Soon enough, investors will be clipping in and tapping back to one of the hottest and fastest growing retail concepts to hit the public markets. Over the last decade, SoulCycle (“SOUL”) has expanded to encompass 47 studios across seven states. Since 2012, the business has tripled in size, generating $112 million in revenue and $36 million in Adjusted EBITDA as of 2014 (see below).
Such staggering numbers make SoulCycle a unicorn in the fitness world and beg the question: in an industry littered with so many losers – Crunch, Bally’s and David Barton Gym to name a few – what’d SOUL get so right?
The Business: More than Just a Workout
When co-founders Elizabeth Cutler and Julie Rice opened their first studio on West 72nd Street in 2006, they set out to answer one simple question: why does exercise have to be such a chore?
The answer, it turns out, is that it doesn’t! SOUL delivers an efficient, full-body cardio + weights spin class in just 45 minutes. But SOUL enthusiasts would argue that the experience transcends just the physical. Some call it “therapeutic.” Others describe it as a “dance party.” Some even call it “strangely sexual.” Whatever it is, SOUL has created a truly unique fitness experience for its customers and, in the process, built a powerful lifestyle brand and cult-like following.
It’s the extraordinary loyalty this community has shown SOUL over the years that has propelled the business to such giddy levels of success. At $34 per class (plus $3 to rent shoes and $2 for water, natch) in Manhattan, SoulCycle can generate over $2,000 for a sold-out, 60-person class. And though not all classes are sold out, boxes are still handsomely profitable, generating on average a 53% studio contribution margin on ~$4M of annual sales.
Operating with Intent
From the grapefruit-scented candles to the free packs of gum, EVERY DETAIL about the SoulCycle experience is deliberate and intentional.
We’ll focus here on just two of the most important aspects of SOUL’s operational design that underscore the customer experience.
The Intangible: Instructors & Studio Personnel
As a service-oriented business, the success of SoulCycle begins and ends with its people, each of whom serve as brand ambassadors and play key roles in cultivating the company’s unique culture and community.
Most important are the instructors. They curate music playlists, dictate the rider experience and most importantly cultivate deep relationships with the customers. Becoming an instructor isn’t easy; less than 10% of those who audition ultimately make it through a rigorous eight-week training process. Once complete, instructors begin a full-time career at Soul (i.e., they’re barred from teaching at other studios), receiving benefits and ongoing training at SOUL University. They’re also paid $125-150 for a sold-out class. Veterans reportedly earn “significantly more,” with the very best NYC instructors rumored to make over $500K per year. It’s no wonder that Soul’s turnover rates are among the lowest in the industry.
A HUGE aspect of the SOUL experience is the personalized and consistent customer service one receives as a member of the community. The investment in employee training and compensation creates a culture of exceptional service and ensures a differentiated fitness experience, ultimately resulting in immense customer loyalty.
The Tangible: Studio Layout & Design
Boxes are designed to be small, squeezing onto the streets of metros such as NYC and LA, to minimize fixed rent / overhead in such high-cost locales. However, they’re also efficiently laid out to maximize productivity. SOUL packs up to 60 bikes into their ~3,700 square foot studios. It’s a tight squeeze, but one could argue that the close quarters enhance the feeling of community and belonging inside the classroom.
Lockers are located outside of the actual “locker rooms” and limited facilities encourage SoulCyclists to change and shower at home. Additionally, SoulCycle strips away many other non-essential “amenities” (e.g., steam rooms and stretching space) offered by full-service competitors such as Equinox, whose gyms can often be 10x as large.
Where SOUL doesn’t skimp is the quality of its studios. The company makes a significant initial capex investment of ~$2.3M for a high-end interior remodel, the purchase of proprietary bikes and the installation of a top-of-the-line sound system. With its studios, SOUL identified what its customers really care about (the quality and the details) and what they could live without (a big room with lots of extra amenities) and focused their money and efforts into creating a physical space that truly reinforced and enhanced the customer experience.
Turning what once was a bothersome task into an enjoyable time to connect with oneself and one’s community, SoulCycle has revolutionized the way many think about fitness. And though it’s proven to be successful – and quite profitable – thus far, the brand will have to grapple with many difficult questions regarding its value proposition and operating model as it continues to scale. Can it continue to find, train and retain instructor talent? What will box economics and profitability look like outside of core metro markets? And perhaps most fundamentally: can the loyal community SoulCycle has built thus far expand to include the masses?