The new year always drives well-intentioned yet poorly sustained get-fit-quick schemes. That leads multi-asset fund manager Will McIntosh-Whyte to wonder about the durability of subscription service customers in a downturn.

Gym sign on the pavement

They are back. Bright-eyed and bushy-tailed. Full of new-year enthusiasm at the thought of the new healthy, happier versions of themselves. We’ve all seen them – we’ve all been one – Johnny-come-Januaries.

Or at least they were back. As we enter the second half of January the local gym is already much quieter as the dark, alcohol-free (and meat-free?) evenings weigh on the soul. The draw of the sofa and the latest box-set only gets stronger after Blue Monday.

Interestingly, there weren’t quite as many Johnnies (or Janeys) in my gym this year. Perhaps the supposed health and wellness craze isn’t as prevalent as some commentators claim? I’d argue rather that traditional gyms like mine, with their 12-month contracts, are being disrupted. And not necessarily by the ‘high-tech’ US sporting goods companies with their snazzy £2,000 exercise bikes, iPads strapped to the front, charging you £40 per month for the privilege of taking online classes. Most people simply want flexible gym memberships. Why sign up for 12 months when you know you’re a bit busy in February, on holiday in March and then summer is nearly here...

So if I was trying to invest in a health and wellness theme, which option would I choose? The subscription gym, the flexible gym, or the tech exercise bike company? Well, the answer is probably none. The subscription gym is being disrupted; the flexible gym may be enjoying growth, but it can’t rely on those earnings continuing even a month from now; and I struggle to see genuine barriers to entry for rival exercise bike companies. Equally, I remember vividly my dad’s ’90s rowing machine gathering dust in the garage. It’s probably still there now.

There are two principles highlighted by this theoretical investment choice. Firstly, as an investor you may be onto a fantastic investment theme, but that doesn’t mean there’s always a sure fire way of playing it or picking the winners. Secondly, beware the subscription revenue story. Of course, recurring revenues are appealing to companies and investors (who will pay up for the privilege). Less so for consumers – I’m sure many of us have fallen foul of subscriptions we signed up to and forgot to cancel, even though we stopped going to that gym sometime in 2017. But nowadays the volume of subscriptions that people are accumulating has mushroomed: Netflix, Fitness First, Spotify, iCloud, Audible, Headspace, Playstation Plus, Dollar Shave Club, Zipcar, Candy Crush, Amazon Prime, NowTV, CreditExpert, HelloFresh and Oddbox, And lest we forget MoviePass, which would ‘buy’ you a free cinema ticket every day for the compelling cost of $9.95 a month (it bought the tickets full price); who wouldn’t subscribe to that!  As you might suspect, that didn’t end well.

At the end of day, there’s only so much wallet share to go around. While we all know the structural difficulties retail faces, perhaps part of its problem has been that, as the smart phone opened up our wallets to so many other avenues (gaming, taxis, food delivery, ecommerce, gambling, along with the aforementioned), people simply have less money to go out and spend on the physical high street. Or don’t need to – it’s all there in their pocket.

Often we hear the argument that consumers won’t cancel these subscriptions because “they are only £5/£10 a month”. But they soon add up and when people go through lean times, the purse strings get tightened. When that happens, not a few subscriptions will have to fall by the wayside, which is why I’m wary of overpaying for fair-weather subscription services that might find themselves dispensable when times get tough.

So I’m binning off the gym for a night on the sofa, and will be getting out my banking app to check for rogue subscriptions!


Important legal information

This area of the site is for professional advisers

Please read this page before proceeding, it explains certain legal and regulatory restrictions applicable to the distribution of this information. It is your responsibility to inform yourselves of and to observe all applicable laws and regulations of the relevant jurisdiction.

This section of the website is directed only at investment advisers and other financial intermediaries who are authorised and regulated by the Financial Conduct Authority (FCA).

The information provided in this site is directed at UK investment advisers only and must not be circulated to private clients or to the general public. It does not constitute an offer to sell, or solicit an offer to purchase any investments by anyone in any jurisdiction in which such offer or solicitation is not authorised or in which a member of the Rathbone Group is not authorised to do so.

I confirm that I am an investment intermediary authorised and regulated by the Financial Conduct Authority. I have read and understood the legal information and risk warnings below:

Important Information (Terms and Conditions)

The information contained on this site is believed to be accurate at the date of publication but no warranty of accuracy is given and the information is subject to change without notice. Any opinions or estimates included herein constitute a judgement as of the date of publication and are subject to change without notice. Furthermore, no responsibility is accepted for the accuracy of any information contained within sites provided by third parties that may have links to or from our pages.

Rathbone Investment Management Limited ("RIM") is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered Office: Port of Liverpool Building, Pier Head, Liverpool L3 1NW. Registered in England No 01448919.

In accordance with regulations, all electronic communications and telephone calls between Rathbones and its clients are recorded and stored for a minimum period of six months.

The information provided in this site is directed at UK investors only. It does not constitute an offer to sell, or solicit an offer to purchase any investments by anyone in any jurisdiction in which such offer or solicitation is not authorised or in which a member of the Rathbone Group is not authorised to do so.

In particular, the information herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in France and the United States of America to or for the benefit of United States persons (being resident in the United States of America or partnerships or corporations organised under the laws of the United States of America or any state, territory or possession thereof).

In order to comply with money laundering and other regulations, additional documentation for identification purposes may be required.

Rathbones shall have no liability for any data transmission errors such as data loss, damage or alteration of any kind including, but not limited to, any direct, indirect or consequential damage arising out of the use of services provided or referred to in this website.

Past performance should not be seen as an indication of future performance.

The value of investments and the income from them can fall as well as rise and you may not get back the amount originally invested, particularly if your client does not continue with the investment over the longer term.

Changes in the rate of exchange between currencies may cause the value of an investment to go up or down.

Interest rate fluctuations are likely to affect the capital value of investments within bond funds. When long term interest rates rise the capital value of units is likely to fall and vice versa. The effect will be more apparent on funds that invest significantly in long dated securities. The value of capital and income will fluctuate as interest rates and credit ratings of the issuing companies change.

Tax levels and reliefs are those currently applicable and may change and the value of any tax advantage will depend on individual circumstances.

Investing in emerging markets or small companies may be potentially volatile, as these investments are high risk.

The design, text and images are owned, except as expressly stated by members of the Rathbone Group. They may not be copied, transmitted, displayed, performed, distributed, licensed, altered, framed, stored or otherwise used in whole or in part or in any manner without the written consent of Rathbones except to the extent permitted and under the procedures specified in the copyright Designs and Patents Act 1988, as amended and then only with notices of Rathbones' rights.

Rate this page:
Average: 5 (3 votes)

Subscribe to the In the KNOW blog email