Planet Fitness & Kohls Partnership with Jen Annello

Guest: Jen Annello
Topics: Planet Fitness, Kohls

Transcript:

Chris Ressa 0:02
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Welcome to retail retold everyone today we have Jennifer nello Jen is the director of real estate for Planet Fitness. She has been in commercial real estate for 20 years. She’s worked on the tenant side for Starbucks panda. She was formerly a broker, she worked on the development side and most currently she’s at Planet Fitness. We are excited to have her on Welcome to the show, Jen.

Jennifer Annello 1:30
Thanks. I’m glad to be here.

Ressa 1:34
Jen, why don’t you tell us a little bit about what you do at Planet Fitness and what Planet Fitness is up to these days?

Annello 1:40
Sure. So I am the director of real estate for corporate. I approve all of the proposed real estate locations for our franchisees in 11. States and Mexico. I’m also responsible for market planning. And as well as the leading our partnership with Kohl’s and some other retailers interested in quote unquote, right sizing their footprint or selling adjacent excess land.

Ressa 2:14
Oh, that’s really cool gig. You mentioned Mexico. And recently we were talking about Mexico. What’s it like doing deals internationally?

Annello 2:25
You know, it’s been really great. I wouldn’t say it’s, it’s so different. I mean, just like here, you use your local broker, look for sides. I would say, you know, when negotiating there were some things are a little bit different. But for the most part, it’s just a great experience. It’s really fun to go down there. I love Mexico. So we’re excited about our growth plan there.

Ressa 2:50
How many locations do you guys have in Mexico?

Annello 2:53
Right now we’ve got four open, and one more that will open this year. So that’s really exciting. And, you know, we’ve got a lot more planned for Monterey and Mexico City and going further south. So we’re just getting started. But it’s looking really good.

Ressa 3:16
So planet has been on a tear Planet Fitness, Health and Wellness is a hot category. Fitness is, you know, a sub sector health and wellness. That’s really hot. And you all have opened up a tremendous amount of clubs year over year. You guys are now public. What’s the story here? How has this been possible? What’s going on? How did you guys do this?

Annello 3:42
Yeah, it’s really been exciting to be a part of such a strong company, and a really unique culture. I would say our founders, we still have Chris Rhonda, who’s our current CEO. He is, you know, the reason the culture is is what it is today. So really excited to have him as a leader. Right now we’ve got well as of the end of 2019, we hit 2000 clubs, which was really exciting. Across 50 states in five countries. So we’re, we’re really growing. We opened 261 gyms last year, we’re on track to do you know more than 250 this year. We have seven times the locations of our next largest competitor. We you know spend unmatched marketing dollars over 650 million spends on on local and national advertising. Today we’ve got over 50 or 14 million members with an attrition rate of one and a half to two and a half percent of the members who have been with us for at least a year. Unbelievable. All really exciting. We’re not stopping we’re gonna continue to grow And it’s been a great ride the short time that I’ve been here,

Ressa 5:04
why do you think planets been able to, you know, be so successful have that growth, choir 14 million members, what’s planet doing that, that’s so great.

Annello 5:18
I think it’s really keeping it simple. And you know, we are the judgment free zone, we, you know, everyone is welcome, you could be on a treadmill and have, you know, someone over 55 to your right and a 20 year old on your left, we just we attract, you know, a wide range of folks, our demo skew a little bit younger and more females, but really, we we get everybody which is so great. It’s a it’s a welcoming place, it’s, it’s the it’s a good feeling, you don’t feel intimidated, when you walk in there, our membership fee is, you know, affordable, obviously. So you know, a lot of folks can do if you want to be part of a SoulCycle or a boxing or you know, you’ve got a another activity you’d like to do, you can afford to be a part of planet and another gym. So,

Ressa 6:22
the kiss method, keep it simple, stupid. So it’s, it’s it’s simple, it’s affordable. And I do think the judgment free zone, I agree with you. I think that’s been a big part of the success. It’s very welcoming. And, you know, there’s a lot of people out there potentially intimidated by health and wellness, because you have these gyms with these, you know, people who are throwing around heavy weights, and it’s intimidating and planet is not that. And so I think that is a really key component to the member acquisition that you guys have had 261 clubs last year, and you guys have the same plan for this year.

Annello 7:02
Yeah, we’re we are definitely going to do you know, over 250 I’m sure, not really able to give out a specific number, obviously, but you know, we are on track for the same type of growth, which is great.

Ressa 7:20
And so how are you it feels like that there’s a lot of competition in health and wellness today. It’s such a hot category. There’s, you know, a lot of class boutique fitness gyms, there’s LA Fitness, 24 Hour Fitness, the crunch fitness Orangetheory. You mentioned SoulCycle all these groups? How are you fine, you know, how are you finding competition and continually able to have the growth that you’re having, with all this competition coming out? How are you guys looking at that?

Annello 7:57
Well, we’re definitely not afraid of it. We are, you know, seven times larger, seven times the locations of our next largest competitor. And, you know, I think we’re always happy to go head to head I think, you know, people like our, our model, it’s simple. I think a lot of folks have, you know, tried to recreate it, and we just own it, you know, we were the first the first ones out there, offering this and I think that has made a difference. And we’ve got loyal, loyal members. So

Ressa 8:31
incredible. And these are there are some corporate cult locations, but a lot of majority of the the franchise driven, and the franchise, the franchisees are these, you know, single owners to these franchisees on a lot of locations.

Annello 8:53
Well, it’s sort of across the board. I mean, we’ve got both, but I would say, you know, vast majority of our franchisees are, all of them are very sophisticated. They know what they’re doing. They believe in the brand. They’re great operators, I would say, you know, a lot of the larger groups or private equity backs, so strong, strong operators, and, you know, they really believe in what they do and believe that we are helping people be healthier. So

Ressa 9:29
awesome. Let’s say you guys have been on a great run. I’m, you know, rooting for continued success. And I think it’s been really exciting to watch you guys really become this juggernaut that you have. So kudos to you all and keep on keepin on

Annello 9:48
things. So

Ressa 9:53
I wanted to talk about something that I think is been pretty interesting which is This, you know, the partnership that you guys have with Kohl’s and I think you guys now have four clubs open that were you took a portion of Kohl’s stores. So why don’t you tell us about you know how that partnership became and working those deals with not a landlord, but with a tenant? Sure.

Annello 10:25
So I guess it would be a couple years ago, we had a franchisee group here in Dallas, looking for, you know, sides, and there was a cold, a cold deal of interest. And so it sort of morphed from there. I came on not long after that, and was basically given the task of negotiating all the deals nationally. And so we’ve really created a strong, strong partnership relationship. I love working with DAX, Neville and his team, they are absolutely the best. And we’ve made a lot of progress. We’ve got, you know, another five deals opening this year. And we’ve got a strong pipeline for 2021. I don’t have you know, an exact number yet for 2021. But we’re just going to, you know, keep moving along. And it’s been a partnership that has worked and the gyms that are open look great. They’re doing really well. So it’s a good, good ride with them.

Ressa 11:34
So the first one that you saw was a franchisee wanted a location where Kohl’s was open in Texas or where they was a dark Kohl’s.

Annello 11:43
Now they were they were open. And I think, you know, we say you’ve probably heard through the grapevine that you know this right sizing was coming about. And so they wanted to see if there was a possibility of doing something like that. And that’s sort of, from what I understand. That’s how it started. So now, you know, other retailers are obviously catching on. And I’m working with some of those other retailers as well. Because it is it’s a new, it’s new to folks and it’s not so easy to get it off the ground. So I think having this this Kohl’s partnership is really going to help us as we move forward with some other folks as well.

Ressa 12:31
And so you guys start the discussion with Cole’s about, you know, taking a portion of the space where they’re open, and you know, putting in a Planet Fitness. Are these locations that are owned by Kohl’s or are they are there is there a landlord and Kohl’s as a tenant?

Annello 12:53
Yeah, there’s a mixture. There are both situations.

Ressa 12:58
Is it is it more challenging? I assume it’s more challenging when you add another party to the mix and causes a tenant in the near subtenant of Kohl’s

Annello 13:07
we’ve made it work. So we’ve done those types of deals.

Ressa 13:11
So you guys are in touch with Kohl’s is and now you got to start getting into the nitty gritty. So I guess you know, they get over the fact you know the old school retail where we don’t want to be next to a gym. Clearly they’ve gotten over that. And they believe there’s some synergies between fitness and retail and your you know, the old adage was fitness was just a parking hog. And I think you guys had proven that was that something that they had to get over as well in the beginning? Or were they already there?

Annello 13:43
No, I think it’s just it’s a new day. You know, I think retailers are recognizing that, you know, they need to work together. And also we’re a little bit different. We don’t have classes. So from parking perspective, it’s a better situation, I think, you know, our average day is about 45 minutes. So, it’s not what people think, you know, people aren’t hanging out for two hours at the gym. So you know, and also, you know, bringing traffic to that shopping center. 77% of our members, you know, will go shopping, you know, in a desert in addition to visiting the gym so we’re we’re bringing them business and I think that they are recognizing that. Wow, 77%

Ressa 14:29
I had no idea that is a really cool stat. Awesome, good to hear. So not an easy task to take a open retailer and put up a wall and filled out another business, you know, a gym in the same building. Did they close their stores when they did this or they stay open?

Annello 14:54
No, they stay open. So it’s worked out. It’s worked out well on the coals. Doors looks really great inside.

Ressa 15:07
And so they stay open. Are you doing the construction is Kohl’s? Is there a combination?

Annello 15:14
It’s a combination. They’re delivering, you know, a basic shell. And then we come in and build out we do our storefront.

Ressa 15:23
I assume that, you know, just based on the the look of a Kohl’s you know, there’s a prototype Kohl’s out there, they look very similar for to the consumer out there. And so I assume when once you kind of figured out one, the others are kind of plug and play from the logistics of construction, and how the they they stay open. And then you guys come and build out and get open, or am I wrong and these buildings all have their own nuances, and it makes it really challenging.

Annello 16:00
I would say they can be read polls is great about recognizing that ahead of time deciding which doors are going to make the right size list. And you know where from a design perspective and merchandising perspective. It’s, it makes sense for them. So we haven’t encountered any, you know, crazy construction issues just yet.

Ressa 16:25
The ones that are open,

Annello 16:27
where are they? So we’ve got one in Dallas, one in New Hampshire, Austin, and we’ve got another five opening this year. So, really excited, awesome. And I’m sorry, one in Carbondale, Illinois also. So those are the four that are open.

Ressa 16:50
I know Carbondale, Illinois, we own the shopping center with Best Buy TJ Maxx right down the road over there. So Carbondale, Austin, Dallas and in New Hampshire. And so I know that, you know, you guys 77% The customers also shopped. And hopefully retailers are starting to see the benefit of the increased traffic. Do you guys see an increased membership being next to some of these, you know, really, Legacy flagship retailers?

Annello 17:23
You know, I’m sure that we will, it’s a little too soon to tell. Right now. I do know that, you know, we had some really good strong presale numbers prior to opening some of these Kohl’s locations. So, you know, we’ll see what happens. But so far, so good, great openings.

Ressa 17:43
That that will be interesting, if, you know, if it’s that synergistic, where you drive more traffic to them, and they drive more traffic to you, I assume that’s the holy grail of, you know, retail destinations. And that will be really interesting to see. I hope that I am I am rooting for that to happen being a landlord and an owner of shopping centers. I am rooting for that to happen.

Annello 18:09
Yeah, you know, Kohl’s, customer profile demographic profile and our gym member profile. They’re very similar. Very similar. So, the partnership works really well.

Ressa 18:26
And so all this call it disruption happening in retail, why focus on strategy that’s taking down boxes of stores that are open versus going the locations where there’s vacancy?

Annello 18:45
I would say, number one, I mean, the strength of coal real estate. Definitely important to us. I would then sort of backfilling a, maybe at the tertiary center that, you know, the ad where the access is challenged and things like that Kohl’s has really great, obviously, a really great real estate portfolio, and we’re excited to be a part of it.

Ressa 19:11
And that makes sense. The so your demographic profile, from what you know, is pretty similar to Kohl’s and so that makes it a pretty good synergistic, hopefully a pretty good synergistic relationship. And traditionally planet, you know, looking for a location that a landlord calls a planet or you guys call a landlord to you what has been like the biggest difference and or learning experience by this strategic partnership that you guys have built with Kohl’s?

Annello 19:42
I would say, well, just basically being able to look at the country. You know, it becomes such a small health place when you look at it nationally and all of the opportunities out there with this cold partnership. And then it’s easier to look at Get your markets and say, oh my gosh, here are the, you know, the voids, and there’s a cold there or it’s, it’s been just a lot easier, I would say, a such a great resource for our franchisees. And we’re hoping, you know, continue to build that and streamline it as as we go along. It’s a little, you know, it’s always a little slower in the beginning, but we’re, we’re, we’re getting there.

Ressa 20:30
Have you all been able to develop a template lease I know, that’s the holy grail of landlords and tenants where the lease is a template. For those who don’t know, a commercial lease could be 200 pages and could take forever to negotiate if you guys got a template. So where it’s really just plugging in some of the business terms we do, that’s awesome.

Annello 20:51
We, you know, negotiate the economics upfront, we’ve got an abbreviated loi template that we use, the negotiations go really fast. Between us, there’s not a lot of back and forth. I mean, you know, they know where they need to be, we know where we need to be, and we just get it done. And then we’ve got a pre negotiated lease template as well. So it’s been a great process,

Ressa 21:15
going back to the beginning, and these four locations, how did we identify these four? I know, the Dallas one was kind of facilitated by the franchisee, but in Carbondale or in in New Hampshire, and in Austin, why those versus something in Washington or Florida, anything anything unique, or was it just about why those were the ones for the Colts planet partnership versus planet going into a different location?

Annello 21:49
Well, we’ve got locations all over the country that were negotiating that the issue is, is, you know, being a landlord, getting the youth waivers take time. So a lot of, you know, what we decided to move forward with was dictated by, you know, the approval process and what would take more time, and it pushed into 20 employees pushing 21. So it’s just, you got to work through all of that. And for that first round, we really, you know, we moved forward with the deals that we had these approvals in hand, or, you know, there weren’t any needed. It was the lower hanging fruit for sure.

Ressa 22:40
Makes sense, you know, unencumbered path of least resistance is a good place to start to kick off and get the partnership rolling. Anything else about this unique partnership that? You know, the listeners out there should know?

Annello 22:58
Well, I think it’s, it’s just been, we were so lucky to be paired with a company that has such a strong team, and really, were willing to work with us. And you know, there’s no egos involved no bullish negotiation, it was, it just came so easy and such a good friendship with Scott now. And we really want to do right by each other and make this work. So we’re doing everything that we can to do that. And so that our brands are successful, and we can continue doing this for years.

Ressa 23:44
Awesome. Do you guys have a list of like, X amount of stores that they’re looking to downsize? And these are the opportunities out there? Is that how it works? Or is it a little more?

Annello 23:55
Yeah, they’ve got, you know, a list like most retailers do have stores that they’re wanting to right size. So the great thing is, you know, they’re there as a fitness partner, they’re coming to us first and saying, hey, you know, what do you think about this? Would you like this location? So that’s really nice. And then, you know, we’re also thriving markets and saying, Hey, guys, what about this one, and it may not be on the list and and if it makes sense for them from a design perspective, then it goes on the list. So

Ressa 24:37
very cool. Very cool. Well, that’s awesome. I am hoping the partnership works out as I’m sure you are. It looks like it is an exciting to see continued innovation in the industry. I think there’s, you know, a lot of innovation based on this partnership, one. The retailer wanting to part Are with a fitness use, which I think is groundbreaking in the retail real estate industry and then to just the the creativeness as the store optimization process continues to unfold in America that you guys are proud of it. So excited to see cool to learn about what you guys are up to. And there’s more to come. So thank you for sharing that. So the last part of our show retail wisdom, I think, you know, what this is about? I’ve got three questions for you. They are, I hope, all fun. You ready? Sure. All right. Question, one, best piece of commercial real estate advice,

Annello 25:48
I would say, relationships matter. It’s a, it’s a small worlds and you know, an even smaller industry. And so I, I usually tell younger folks getting into this business, you know, you want to outwork everyone, and you want to be nice. And when you negotiate a deal out here, what side you’re on, if you’re a broker, if you’re the landlord, if you’re the tenant, you know, just, you know, don’t be overly bullish in your negotiation style or tactic, there’s just no need, you know, for me, it was always, the best thing to do would be to sit down, face to face, and get to know this person and just work out the deal. And honestly, the relationships I’ve made 20 years ago, I still am really close to these people. And I think that’s the most important learning.

Ressa 26:49
Do you think the fact that you’ve been on all facets of the business being a retailer, a tenant, being a developer and a broker, it’s helped you forge relationships?

Annello 27:03
Absolutely. I think that, you know, if you haven’t been a broker, then you probably don’t totally understand it or get it and there are amazing brokers and I think a lot of times they get a bad rap. And I, there’s something to be said for, you know, a broker being very loyal to their tenant and, and, or their retailer, and, you know, the retailer, being loyal to the broker. And when you forge a really strong relationship, it makes a difference and you can really make some great headway and, and do great deals. And I don’t know, I just think there’s no reason to ever, you know, have any ego or anything like that involved and getting the deals that I just being genuine or authentic. Yeah, just be genuine and want to do the right thing. Be honest. Do the right thing. All right.

Ressa 28:16
sage advice, do the right thing.

Annello 28:18
I agree. All right. Question two.

Ressa 28:24
Extinct retailer, you wish would come back from the dead.

Annello 28:30
We talked about this a little bit. So I thought more about it. We’re kind of a music family. So I was thinking like, you know, how our records. Awesome. You know, that whole walking in and like touching vinyl, it’s, it’s experiential. It’s fun. It’s, you know, a lot of sort of one off record stores. Now the boutique type fields have got live music playing and I mean, it’s just fun. And I remember, you know, going in and I mean, it was just such a great experience. And I know I talked about blockbuster reports that are the same thing. It was an experiential kind of deal. And, and you go on with your friends, and you’re hanging out looking at movies that you want. Same thing was a terrible record. So I would say those two would sort of be at the top of my list. Totally,

Ressa 29:34
I, I love Tower Records. And you said music family, your your daughter’s a music major in college and your son is, you know, turning into a rock star, right.

Annello 29:50
Well, we’ll see. It’s early days. Yes. Sophia is at Berklee School of Music in Boston and Nicholas Yeah, we’re We’re going to LA quite a bit, we’ll see where we’re that and but they’re they both have music on iTunes and Spotify and I’m just happy that they love music that was really my goal as a parent. So they they took it to another level. Well when they are

Ressa 30:21
icons make sure I get a ticket to one of their concerts.

Annello 30:27
Definitely.

Ressa 30:29
All right. Last question. So I’m going to pick a product and you are going to tell me the retail price and since we’re talking about health and wellness, we’re going a little alternative health and wellness. New Hot category. I am on savage CBDs website. Savage CBD sells CBD gummies they have a package of six CBD gummies what are they retail? Their CBD gummies for their package of 650

Annello 31:10
milligrams each? I have not ever I mean, I know I’m like the last person on Earth that has not bought CBD gummies. So I I honestly have no idea what they go for. Let’s say product. I don’t know. How many did you say you’re gonna pack?

Ressa 31:39
Six gummies that’s it better? That or be judicious and when you eat

Annello 31:45
your gummies I would say I don’t know, like 50 bucks.

Ressa 31:54

2999. But thank you for playing and I haven’t had any either, but they are definitely a hot product. We actually have a CBD store and one of our centers so you should test it out and tell me how they work.

Annello 32:14
I’m not commenting on that.

Oh, that’s funny.

Ressa 32:22
Well listen, thanks for playing. Thanks for telling us about this really unique partnership and what Planet Fitness is up to these days and wishing you guys nothing but success and keep on rocking on.

Annello 32:36
Thanks, it was fun. Thanks for having me.

Ressa 32:44
Thank you for listening to retail told if you want to share a story about a retail real estate deal that you were a part of on our show. Please reach out to us at retail retold at DLC mgmt.com This show highlights the stories behind the deals from all perspectives. So it doesn’t matter if you’re a retailer, broker, entrepreneur, architect or an attorney. Also, don’t forget to subscribe to retail retold so you don’t miss out on next Thursday’s episode