Essay Example on Fitness Industry Analysis

Fitness industry description

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The products and services of fitness industry are designed for specific fitness activity. For instance, fitness products for legs are designed to stretch the muscles. Others can also be age specific like fitness goods and services for the young individuals. The primary customers of the fitness industry are people between the ages of 22 to 40 years (Lagrosen & Lagrosen, 2007). Some of the channels of distribution used in this sector include selling the products directly to the consumers. This method enables the producers of fitness commodities to get instant feedback from the customers to make necessary improvements. The other channel the industries uses is selling through the retailers and selling through both the retailers and wholesalers (Lamb et al., 2009). This strategy ensures that the product reaches a broad range of individuals.

The fitness industry market is increasing. Most of the people including the children are using the fitness equipment. The fitness industry in the USA exhibited a revenue of $25.8 billion in 2015 (Statista, 2016). Research indicates that the income from fitness industry has been increasing since 2000 to 2015. The growth shows that the fitness industry in the United States is doing well. Additionally, the fitness industry is located in almost every region in the United States to ensure that the products reach a broad range of customers especially the targeted clients (Lagrosen & Lagrosen, 2007). There is high competition in the fitness industry. Other institutions also want to be in the fitness industry including universities, medical centers, hospitals, and municipalities. Therefore, the industry needs to have unique and affordable products for it to succeed in the highly competitive environment.

Factors influencing demand

Some of the factors affecting demand include the price of the fitness products. Consumers tend to purchase more of a commodity of low price and less of a product with a high price (Vyver, 2002). Therefore, high prices on the fitness equipment and services will result in a decrease in demand and vice versa. Additionally, an increase in income enables the clients to afford more products. The increase in the income of the consumers will make them purchase more of fitness products. However, a decrease in their earnings will result in a decline in demand. The taste and preference of the consumers are another factors affecting demand (Vyver, 2002). Different tastes and preference may influence the need for a product either positively or negatively. For instance, if a celebrity endorses a fitness equipment then the need for the product will increase. The products of fitness industry help the consumers to stay fit. Furthermore, most of the individuals buy the products to save time and money of visiting the fitness centers.

Fitness equipment is at the growth lifecycle stage. This stage is evident by the strong growth in profits and sales of the industrys products (Saaksvuori & Immonen, 2004). Economically, the fitness industry is growing, and this is evident by the increase in profits and sales. The market for fitness has also become very competitive. The population of individuals in need of fitness equipment is growing. Furthermore, wearable technology has been introduced in the market including fit bit, jawbone, and Nikes fuel band (Thompson, 2014). In social trends, individuals are forming public and private partnerships which aim at promoting the physical activity. The government regulations also affect the fitness industry. For instance, the issue of tax exempt of government facilities and non-profits. Furthermore, educational workshops have been introduced to cater for the average fitness consumer (Thompson, 2014). Some of the companies offer the customers with cheaper products to compete effectively in the market.

Factors influencing cost structures and profitability

The products of the industry are in the growth stage life cycle. In this juncture, there is growth in profits, sales, and revenues as the product become popular to the clients. In this stage, industry experiences increased profits. The increase is as a result of lower cost and increased sales in the growth stage. There is also the rapid increase of cash flows in this stage, and this makes the industry continue growing and compete effectively with the competitors. Additionally, in the growth stage industry invest on the investments with high returns.

Michael Porter assumes that there are five forces which regulate the competitive power of business. They include supplier power, buyer power, competitive rivalry, substitution threat, and the threat of new entry (Michaux, Cadiat, & Probert, 2015). Supplier power is where we access how the vendors can quickly drive the prices. In the fitness industry, the bargaining power of the suppliers is low, and this gives the players in the business the opportunity of setting prices which will enable them to make high profits. In the buying power, one evaluates how it is easy for the consumers to drive the prices of the products (Michaux, Cadiat, & Probert, 2015). In the fitness industry, the power of the buyers is very high because of strong competition. The high bargaining power of buyers results in the prices lowering of fitness industry products which further leads to low profitability in some of the items. Competitive rivalry refers to the number and ability of the competitors (Michaux, Cadiat, & Probert, 2015). There is high competition in the fitness industry because there are industries which can offer more attractive fitness products and services. The high competition results to the lowering of prices and reduced profits.

The threat of substitution is affected by the ability of the clients to find another way of doing the things fitness industry does. Risks of a substitute are high because people may resolve to use traditional methods to enhance their fitness like running. The existence of alternative commodity does not lead to decreased cost and profits. The threat of new entry is the ability of individuals to enter into the market. With the increasing sales and revenues, more people want to get into the market. The threat of new entry is high in the fitness industry because there are no barriers that prevent a person from entering the market. The high threat of new entry will result in decreased profits and lower the prices.

The cost drivers of fitness industry products include knowing the targeted customers of the product (Rajagopal, 2012). Understanding the customers is important because it will play a significant role in knowing the prices that will be charged for a product. The other driver is to know the cost of producing the products in the fitness industry (Rajagopal, 2012). The production cost includes things like labor, manufacturing, and material costs. Value chain activities in the fitness industry include marketing, sales, operations, inbound logistics, and services. The activities taking place in the value chain relate to cost in that the higher the value chain, the higher the prices charged for the products.

Opportunities in the fitness industry

Increase in the market demand: diseases like obesity which is common makes people stay fit to avoid them (Mullin, Hardy & Sutton, 2014). Thus, this is an opportunity for the industry to produce more products.

Favorable technological trends: the patterns allows the industry to increase the number of individuals purchasing the products.

Serving new customer group: the company can also expand its operations by producing products that the children will use to stay fit (Mullin, Hardy & Sutton, 2014).

Expanding the product line is another opportunity for this industry. Expansion of the product line will enable the consumers to have a broad range of products they can choose from in the industry.

Threats in the industry

High competitive rivalry: the competitors like institutions usually find ways of beating the industry by using discounts and commercials (Mullin, Hardy & Sutton, 2014).

The high competition also imposes the risk of losing customers in the industry. Loss of customers may result in reduced revenues.

The strong bargaining power of the buyers will make the industry reduce the prices of its products (Mullin, Hardy & Sutton, 2014). It is a threat because it will result in reduced revenues.

Changing buyer needs is another threat to the industry (Mullin, Hardy & Sutton, 2014). The variations in the needs of the consumers is a threat because it will make the company produce new products. Production of new products will make the customers not to buy the ones that are in the market currently which will result in losses.

Organizational analysis

Basic description of the company

The mission of Lifetime Fitness Company is to keep people active started with the Lifecycle exercise bike and continues with the widest range of cardio, strength, and group training products in the fitness industry (Fitness Exercise Equipment for Your Facility or Home | Life Fitness Demo, 2016). The mission of the firm has evolved for over 45 years, and it has been dedicated to creating fitness solutions that benefit both facilities and individuals exercising. The business has been able to achieve its objectives through the mission. Things have changed over time, but the company has always encouraged people to lead active lives. Life Fitness Inc. has an entrepreneurial and fantastic culture. The strong culture of the company has enabled it to continue delivering excellent products to its customers. In 2015, the sales of the company grew to $769.3 million (Fitness Exercise Equipment for Your Facility or Home | Life Fitness Demo, 2016). The growth in sales indicates how the firm is doing well in the market. Additionally, the number of employees in 2015 was approximately 14,607.

The total assets of the company are $3.13 billion. Furthermore, the company serves people across the world. The company targets individuals between the ages 10 to 60 years old. The strategies of the business include being the best partner, having a winning culture, and product leadership. Over the years, the company has ensured that it develops a team that is focused on serving the consumers and delivering plan (Fitness Exercise Equipment for Your Facility or Home | Life Fitness Demo, 2016). The company has also introduced products that are desired by the clients and are better than the ones of the competitors. Additionally, the company has always ensured that it delivers the best to its business partners.

Financial analysis

Liquidity/Financial Health 2008-12 2009-12 2010-12 2011-12 2012-12 2013-12 2014-12 Latest Qtr

Current Ratio 0.37 0.47 0.58 0.61 0.59 0.49 0.54 0.52

Quick Ratio 0.1 0.08 0.21 0.13 0.15 0.12 0.16 0.13

Financial Leverage 2.52 2.21 2.04 2 1.93 2.03 2.43 2.41

Debt/Equity 1.08 0.87 0.72 0.71 0.64 0.72 1.12 1.09

Key Ratios -> Profitability Margins % of Sales 2008-12 2009-12 2010-12 2011-12 2012-12 2013-12 2014-12 TTM

Revenue 100 100 100 100 100 100 100 100

COGS 59.07 60.51 61.46 60.67 58.2 57.16 57.67 57.74

Gross Margin 40.93 39.49 38.54 39.33 41.8 42.84 42.33 42.26

SG&A 9.78 8.25 8.23 8.98 8.49 8.43 8.21 8.4

R&D Operating Margin 19.15 17.79 17.61 17.09 18.48 18.95 17.77 17.24

Key Ratios -> Efficiency Ratios Efficiency 2008-12 2009-12 2010-12 2011-12 2012-12 2013-12 2014-12 TTM

Days Sales Outstanding 2.51 2.21 1.97 2.15 2.5 2.65 2.51 3.49

Days Inventory 11.62 10.54 10.38 11.54 13.59 15.73 16.85 17.28

Payables Period 60.37 36.96 21.98 25.87 28.18 34.95 35.15 34.99

Cash Conversion Cycle -46.24 -24.21 -9.63 -12.18 -12.09 -16.56 -15.8 -14.22

Receivables Turnover 145.36 165.08 185.69 169.48 146.09 137.27 145.47 104.6

Inventory Turnover 31.4 34.63 35.17 31.63 26.86 23.2 21.66 21.13

Fixed Assets...