The recession has left fitness equipment manufacturers reeling. It has weakened demand for their products from their main consumers — homes and health clubs — in North America.

As a result, these manufacturers are targeting sales of their treadmills and other equipment to unconventional clients, such as fire departments and high schools. Experts say the new strategy is working.

Traditionally, fitness equipment manufacturers have relied on sales from both the housing and health-club markets as consumers continued to purchase fitness equipment for their homes, while health clubs upgraded their equipment to enhance their services and attract new members.

As a result, sales for both the commercial and home markets combined rose steadily, year-over-year, to $4.7 billion in 2007 from $3 billion in 1996 (all figures are in U.S. dollars), according to a 2009 research report issued by the Silver Springs, Md.-based Sporting Goods Manufacturers Association entitled Tracking The Fitness Movement.

Growth in the industry during this period also came from a “tidal wave” of big fitness chains — such as Eden Prairie, Minn.-based Life Time Fitness Inc. and San Ramon, Calif.-based 24 Hour Fitness World-wide Inc. — opening many new locations, says Thomas Shaw, a lifestyle analyst in Baltimore with Stifel Nicolaus, a subsidiary of St. Louis-based Stifel Financial Corp. “No matter how many people join a club,” he says, “you still need equipment to stock it and attract members.”

As a result, sales of commercial fitness equipment alone more than doubled, to $1 billion in 2006 from $484 million in 1996, according to the SGMA report. The fact that gyms cannot operate without equipment is “[in] a sense, what has kept manufacturers somewhat insulated from the downturn,” says Shaw, “even with membership sales falling.”

Meanwhile, demand from individual consumers grew steadily as a result of a increase in the number of people building fitness rooms in their homes, says Mike May, director of communications with the SGMA: “Prior to the recession, a fitness room was becoming as much a part of a new home as a living room.”

However, once the downturn hit, demand from both the home market and the commercial sector began to fall, Shaw says. With consumers viewing fitness products and services as a “hyper-discretionary expense,” they stopped buying exercise equipment for their homes.

In addition, memberships began to decline at gyms, with fewer new memberships being sold. In turn, fitness centres experienced a decline in cash flow and began holding off on upgrading and replacing older equipment — an expense typically incurred every three to five years. As a result, sales for commercial equipment in the U.S. dropped to $1 billion for the year ended Dec. 31, 2008, from $1.2 billion in 2007, according to the SGMA’s report.

To combat this double-barrelled drop in sales, manufacturers are now going after “gated communities,” such as condominiums and apartment buildings, says Patrice Sarath, a fitness industry specialist with Austin, Tex.-based market research firm First Research Inc.

“Gym equipment becomes a selling point for people coming to live in these communities,” he says, noting that they don’t have to venture outside their community’s common areas to work out. In addition, they save paying the monthly cost of a gym membership.

These “non-due” venues — places that do not charge a monthly fee for the use of their fitness equipment, which also include spas, hotels, high schools and universities — present new opportunities for growth, says Shaw, noting that Medway, Mass.-based fitness equipment manufacturer Cybex International Inc. has been pursuing non-due locations since early 2007: “Manufacturers such as Cybex are not resting on their laurels waiting for a new major health-club chain to open.”

Still, Cybex did not get aggressive about its non-due location strategy until the third quarter of this year, says Shaw. So, for the nine months ended Sept. 26, Cybex saw its sales drop to $85.7 million from $108.7 million for the same period ended Sept. 27, 2008. As for its net income, it fell to a loss of $3.4 million for the nine months in 2009 vs the $1.8 million it earned during the same period in the year before. The reason for the large decline has been both the stagnant health-club market, which constitutes the majority of Cybex’s sales, as well as expenses related to implementing new marketing strategies needed to capture business in non-due locations.

@page_break@Another player that is well positioned to go after non-due locations is Life Fitness, a wholly owned subsidiary of Lake Forest, Ill.-based Brunswick Corp., which manufactures brands such as Life Fitness, ParaBody and Hammer Strength for consumer and commercial markets. Brunswick’s overall revenue for the nine months ended Oct. 3 was $2.1 billion, a substantial decrease from the $3.9 billion it amassed in the same period the previous year. It posted a loss of $452.7 million for the nine months in 2009, up slightly from the $568.7 billion it lost during the same period in 2008.

However, it must be noted that most of Brunswick’s revenue and income losses were caused by declines in its boat and marine engine business. In contrast, its fitness business has remained profitable, with a net income of $13 million for the nine months ended Oct. 3, although that is a far cry from net income of $26.6 million posted during the same period in 2008. The 51% drop resulted from a loss of equipment orders from its health-club clients.

Outside the commercial market, the home market still represents the industry’s largest growth opportunity, says May: “As housing starts begin to improve, you will see more homes built with a fitness centre.”

The demographic driving that trend is an aging baby-boomer population, which is opting to work out at home instead of going to the gym. “Baby boomers benefit more from in-home elliptical or Mobia [machines],” says Shaw, “because they are less intimidating than hitting a gym.”

Among the industry players well positioned to capitalize on opportunities in the home-based gym market is Vancouver, Wash.-based Nautilus Inc., which owns brands such as Universal, Nautilus, Bowflex, Schwinn and Stairmaster. Nautilus has decided to put its commercial arm up for sale and focus solely on its home business, the division responsible for more than 98% of its $41.4 million in sales in the third quarter ended Sept. 30. For the nine months ended Sept. 30, Nautilus rung in $135.6 million in sales, a substantial decrease from the $219.8 it brought in during the same period in 2008. Its losses also deepened to $59 million for the nine months in 2009 from a loss of $49.4 million in the same period the year before.

Nautilus’s numbers may appear to be uninspiring, but of its three business lines — direct, retail and commercial — direct and retail sales, which target the home market, were both profitable. Before taxes, the direct and retail businesses combined for an income of $9.8 million in Q3 2009, a slight drop from the $13 million they earned in the same period a year earlier; meanwhile, the commercial arm lost $31 million in Q3 2009 vs a loss of $36.4 million in the same period in 2008.

Outside of the adult-oriented home market, children also represent a potential area of growth for the fitness sector, as child obesity is on the rise, Sarath says: “I think that in the home-gym market, fun, child-oriented exercise machines will probably do very well.” IE