An upscale Equinox gym in downtown Berkeley, California.
Photo: Smith Collection/Gado/Getty Images
The Associated Press ran a story yesterday about outrage and boycott threats over a high-dollar fundraiser for Donald Trump hosted by Stephen Ross, chairman of the Related Companies, the parent of SoulCycle and Equinox Fitness. The story quotes a brand strategist who minimized the possible fallout from the controversy.
“In the age of Twitter and Instagram, these boycotts blow hot for a day or two and sputter out very quickly,” Laura Ries told the AP.
While I think that is true in most cases, I don’t think it’s going to be true here for a few reasons. Axios reported today that Ross had “privately expressed qualms about going ahead” with the fundraiser, though he ultimately did anyway. If Ross was nervous, he’s right to be.
First, the Related Companies is not a normal builder of apartments and office buildings. It owns interests in a suite of lifestyle brands (not just Equinox and SoulCycle but also Pure Yoga, Momofuku, Bluestone Lane, &pizza, and others), which it deploys as amenities to enhance the value of its core real-estate-development business. Related’s strategy relies on maintaining a positive image for these brands among its target demographic.
Equinox and SoulCycle have claimed in recent days that Ross is just a “passive investor” in their businesses, which is false. It is true that Related is a minority investor in Equinox, which in turn owns SoulCycle. (As Dan Primack of Axios has explained, Related used to own a majority of Equinox but has sold stakes to other investors over the years, diluting its own position.) It’s also true that Ross owns just 60 percent of Related. So a majority of Equinox’s and SoulCycle’s profits are not accruing to Ross personally.
But “minority” ownership does not equal “passive” ownership, and the siting decisions for Equinox gyms and SoulCycle studios are heavily tied up in Related’s broader development strategy. Related is the landlord for many Equinox and SoulCycle locations, especially in New York, because Related seeks to place them where they will enhance the value of Related’s residential and office developments. This includes Related’s Hudson Yards megadevelopment on the West Side of Manhattan, which contains a flagship Equinox gym and the first-ever Equinox-branded hotel in addition to about a thousand apartments, millions of square feet of office space, and, of course, a SoulCycle studio.
Here’s how Related explained its decision take control of Equinox all the way back in 2005:
Related will secure a well known brand as a quality anchor tenant for key current and future developments. This will also help Related to enhance the quality of its amenities and facilities available to residents. Equinox will leverage Related’s real estate expertise and relationships to more efficiently secure sites, reducing its site identification and club development costs.
Related’s strategy of leaning on lifestyle brands to enhance the value of its real estate (you should see the asking rents in Related’s apartment buildings, which are high even by Manhattan luxury-apartment standards) works only because of the strong equity in the Equinox and SoulCycle brands. These brands rely on cultivating an emotional relationship with customers; Equinox encourages its members to “commit to something,” while SoulCycle has “soul” in its name for a reason.
It is dangerous to that brand value to allow these brands to become politicized, especially in the direction of Trump. As Ryan Matsumoto notes, 86 of 91 SoulCycle studios in the U.S. are located in precincts that voted for Hillary Clinton. The median studio is located in a precinct she won with 76 percent of the vote to Trump’s 18 percent. I don’t think the SoulCycle customer base is as uniformly liberal as some observers would assume — the New York Times was certainly able to find some Republican SoulCyclists by visiting a studio in the Hamptons on a summer weekday — but it’s surely a customer base that tends to lean left and expects SoulCycle to share its values. Many customers can be expected to have a strongly negative reaction to the idea that their dollars are going to support President Trump.
But I think the brand risk may be greater to Equinox than to SoulCycle. SoulCycle customers, especially frequent ones, are likely to have personal relationships and attachments to specific instructors and may focus more on the idea that taking their business elsewhere would hurt those individuals, rather than on how it would affect Ross.
Equinox, however, is a monthly-membership gym, and the gym business model is heavily reliant on customers who maintain their memberships even though they rarely or never visit. Subscription businesses like this need to avoid creating “breaking points” where customers finally decide they’ve had enough, break through the inertia, and cancel. With this fundraiser, Ross has given infrequent Equinox visitors permission to admit they’re not getting good value out of their memberships and leave.
Getting back to what I quoted Laura Ries saying at the top of this article — even if the public does move on to another outrage in a couple of weeks, those who filed paperwork to leave Equinox in the heat of the moment will still be ending their relationship with the company. Those cancellations may not be noticeable as reduced crowds at the gyms if the people most likely to cancel are the ones already using them the least, but the cancellations will mean the loss of an easy revenue stream from customers who don’t even put much strain on Equinox’s product. This is no way to run a gym.
And in the future, members of the public who have formed a more negative view of these brands may be less inclined to consider proximity to a SoulCycle or an Equinox to be an amenity worth paying for when they think about buying or renting an apartment from Related in the heavily blue-leaning areas where the company tends to build and own.
Because of the furiously negative reaction to the fundraiser, Related has removed its list of affiliated brands from its corporate website, apparently in an effort to protect them from the damage Ross has caused. David Chang, the famous chef who took on Ross as a business partner in the Momofuku empire, has been distancing himself. If Related is barely on speaking terms with its affiliated brands, and if those brands now have to try to convince customers they’re not really that related to Related, how will it execute a business strategy based on the brands working together?
Ross should have realized he’s not just another real-estate developer. He’s in the lifestyle-brand business, where you have to be mindful about showing your customers that you share their values if you hope to take their money. He hasn’t done that. By failing to do so, he hasn’t just impaired the value of the Equinox and SoulCycle brands but that of Related’s brand itself.
If this incident has doomed the strategy of using affiliated brands to shine a positive light on Related, and led to mass membership cancellations, the best next step might be a divorce.