Why Hydrow Is the Tesla of Fitness

In this episode of TD Cowen’s Retail Visionaries Podcast Series, Bruce Smith, CEO and Founder of Hydrow speaks with Oliver Chen, Retail & Luxury Analyst. They discuss the future of at-home fitness and Hydrow’s competitive positioning as the at-home space is gaining consumer interests across all age groups. They also discuss growth opportunities, customer acquisition, retention strategies, and pricing dynamics.

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Transcript

Speaker 1:

Welcome to Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.

Oliver Chen:

This is a visionary podcast series about visionary ideas and people. My name is Oliver Chen. I’m Cowen’s new Platforms, Retail and Luxury Analyst. In this episode, we’ll delve into the topic of at home fitness, consumer engagement and retention with Hydrow. Hydrow is a state-of-the-art home fitness machine that grants you access to world-class waterways, the sport’s most elite athletes, whole body health, and a community that spans centuries as well as the globe. Thrilled today to be hosting Bruce Smith, the Chairman and CEO of Hydrow. Bruce, thanks for joining us.

Bruce Smith:

Very, very happy to be here. Thank you very much for the invitation, Oliver.

Oliver Chen:

So Bruce, to start, for those who are less familiar with Hydrow, how is Hydrow different from other at home workout concepts and how is your experience differentiated as well?

Bruce Smith:

Thanks for a great question. Hydrow is really an incredibly immersive experience and we think of it as fitness 2.0. So a lot of at home companies have taken legacy fitness equipment and then they’ve put a screen on it and they broadcast that screen. And that’s been great for people at home during the pandemic, and that is connected fitness 1.0. And Hydrow is really connected fitness 2.0, and there are two or three key differentiators. Number one is the machine. It’s a proprietary IP protected machine with a unique algorithm that really transports the feeling of being out on the water to your living room.

Bruce Smith:

And also the experience. It’s a term that we use that is trademarked, live outdoor reality. So you’re not in a sweaty black box, you’re actually out on the river with our extraordinary athletes and you’re sharing that experience with people around the world. It’s really an extraordinary platform overall. And what we’ve heard from our customers is that they’re genuinely delighted in a way that other connected home fitness experiences actually don’t delight them at the same level.

Oliver Chen:

Bruce, so who are your core customers and what are your thoughts about targeting and new customer acquisition as well?

Bruce Smith:

Yeah, our core customer is anybody who wants really the best workout, the best whole health. And rowing is our golden path to consumers, but it is actually… Hydrow’s really a whole health company. And I think there’s this really interesting thing that happened. I’m a former National team coach, I’ve been to the World Championships 10 times for the United States. And the fact that everybody thinks of biking as great exercise is a bit of a red herring in the fitness industry. Biking uses your lower body and it does not use your upper body and it doesn’t load your skeleton.

Bruce Smith:

And if you think, if you want to get healthy, you want to choose… First of all, start with the best exercise. And there was a good reason that people didn’t choose rowing before. People didn’t understand how to do it necessarily and it was pretty boring on an old concept two machine. But with the Hydrow, we teach you everything you need to know, and it really is the best exercise. It uses six out of seven of the major muscle groups in your body, and above all, we spend our days curled over our screens. And you really, when you think about exercise, you want to get away from that. And rowing is the thing that turns on all of your back muscles and lets you sit up straight and feel really good at the end of the day.

Bruce Smith:

So it’s actually the best exercise and it’s really very different from curling over the handlebars on a bike. Biking is a great way to get around and if you’re a passionate cyclist, it’s fun. But if you’re looking for whole health, you should really do something that uses your whole body.

Oliver Chen:

Bruce, what are you thinking in terms of Hydrow’s growth algorithm? And also more broadly, the at home market and a lot of this at home innovation we’re seeing with connected devices, how do you see the market evolving and your participation as well?

Bruce Smith:

The pandemic has definitely moved everything forward. It’s accelerated the adoption curve. I don’t think it’s pulled demand forward. What we’re seeing is just a major acceleration and an understanding and people really embracing the idea that you can have an amazing experience and you don’t need to accept the overhead of going to the gym. That said, people love to do stuff together and we firmly believe that gyms are not going away. And you can see it in the numbers with Planet and a few other really great gym chains. And we want to be everywhere our members are, so that includes gyms, it includes hotels and apartment buildings. And we really embrace that omni-channel approach where Hydrow is everywhere.

Bruce Smith:

The pandemic has moved, it’s become more of an endemic and I think there are a lot of question marks about how the world has been changed. The data that we’re seeing shows that about one third of the people who used to go to the gym are just never going back. They’ve discovered a better solution, they’re very happy with that. One third of the people are thinking hard about going back and when the endemic becomes a little more tolerable, they may go back to the gym. And then one third really have been going to the gym and are the first people back in line at the gym. So overall, we’re an omni-channel company and we want to be everywhere and we don’t see a conflict between that. It’s not an either or, it’s both for our customers.

Oliver Chen:

Yeah. Yeah, the and the evolution of customers wanting different things as well, as well as wanting things simultaneously.

Bruce Smith:

Yeah.

Oliver Chen:

What about customer lifetime value, Bruce? What are key drivers that you think about in being customer centric and also retaining and extending the life of valuable customers?

Bruce Smith:

Yeah. We have just an amazing relationship with customers and it takes two or three experiences with Hydrow. So your standard fitness class is done in a black box and it’s driven by a really charismatic instructor, but that’s the only real driver. Hydrow is broadcasting live outside all the time. So we have live outdoor reality so there’s a whole other element of surprise and delight with all of our classes. There are fish that jump, there are deer that swim across the river. People have wind and waves and unexpected things happen. So there’s always that surprise and delight in the moment, and that is driving best-in-class retention numbers.

Bruce Smith:

The other piece of that is that because Hydrow is connected fitness 2.0, we’re not using a fan or a bucket of water for resistance, we’re using a computer algorithm. So the Hydrow that you have today in your home, next year is going to get a whole new algorithm and a whole new resistance. So in fact, it’s not one machine, it’s several experiences in one that appeal to everybody in the family and you can use it for different purposes and it will evolve over time. So it’s really, it’s a lot more like a Tesla than it is a traditional piece of fitness equipment.

Bruce Smith:

And we think that’s pretty revolutionary and it gives us an opportunity to be with people, because you don’t want to do the same thing for your workout all the time. We don’t want you to have the same experience. Your one and your three people change and grow, and we meet you where you are and we change and grow with you. We think that’s a key feature and fitness companies that are selling old school machines I don’t think have fully grasped that idea that whole health is a journey and every day has got to be different and we have to meet you where you are. It’s really, it’s an expectation I think that consumers are really growing into.

Oliver Chen:

Yeah. Having that versatility offers a value and also an approach to personalization. That’s very interesting. What about prices, Bruce? How are you thinking about pricing and also models and providing a great value to an addressable market as well?

Bruce Smith:

Pricing is something that everybody thinks a lot about. The key thing, there’s this idea in the marketplace that it’s a $2,000 piece of equipment, or in some cases 3,000, in some cases 1,000. What it really is, is a monthly payment. And so there were 60 million people before the pandemic who were paying an average of $57 a month for their gym membership. A lot of those people didn’t actually use their gym membership, more than half in some cases, according to some studies. And the Hydrow, it’s $63 a month and a subscription fee on top of that.

Bruce Smith:

But when you think about it in those terms, the pricing makes a huge amount of sense. And the machine’s commercial grade, it’s designed to last for years and we’ve had extraordinary results in our quality. So we see that as the key consideration around pricing. What is the actual cost per month? And what would the alternative be? What are we competing against? And it’s a $35 class, or it’s a gym membership that ranges anywhere from the bottom of the barrel, 15, $20 a month, but all the way up to 150, 200, $300 a month if you’re going to a more boutique place. So we’re in a very sweet spot as far as our pricing goes and that’s our framework for approaching the overall consumer interest in price.

Oliver Chen:

And Bruce, how much is the price of the machine now?

Bruce Smith:

So it is $2,249 and the subscription is $38 a month.

Oliver Chen:

Great. Thank you. Bruce, what about content? Touching on your workout content, how often do you generate new content? What’s your approach to this? And we were also curious, how often does a typical member workout per month?

Bruce Smith:

Yeah, our content is unbelievably fun. So as I said, it’s not a black box. You’re on a river in London, on a river here in Boston, you’re on a lake in New Hampshire. The team just got back from Lucerne, where we broadcast live for the first time internationally. So we are broadcasting between two and three times a day live on average to your home, and that is IP protected. So we have a published patent broadcasting live the rowing experience from the water to your home is something that only Hydrow can deliver. And it is genuinely immersive and exciting for people.

Bruce Smith:

We also have regular strength and yoga and awareness and movement classes. And we really lean into that live outdoor reality experience, so you’re experiencing that from usually water-based locations. We’ll be on a beach or we’ll be up in Gloucester here in Boston. Or as I said, in Lucerne. And then on the activity front, our members are actually working out… This is a crazy statistic to us, but they are working twice as often as they were on their Peloton at Peloton’s stage of development. So we have a very high level of engagement with our members and we’re delighted to see how excited and passionate our members are about using their Hydrows.

Oliver Chen:

That’s great to hear. Very engaged. What about international? There’s a lot of opportunities and a big addressable market outside the US. What countries would make the most sense? How is this fitting into your longer-term strategies?

Bruce Smith:

We launched in the UK in March. On March 22nd we sold our first Hydrow and we actually have a store in Selfridges in London, and we’re doing direct to consumer in the UK. We’ve been blown away that the response to Hydrow in England is just… One reviewer, I think it was GQ, said that we were the Beyonce of rowing machines. At which point I wanted to just drop the mic and quit my job because I have achieved my goal. So it’s had an exceptional response. One of the advantages worldwide is that rowing is actually more popular than it is here in the United States. And there’s the general recognition worldwide that rowing is in fact the best exercise you can do for your body. So rowing machine sales in Europe actually outpaced bikes and treadmills in some situations. We’re really excited about further expansion, which we’ll be looking at over the coming years.

Oliver Chen:

Bruce, can you elaborate on that? Why is rowing one of the best workouts for your body? To me, that seems under appreciated.

Bruce Smith:

I know. So you’ll have to forgive me because this is obviously my favorite subject and I’m still a coach at heart. So you use your whole body, which is just something you can’t say about running or biking. You use all of your muscle groups. More important, the pulling that you do on the rowing machine actually turns on the muscles in your back. It’s the posterior chain. Nobody knows that they have a posterior chain. It means pretty much what you think it might mean. All the muscles in your back that connect into your pelvis and all the way down to your feet. And turning those muscles on is something that most activities that humans do, most of the stuff at the gym doesn’t do that for you. Rowing is unique in that it does, and that makes your whole day better because you get a much better workout in less time. And you stand up straighter, you feel stronger.

Bruce Smith:

It’s also, it’s a great combination of aerobic and strength work because it’s got a rhythmic nature. So most exercises you do like biking, you’re constantly on. Rowing, you’re on for a stroke and then when the handle comes back towards the front of the machine, you’re off. So there’s a real strength component to it. So you’re not just burning calories, you’re actually improving your muscle tone. And then of course it’s a really simple and comfortable machine to use. So it doesn’t have a saddle. It’s a comfortable seat. It’s accessible to everybody, whether you’re used to sitting on a racing bike or not, you’re really comfortable on a rowing machine and there are no major adjustments. So whether you’re 5’1″ or 6’8″, you can sit down on the Hydrow and be comfortable immediately. You just adjust your feet and you’re ready to go.

Bruce Smith:

And the machine really meets you where you are. So whether you’ve been a lifetime athlete who really likes to grind it out, or whether you really feel like for first time in your life it’s about time to exercise, rowing meets you exactly where you are. And that’s where our algorithm comes in. That algorithm creates the perfect amount of resistance for every single person, regardless of who you are. And it’s really, from my perspective, it’s the product of a lifetime of being committed to performance and doing everything that I could do to win medals at the World Championships. And then sharing that experience with people on the Hydrow.

Oliver Chen:

It sounds very efficient in using your whole body and the time factor. So Bruce, is Hydrow the Tesla, the Beyonce or the Peloton of rowing? It’s many things.

Bruce Smith:

It is very flattering to be compared to a giant, hugely successful company. We are definitely the Beyonce and the Tesla, and honestly, the immersiveness of the experience and just the difference of the fact that Hydrow really is for everybody, it’s very differentiated from Peloton. We are not a bi-coastal company with aspirational people, we are a genuinely authentic brand. My great, great uncle built rowing shells here in Cambridge, Massachusetts. And we want to share that with everybody, not just the cool kids.

Oliver Chen:

And Bruce, as we do think about the next three to five years, what are some of your key priorities? How are you thinking about balancing growth and profitability?

Bruce Smith:

We are very committed to growth, and we also have a very, very short path to profitability. We’re looking at being profitable within about two and a half, three years. We also, our biggest priority really is just telling the world that we’re here and that rowing is in fact for you. It’s one of the reasons that we’re so excited that Kevin Hart is our Creative Director. If anybody can tell a great story, it’s Kevin Hart. He’s one of the biggest stars in the world. And even more than that, he’s just the opposite of what people think of when they think of rowing. I think most people are stuck on this idea that rowing is for tall, white guys who went to Harvard or Yale, not necessarily a very desirable group of people.

Bruce Smith:

But Kevin Hart as Creative Director, first of all, he’s not tall. And secondly, he’s a black American man and he is really passionate about the sport and passionate about the experience and Hydrow and is doing amazing work telling that story to everybody. So we’re really excited about that and very excited to have a capital efficient company. We have not built 100 stores and we really are a very, very lean team who are excited to build awareness and continue to deliver Hydrows, not to tens of thousands of people, but to millions of people.

Oliver Chen:

Bruce, which part of the job is the most fun for you? And do you have any closing remarks as well?

Bruce Smith:

Talking to analysts, that’s what I love the most. Yeah. Honestly, it’s telling the Hydrow story. It’s the best kept secret in the world and I love telling the story. And the idea that we can have 20 minutes, play a real role in people’s lives. Give us 20 minutes and you will really feel better and we see that with tens of thousands of people every day. It is so deeply satisfying to be able to play that role with people, with our members’ lives. It’s really, really fun.

Oliver Chen:

Well Bruce, thanks for joining us. The authenticity, the innovation, that personalization in the hardware and the content, it all is very exciting. Great to have you.

Bruce Smith:

Thanks. Yeah, great to be here.

Speaker 1:

Thanks for joining us. Stay tuned for the next episode of Cowen Insights.

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