"Quiznos of Fitness" 1-2-3 Fit in Financial Trouble

February 27, 2008 by Sean Kelly
Filed under 1-2-3 FIT, QUIZNOS

cover0208 (FranchisePick.Com) The concept of successful franchising is based on creating a win-win-win situation:

The Franchisor organization wins by having franchisees provide the expansion capital and unit-level management.

Franchise owners win by having a proven system, expert guidance and support.

Consumers win the benefits of trusted brands, efficient service and quality products.

Sometimes, the reality is win-lose-lose, and even lose-lose-lose.

According to Stuart Goldman’s article Lights Out, the 1-2-3 Fit fitness franchise was initially heralded as the ultimate win-win-win:

1-2-3 Fit, Denver, which opened in 2005, was the brainchild of Rick Schaden and Brooksy Smith, two men who made Quiznos a successful national restaurant chain. Schaden and Smith called upon fitness legend Ray Wilson, whose background includes opening several club companies, to help them with their venture into the fitness industry.
“It was the perfect mixture of franchise team and fitness team,” one former 1-2-3 Fit franchisee says.

However, the financial picture shown in last year’s required disclosure document tells a different story:

Franchisees at 1-2-3 Fit may not be surprised to learn that 1-2-3 Fit’s 2007 Uniform Franchise Offering Circular (UFOC) shows the company is in financial trouble. 1-2-3 Fit has incurred losses of $9.5 million since Jan. 1, 2006. The company states in its UFOC that an independent accountant’s report reveals that 1-2-3 Fit’s circumstances raise substantial doubt about the company’s ability to stay in business.

While the independent accountant may have substantial doubt about the company’s ability to stay in business, many 1-2-3 Fit franchise owners no longer have doubt about the viability of their franchise units:

The numbers show that several 1-2-3 Fit franchisees have closed their doors or sold their clubs. The 2007 UFOC, which includes information as of Dec. 31, 2006, listed 26 franchisees in operation, 76 franchises sold but not yet open and 12 former franchisees. A year later on Jan. 30, the 1-2-3 Fit Web site listed 27 stores open in 11 states with seven more stores listed as opening soon. A list created by a 1-2-3 Fit franchisee, updated on Jan. 31, shows 27 franchises are open, 52 have been sold but are not open yet and 22 have closed.

Fitness legend Ray Wilson made out OK, having sold all his shares in 1-2-3 Fit two years ago and severing all ties with the company. Many others weren’t as lucky. Or as informed:

The success of the Quiznos executives led several fitness franchisees to believe they could pull off a similar success in the circuit express club market. Former 1-2-3 Fit franchisee Mark Metevia initially felt good about his investment.
“I thought they knew what they were doing,” Metevia says of 1-2-3 Fit executives.

Metevia’s misplaced faith turned into a costly lesson. He lost his club and his $250,000 investment. He lost his boat. His cars. His house. And eventually his marriage.

The lesson: In the best circumstances, franchising enables you to be in business for yourself, but not by yourself; In the worst circumstances, you’re just by yourself.

For a lot more valuable insights, read the rest of the Club Industry’s Fitness Business Pro article: LIGHTS OUT by Stuart Goldman.

WHAT DO YOU THINK OF 1-2-3 FIT, ITS FOUNDERS AND GOLDMAN’S ARTICLE? YOUR COMMENTS AND INSIGHTS ARE APPRECIATED.

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