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Tuesday, May 30, 2023

Gym Business Pumping Up

In the greater Valley area, one gym operator has filed Chap. 11 and several others have sold out. But these recent occurrences hide a larger trend the fitness business, once a niche easily overlooked, is becoming mainstream. Independents are posting significant revenue gains at a time when other retail businesses are stagnating. And some of the largest operators are attracting large venture and equity capital firms to the tune of billions of dollars. “All the press about the links between obesity and health and productivity is really making the market sexy,” said Keith Albright, senior vice president, franchising for Gold’s Gym International Inc. “There are people looking at this saying this is going to be one of those trends for the next decade.” That’s not to say that the business is easy. Opening a gym can take as much as $4 million for one with all the bells and whistles, and competition from the large, national players is fierce. Then too there are pitfalls not unlike those other small businesses face. Just ask Bruce Gordon, the president and CEO of Bodies in Motion, a North Hills-based regional fitness club with four locations in Encino, Northridge, West L.A., Pasadena and, its most recent addition now closed, Irvine. “Our last club did us in,” said Gordon, whose company filed Chap. 11 in June. “All our other locations are profitable. Every other club I’ve opened has always been profitable.” Gordon said the company was forced into the voluntary bankruptcy filing because of a lease deal with the landlord of its Irvine facility. The owners, Gordon said, embarked on a major renovation of the parking facilities at The Irvine Spectrum, essentially eliminating the parking Bodies in Motion depended on. By the time the situation became clear, Gordon had already committed to constructing the new gym. Another fitness club owner, who was operating under the name Total Woman in Camarillo, simply shut that facility down. David Hill, the owner of the club, did not return a phone call seeking comment. Operators are quick to point out that running a gym is not for the fainthearted. Some who try it, “don’t really have the expertise to be in the business,” said Art Stone, CEO of Total Woman Gym & Atmosphere Day Spa, a fitness club with seven locations and two more on the way that has been in operation since 1968. (The Camarillo operation had no relation to Stone’s gyms.) “Say you’re a young person and you’re personal training. You think it’s lucrative because you have all these appointments. Now here you are, you have your own business, you’ve got $1,200 a month for equipment, you have to pay insurance, you have to pay for lights, and once you add it up, you say, ‘I can’t really afford this.'” That, however is changing. Gold’s Gym used to get a lot of body builders and fitness trainers signing on to its franchise program, but lately, its franchisees are coming not from the fitness industry, but from all kinds of different business backgrounds, Albright said. And there are plenty of them. The company has about 450 franchise locations in addition to about 50 corporate gyms in the U.S. and expects that number to grow to 800 franchise locations and 200 corporate locations by 2010. Michael Sanciprian, who owns two L.A. Workout locations in Camarillo, and is in the process of expanding and relocating one of them, is a fitness industry veteran. He started out with Jack LaLanne, known in the industry as the father of fitness, spent a decade with Family Fitness (the predecessor company to 24 Hour Fitness) and consulted to the industry before buying the Camarillo clubs a few months ago. “There’s a lot of intelligent people and a lot of money coming into the business,” said Sanciprian who plans to have a 10-location chain in five years. “Everyone is looking at the business as a real business right now. No one took it seriously before.” Last year 24 Hour Fitness sold its chain of about 345 fitness clubs to private equity firm Forstmann Little & Co. for $1.6 billion. Bally Total Fitness Holding Corp. is on the block and could fetch as much as $1.2 billion, some experts have said. A number of things are driving these investments, those in the industry say. Besides all the attention that’s been placed on obesity and the importance of exercise for fending off a variety of conditions from heart disease to diabetes, employers and insurance companies are increasingly willing to foot the bill for these club memberships. “More and more employers are saying there are reliable statistics that for every dollar I spend on fitness I’m going to get it back in lower absenteeism, lower health costs and higher productivity,” said Albright. That trend may not necessarily bode well for the smaller operators, Albright notes. Large employers, insurance companies and labor unions who opt for paying their workers and clients for gym memberships are more likely to want to cut corporate deals with the very large players. But smaller operators can still thrive, usually because they have carved a niche that distinguishes them from the very large fitness clubs. For the first quarter of 2006, independents saw their revenues rise an average of 3.8 percent to $1.2 million, according to a survey by the International Health, Racquet & Sportsclub Association. On a same store basis, the average increase was 5.1 percent. Sanciprian points out that his gyms compete with a 24 Hour Fitness location in Camarillo and the monthly dues rate is higher than what his larger rival offers. Sanciprian’s competitive edge is simply that he is local. “I live in Camarillo. I shop in the grocery store,” he said. “I feel the heartbeat of the club and the community everyday and I’m making decisions based on what our members and our customers and our employees want.” Stone, too, attributes much of his company’s success to its niche serving only women. A former hairdresser, Stone says, “There’s too many hair salons too. It depends on what kind of operator you are. We’re adding more to the salons, more classes, new types of equipment and we’re going to make it like it’s a resort in your own backyard. If you’re Joe Blow on the corner, you can’t keep up with the big boys on the block. They’re going to put out a cheaper price and fill the clubs. You gotta have a better product. You gotta care more and fight harder.”

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