Too Many Bikes in the Studio
Spinning, or indoor cycling, experienced a boom in Singapore over the last two years such that by February of this year there were at least 26 studios across the city-state. The number of boutique spin studios per capita is probably the highest in the world — London, with nearly twice the population of Singapore, has around 10; Hong Kong has 1. In this post I use Economics 101 concepts to explain a) how Singapore got to this high number of studios, b) that this number is unsustainable under the new market conditions, and c) who the likely winners and losers will be.
Why are there so many spin studios in Singapore?
Spinning only took off in Singapore during the pandemic. The restrictive and extensive lockdown made travel impossible, nightlife a bust, and dining out much less appealing. This meant that a large pool of expendable income was now available for something else: in Singapore dining out accounts for 24% of monthly household expenditure; by comparison, in London it’s less than 4%. In other words, during the pandemic Singaporeans found themselves with extra money to spend, and so shifted their dollars towards alternatives they could actually do, such as spinning.
This resulted in a shift in the demand curve, meaning that suddenly, at the same price of a good (e.g. a spin class), there were more people willing to pay that price. At that moment in time supply was limited — there were only so many studios and so many bikes — so the industry responded by adding more studios from both existing and new players (the process was so quick people could barely find enough instructors), such that the new equilibrium lay somewhere around 26 studios.
Does this mean that all other nice-to-haves had a similar increase in demand? I don’t know for sure, but probably not. The rapid increase in demand for spin is probably also explained by other factors such as network and image effects (people go with their friends, it’s cool to show how much fun you’re having while being healthy, etc.), but as I will argue below this is a supplementary push in the demand curve, while the main force remains the unlocked expendable income.
Too many bikes
This new equilibrium was not meant to last. Once the restrictions eased, “money I now spend on spinning” started competing with “money I can now spend on travel, dining out, nightlife.” Invariably, inevitably, even if spin is a very good experiece, the return of these alternatives caused a shift in the demand curve to the left, perhaps not to the original pre-pandemic stage — some passion for spinning has “stuck” — but less than it used to be at its height. This means that there are now too many bikes, too many spin classes, relative to demand. Consequently, studios across the city have cut the number of classes they offer. For many studios this will not be enough — those remaining classes are still too empty, and the costs they incur are higher than their revenue. Some of these studios will have to close.
Which studios will make it?
It is tempting to think that the studios offering the best classes and the best customer experience will survive. In the majority of cases, I think that gives you an edge, but there’s stronger forces going on, and I don’t think that will be enough to overcome the current business setup.
Spin studios are tied to their operating costs, which come down to rent, utilities, instructors, and other staff (cleaners, front desk, etc.). In the short term, the last three are more or less variable: if you have fewer classes you pay less in utilities, you don’t need to pay as many front desk staff and instructor, and there are fewer towels to wash. Rent, however, is totally a fixed cost: no matter whether you have more or fewer classes in the day you always have to pay the same amount of rent. So the logic is this: as long as you can at least cover your operational (variable) costs, you should keep running classes, and use whatever you have left after paying for those operational costs to pay for as much rent as you can.
In the long term, however, rent becomes a variable cost as well. Simply, you have the choice whether to renew the lease or not. It is under this lens that businesses will ask themselves whether they can cover their costs, including the rent. If the answer is no, they will let their lease go and shut down.
From this, and assuming that everyone pays more or less the same rent per square foot, and assuming for now that the post-pandemic effect affects all studios equally, then we can expect those studios with the most efficient use of space (most revenue per square foot) to be more likely to stay in business. So, studios with “inefficient” use of space, like those with large lounges, changing rooms, etc. are probably most at risk unless they are able to bring in more customers than the rest. This is where, arguably, the second assumption can be challenged: not all studios have been affected equally — and this is where plus alpha factors such as the quality of the instructors, facilities, etc. can help generate more revenue than expected.
So over the next year we should expect to see a small cascade of *some* spin businesses packing up their bikes as leases complete their contract duration. However, the depth of the pockets of their respective investors together with their optimism might extend the lifetime of some businesses. Businesses who have runway to bleed cash for a bit may decide to stick around and wait for everyone else to die. This is bad news for new self-started businesses who have few investment dollars and haven’t had enough time to create a cash pool for a rainy day.
In the next year we should expect spin studios to close down as the industry adjusts to a post-pandemic equilibrium. Those most likely to survive are the ones who are most efficient with their rent relative to revenue, or those able to win a game of last man standing thanks to available cash supplies.
