Australia 32 000 27 000 5000 16%
Thailand 18 000 17 000 1000 6%
Singapore 10 000 8 000 2000 20%
1 025 000 771 000 254 000

* Numbers rounded

In South Africa, a full 30% of the base has been on freeze. This translates to zero revenue from these members. The most recent usage number (as measured by entry card swipes per day versus last year) disclosed by the group is 57% (up from 35% in September).

Usage trends are scattered across its portfolio of clubs, with those near office nodes feeling the biggest impact of non-usage. Some have single-digit usage. The other trend playing out, anecdotally at least, is the flattening of peak times. This translates to more constant usage throughout the day. This is likely due to more flexible schedules in an environment where many are working from home.

In August, Moneyweb posited the bear case for the group thus: “To what extent have its members, especially its best members who pay full subscriptions but visit gym less often than the average, abandoned the idea of gym completely?”

These trends will be clearer as the world (likely) returns to normal in 2021.

Virgin Active (and Brait) management will be watching the number of terminations in the South African membership base very, very closely this month.

With October being the last month of the membership ‘freeze’, much hinges on how many people simply decide to cancel their memberships before the debit order run (or, indeed, in early December when they are reminded they still have a gym membership). The local operations were Ebitda-positive in September, on revenue of £13 million (versus a ‘normalised’ figure of £20 million in February).

It is certainly possible that half the people currently on freeze terminate their memberships.

This would mean a further knock to membership of 100 000; it has already lost roughly 50 000 members in SA this year.

How this plays out across its portfolio of clubs will be seen soon enough. A further two clubs in South Africa were closed in 2020, following the closure of four last year. This was the first time the group ended with a net fewer clubs in SA (any closures were offset by openings).

Read: Brait sees pandemic delaying Virgin Active sale (Jun 24)

Digital content

Key to the group’s immediate future is the development and rollout of digital content globally. It says this has been accelerated by the pandemic “in order to enable Virgin Active to retain contact with its membership base and remain relevant”.

A product called ‘Revolution’ – which streams Virgin Active content to subscribing members in their homes – was launched in Italy in October.

In six weeks, it has signed up 10 600 members, likely with far lower average revenue per user than a ‘typical’ member who trains at one of the group’s clubs.

Usefully, only about a quarter of Revolution’s customers are existing Virgin Active members.

This means that while there is some cannibalisation, it is unlikely to collapse the traditional member base. The gender split is also interesting, with women accounting for 80% of sales to date.

Big questions remain … will its digital efforts (or, worse, competing digital offerings) replace in-club training for its higher-end customers? When will life in London (it is heavily exposed to the city) return to normal? What would a rationalisation of clubs (both number and size) look like in South Africa? What impact would that have on an already bruised property sector?

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Their greed is what will bring them to their knees.

For years, my “active member” friends and I asked for the same one thing: the option to gym in peak hours at work and non-peak hours at home, without having to take out a top end national membership. With COVID, we not only assessed what we don’t really use, but also who doesn’t really care. The result was that at least 4 people I know (excluding myself) cancelled their gym membership in favour of doing something else outside gym, be it running, cycling or whatever.

COVID created havoc, but in so many ways also restored awareness and empathy, especially at larger companies who got away with too much over the years.

Sadly I won’t rejoin even if this option does become available now. Not just because of their arrogance before, but also because it’s a lot more fun out there than at the gym.

While they were not allowed to open they continued paying their staff while not charging their members. That, to me, doesn’t sound like greed.

I agree that was exemplary, and I even wtote to them and thanked them for it.

But don’t look at how a company behaves in extraordinary times where all members are concerned and wrong step could be fatal. Look at how they do “business as usual”. The above is but one example of many, and people needed a little push to realise they don’t need Virgin Active as much as Virgin Active needs them.

Things are not so bright for Brait too.

I hope they claimed from Vitality during the lockdown because Vitality didn’t stop charging us of course!

While many of the Vitality options were not available during part of the lockdown they doubled the discounts for the likes of PnP/WW Healthy Food, and Dischem/Clicks Healthy Care.

The follow-up version of Pink Floyd’s The Wall will be The Virgin…”I don’t need no points control’.

I myself prefer Dire Straits “Money for nothing”

Awesome line. To add..

“….and chic’s ain’t free”

feminado’s have changed the pitch

Hey, Virgin, leave cholesterol alone!

The service levels at Virgin Active South Africa has deteriorated a lot the last few years. From reception / card swipers to the so called fitness team on the floor. Reception sometimes cannot even answer a simple question if it’s not access card related and the fitness staff aren’t visible on the floor (they are also hanging out at reception). Lately Planet Fitness has been getting the above mentioned right. Their reception staff looks and acts professional. Always friendly and able to answer questions. The fitness staff are visible all over the club. Best switch I made.

Having been members of both, I have to agree. PF makes more effort. VA staff are invisible. Also, zero rule enforcement and it just makes the experience unpleasant. That said, I have cancelled my membership to PF because people don’t take the mask-wearing seriously and with summer coming in full strength, it’s not going to be viable to work out in a gym IMO.

When the vaccines arrive and everything goes back to ‘normal’ I will reconsider it but at the moment I think it’s a problem. It’s very unpleasant to work out with a mask on but it’s also essential. So I’ll be looking at other options like kettle bells, going for walks and what-have-you.

these gyms became dodgy as they got bigger…health issues eg hygiene
decency issues,abuse issues eg racists,swearing,etc. and crime issues.

I still struggle to understand how a so called health club can terrorise their members with an insistence on wearing masks and depriving themselves of oxygen while exercising. All they needed was to do their homework and apply their common sense, but instead they chose psychological warfare and they lost me. Good riddance to an arrogant, ignorant business.

I am not going to knock any of the Gyms and what they offer. I have lost 48kgs in the last 12 months and my wife 30kgs by changing our lifestyle and walking 5 times a week. However due to inconsiderate motorists and some near misses at intersections I purchased 2 treadmills from Matrix fitness and we train together. No risk, no driving etc

Money very well spent. Companies selling Gym equipment are thriving.

2 happy 68 year olds.

Wally Stowe

End of comments.

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