The fitness world went into a frenzy last week after ClassPass announced it was raising the price of its unlimited membership in New York. The Internet flooded with speculation that the startup was doomed, fueled by social media rants from disappointed customers.
ClassPass Founder CEO Payal Kadakia swiftly defended the move.
“We are evolving our business model and adjusting prices in order to create long-term sustainability with both our members and our partners, further validating the market,” said Kadakia in a statement.
The new unlimited membership, which goes into effect in June, was raised to $190, plus tax, from $125. Monthly dues for an unlimited membership had been $99 until last July, meaning the price has gone up more than 90% in less than a year.
Unlimited access allows customers to book as many classes as they want per month at the boutique studios ClassPass is partnered with, but they cannot book at the same studio/chain more than three times in a month.
"We hear about two parties, and there’s really three parties in this…You very rarely hear from the studio side."
ClassPass also introduced with the announcement other tiered membership options: five classes a month for $75 or 10 classes a month for $125. Users have the option to purchase additional classes directly through the ClassPass app once they’ve maxed out.
But with all the attention on the consumer side of the situation, the boutique fitness studios are divided.
Michael Michalski, the owner of Variant Fit, decided to terminate his partnership with ClassPass a few months before the price hike.
“I don’t regret the time that I did it,” he told FOXBusiness.com. “It was great marketing, it brought a lot of great people in the doors, but from my own standpoint, if it’s not going to grow [my business] for me going forward, it’s not sustainable. To use it as a marketing channel is one thing, but to use it as the backbone of your business, there’s just no way it’s going to work.”
ClassPass pays a studio partner every time a customer books a class through them, and while the company has not divulged financial details of their partnerships, studio owners say they lose revenue this way because the cost per class through ClassPass ends up being significantly less than purchasing directly through the studio. Since January 2015, the company has gone from 300 studio and gym partners to over 900 in New York, and has over 8,000 partners worldwide.
Michalski says that while his time with ClassPass brought in customers he might otherwise not have attracted, the transient nature of attendees was jarring.
“That’s tough when you put so much time and effort into it. There’s always new people. And there’s the interesting dichotomy that exists between those who come in all the time, not only in what they’re paying, but your relationship with them and how you have to adjust things in class.”
Laura Kovall, owner of The Fit Co., says overcrowding is also an issue because studio partners feel compelled to open up more slots in their classes during primetime hours as a result of the lost revenue from letting ClassPass customers in. But clients who feel the class was too crowded may not return.
Still Kovall, who began partnering with ClassPass in January, has no plans to leave and feels hopeful about the future.
“People have asked me recently, ‘who’s my ideal client?’ And I have in mind who my ideal client would be, but because ClassPass brings in so many people, it’s sometimes hard to tell. And I think that as a studio owner, you’re going to be able to say ‘these are the people who have transitioned just to me, or these are the people who have stayed on ClassPass but are still coming to me and they only have like 10 classes per month.’ And I think you’re going to get to know your clients a little better again.”
She adds that ClassPass has assured her that they want to find ways to continue to promote boutique studios and create partnerships that are sustainable in the long-term.
“I believe as a business owner in partnerships. We’re better working together than not working together,” she said.
ClassPass says it has a 96% retention rate with its partners, but that may need to change in order for the business model to right size.
“It feels a little bit like when small and local businesses did a Groupon years ago at the height of Groupon, and they were kind of overwhelmed with people walking in and not being able to service all those customers or service them the way they always wanted to,” said Tom Caporaso, CEO of Clarus Commerce, which specializes in e-commerce solutions.
“I think you’re going to see some of the folks kind of popping out from a studio perspective. But at the end of the day, if studios can get people in there, have it packed but not crowded, and make money from the ClassPass program, that’s a really good thing for them.”
Michalski says he just wants the needs of the studios to be kept in mind going forward.
“We hear about two parties, and there’s really three parties in this…You very rarely hear from the studio side. [The consumer] can complain to ClassPass, but we have to survive. And I hope people understand that.”