Alex Lepe
There are many interesting things about Zyn22, a new chain of spin-cycle studios breaking onto the burgeoning boutique gym scene and led by the private equity adviser Mark Page, whose old Fort Worth firm is nearing $1 billion in assets under management. One of them is the origin of the name. “Zen, it’s hip, it’s cool, it’s your vibe,” Page says of the original name he considered for the company. But Page and his investors want to take the chain big, and into other cities, where there’s apparently a Zen of some sort on every street corner. “We weren’t going to be able to trademark the name,” he says. Zen became Zyn. Page wanted to add a suffix. His ad agency, the Balcom Agency, came up with 22 - a perfect circle in numerology, 22 chapters in Revelation. And, supposedly, it takes 21 days to form a habit. “Let’s see what happens on Day 22,” Page says.
Page is well past Day 22 in his venture. He and business partner Johnny Pannell launched the company in January in a 4,500-square-foot studio in the Museum Place development in Fort Worth’s Cultural District. This summer, he’ll open another studio at Dallas’ NorthPark Center. He plans to open studios later this year in Southlake and Dallas Uptown. And he’s interested in Frisco and Plano. The company’s offices are in Southlake, where Page and Pannell live and the company has a training lab for employees.
The five-year plan: “an aggressive expansion strategy,” into metropolitan areas and “the best real estate” in high-income neighborhoods, Page says.
“Our goal is to build a national brand,” he said, declining to identify markets outside North Texas that he’s interested in.
The studios offer a high-intensity take on spin, fitness by exercise bike. To music, instructors lead spin sessions with rhythmic movements like pushups on the bike and abdominal work. Riders are encouraged to be up and off their saddles. In case you’ve got anything left at the end, a finishing upper-body dumbbell workout should absorb that. The 45-minute classes start at $19; there’s no individual spin.
“It’s a total body workout,” Page says. After going through the spin workouts, “I lost five pounds the first month that I didn’t have to lose.”
Alex Lepe
Zyn22's spin studio in Fort Worth's Museum Place: bikes, music, movement, and lots of sweat.
Spin, What Spin? Just a few years ago, Page, now 50, wasn’t thinking about spin. His normal workout then included TRX bands hung from the ceiling, and high-intensity cardio and strength training.
And Page was a principal of Tailwind Advisors, which he co-founded in Fort Worth in 2009 to manage what today is the assets of several families.
Tailwind, which has $872 million in assets under management in 17 accounts, according to its most recent federal Securities and Exchange Commission filing, invests in marketable securities, real estate, private equity deals, and oil and gas.
A friend suggested Page look at a popular spin studio in Los Angeles, Page says. “They were charging $35, $40 a class, and they were all full,” he says.
After some research, he flew to Los Angeles last year to take a look and rode in the studio’s spin classes for three days.
What he saw - “I see everything through an investment lens” - sold him quickly. Classes were sold out and were pay-as-you-go, with no contracts. The studio required costs for buildout and bikes.
“But they were doing one thing eight times a day,” Page says. “And you don’t have too many costs once you get in here.”
And the traditional gym membership model is struggling. Larger gyms with big capital costs are having to cut their membership fees to sign up members.
“Gym’s dead,” Page says. “You can’t make any money charging $49.99. And especially women want to access their fitness in boutique fashion. Personal training gyms are full. Women don’t want to be committed and tied to contracts. They want to be able to pick their time, pick their instructor.”
The studios also have a “sense of community” about them that the new clients like, he said.
SoulCycle’s Lead Page’s thinking is getting a boost from the success of SoulCycle, a chain of spin studios in California and on the East Coast and in the Midwest.
The company, founded in 2006 in New York, has 45 studios and plans to get to as many as 60 next year. It estimates that 50,000 people ride per week in its studios, at prices averaging $30 per class.
SoulCycle added merchandise lines a year after opening and, last year, its own branded exercise bike.
The company, purchased by Equinox Holdings in 2011, is now studying the possibility of going public via an initial public offering, according to financial media reports that haven’t put a number on SoulCycle’s potential market valuation.
SoulCycle accounted for about 12 percent of earnings in its segment of Equinox’s business in the year that ended Sept. 30, 2014, but it’s Equinox’s fastest growing segment, Moody’s Investor Service said in November.
“Within the next few years, Moody’s expects that earnings from SoulCycle and Blink (a low-fee fitness chain) will make up about 20 percent” of Equinox’s total earnings, Moody’s said in the November report.
“SoulCycle isn’t just in the business of changing bodies; it’s in the business of changing lives,” the company says on its website.
Alex Lepe
Niche Fitness Growing Page declines to discuss competitors in other markets like SoulCycle. But low-fee gyms and niche fitness businesses ranging from yoga to barre and spin have been picking up steam.
The $32.9 billion U.S. industry should grow 2.2 percent this year, and 3.6 percent annually through 2020, driven by greater disposable income, more health consciousness, and the aging population, the IBISWorld consultancy said in a report earlier this year.
Consumers today prefer “local, boutique gyms and fitness centers,” IBIS said. “Gyms that have offered low-cost, contract-free memberships with fewer amenities have fared well, in line with strong demand from budget-conscious consumers.”
Moreover, “consumers who seek individualized fitness programs, specific fitness goals or are uncomfortable exercising in larger gyms have particularly favored small-scale gyms,” IBIS said.
And “comparatively, niche studios have appealed to consumers by offering classes within a community setting,” it said.
The number of U.S. fitness establishments has grown annually at 1.2 percent to 168,203 facilities this year, IBIS said, “even as many large industry players have acquired small, niche gyms that cater to local clientele.”
The fitness industry’s relatively low barriers to entry have helped contribute to significant fragmentation.
Brook Barrow, a University of Texas-graduated lawyer who was working for the government and teaching fitness classes on the side for a Fort Worth studio that went defunct, opened her Urban Yoga studio on the Near Southside five years ago - three months after her other fitness gig evaporated.
“It was a calling of my heart,” says Barrow, who had started meditating. “I just wanted a big change in my life.”
She started the 1,700-square-foot studio on 8th Avenue with 20 classes per week and now has 50. Her 16 instructors teach ballet Barre; Nia, a dance workout with martial arts mixed in; and yoga.
The studio, like others, has various prices, ranging from $17 for one class to a $59 first-month offer (“We encourage you to take as many classes as you can and fall in love with something,” Barrow says), $100 per month for unlimited classes if the customer opts for automatic withdrawal, and bigger packages. The $100 package is popular among Urban Yoga’s regulars, Barrow said.
Many of Urban Yoga’s customers have memberships at other gyms or studios, Barrow said. That’s in keeping with national data; according to IBIS, which quotes other industry data, 90 percent of the 11 million U.S. individuals who patronize niche studios also have health club memberships.
Barrow said she doesn’t spend much time looking at overall financial performance of the studio and isn’t sure what the five-year trajectory looks like.
“I don’t really do it like that,” she says. “I tend to make sure each class is doing well. As long as each class is looked at that way, then the whole of it works.”
A Simple Model All of these trends and what he saw in California helped add up to a simple-looking model for Zyn22, Page says.
“That’s the entrepreneur’s kiss of death, saying ‘how hard could it be?’” he says. But “the model is just crazy profitable.”
Zyn22 is Page’s second entrepreneurial leap.
Growing up in Midland, he remembers his first job was mowing lawns and being toted from job to job by his mother in the family station wagon.
He played quarterback on the Midland High School football team and walked onto to the Baylor University football team.
“I held a mean clipboard,” says Page, who got stuck behind quarterback Cody Carlson, a San Antonian who went on to play several years for Houston in the National Football League. “The highest I made it on the depth chart was second team.”
He got his degree in marketing and finance, and he started his career as a financial adviser at Merrill Lynch in 1987 in Denver.
Page didn’t put his football background on his resume, but somehow it came out during the interview, he says.
“They needed a quarterback for their flag football team,” he says. “That’s how I talked my way into the job.”
And then: “The crash of ’87 happened a month before I got my license.”
Page made his way back to Fort Worth with Merrill Lynch. He eventually became an adviser to Jeff Dillard, who he’d grown up with in Midland. Dillard, who represented the third generation of an oil and gas family, asked Page to go into business together in co-founding Tailwind after Dillard’s father died.
Dillard and Page both attended Midland High School together.
“He played basketball and I played football,” Page said. “We may get outsmarted, but we’re not going to get outworked. That’s how our dads raised us.”
Going into business with Dillard, which Page calls “my first foray into entrepreneurship,” was a no-brainer, he says.
“I knew I was never going to have that chance again,” Page says. “The biggest challenge of an entrepreneur is capital, and there wasn’t a capital challenge.”
From Back Of Napkin Roughing the spin studio idea on the back of a napkin during the flight back from California, where he’d ridden for three days in the one spin studio, Page assumed halfway-full classes at 50 classes per week, the costs of buildout and 60 bikes, and labor.
To maintain the high-end, cash-flowing model, he knew he’d have to find real estate in a premium location and build a studio with high-end finishes. But even at that, he considers those costs a low barrier to entry.
“Anybody that can go get money, recruit talent, and sign a real estate contract can go do this,” he says.
Page says he initially thought he’d build the stores on the side, keeping his post at Tailwind. But he ultimately decided to step down to focus on Zyn22, calling the move “in the best interests of everyone.” His partners bought him out of the majority of his stake in Tailwind, and he remains a shareholder of Tailwind, which is just down the street from his new Museum Place studio.
Page’s interest in the fitness concept wasn’t a shock to his partners at Tailwind.
“Mark has always had a strong passion for fitness,” Stewart Henderson, a partner of Page’s Tailwind, says. “He can really be a believer. When he finds something he wants to do, he’s got a passion for it.”
Page and Pannell, a friend from when they grew up together in Midland, raised $2.5 million in venture capital last fall, at mostly $100,000 investments. The two retain 70 percent of the business.
Each of the stores costs $800,000 or $900,000 to build out, including luxury finishes in the locker rooms and showers, a small boutique selling fitness gear, and $125,000 in bikes, Page said.
They also recruited “rockstar” instructors, critical to a boutique gym’s success, Page said. Instructors in the Fort Worth studio include college and Dallas Cowboys cheerleaders, professional dancers, and college athletes, Page said.
He believes each store can do $1 million in profit annually, at 50 percent profit margins and up. Page isn't saying how many stores he wants to build within five years, but he's not put the company on a slow-growth pace.
“If we get three or four of these opened, the cash machine is turned on,” he said. “Our plan is to build one every three months.”
Because of that model, it was important to have a fast start, but Page says he got the prices wrong at the start.
The store offered the first week free, with prices kicking in at $25 per session plus $3 for bike shoe rentals after that. Classes were packed during the first week. But few showed back up for the second week, when the prices kicked in.
“We missed the price coming out of the gate here,” Page says. “It didn’t work, and people told us about it.”
The store quickly lowered starting prices to $19 per session. “Luckily, people were still hanging around the starting line,” he said.
The store offers several packages, including 44 classes at $15 apiece. The studio also offers unlimited usage for $165 per month. The store has signed up 4,000 people in the first four months, 75 percent women, Page said. Customers typically visit three times a week, he said.
Challenges Remain “The challenge here so far for the very fit women is to get a spot in their workout routine,” Page said. “Because they’ve already got it set.”
The first class is free, and the studio has a 90 percent conversion rate, he said. “Diehard Zynsters” so far range from teenagers to people in their 40s, Page said.
“It’s anyone who’s young in their mind to try something new,” he said.
The investors’ eventual exit strategy: perhaps a private equity transaction; a buyout by a large fitness chain; or the sale of equity in the individual stores, essentially a franchise model, Page says.
“We’ve set it up so we can franchise it in the end,” Page said.
An eventual sale to a private equity group is most logical, and typically how investors would cash out of such a company, he said. “The (investor) funds sell to a private equity firm who then goes public,” he said.
All of that’s a long way down the road. Maybe.
“I’ve already got private equity calling,” Page said. “There’s interest.”