In yesterday’s post on the acquisition of the 1-2-3 FIT franchise chain (1-2-3 FIT Sold to Diversified Health), I pointed out that Fort Lauderdale-based Diversified Health & Fitness has been aggressively buying up the assets of dead, dying and severely wounded franchised fitness chains.

Two years of writing about and commiserating with the franchisees of these chains has left me both hopeful that Diversified HF is genuinely dedicated to helping these franchisees, and fearful that they’re not.

I concluded with an invitation to Diversified Health & Fitness to respond to my rather cynical musings, which they quickly did with the following statement.

Dear Sean,

Thank you for the opportunity to respond to your blog post. With your permission, we would like to have a sign made quoting the first line of your post* to hang above our door. Very amusing.

To be perfectly candid, yes, we have been very active in acquiring the franchise contracts of struggling franchisors. In today’s market, franchise sales have become a difficult prospect in all franchise industries, leaving many franchisors in the unenviable position of being forced to cut back on support to cover their own overhead. This leaves many otherwise innocent franchisees in the lurch with little or no support from the system into which they made a significant investment. These people deserve better.

This is where we step in. We, like the franchisees before us, make a significant investment of our own and acquire the assets and the franchise contracts of the struggling system. We use the know-how of our teams of marketing, operations, real estate, and financial experts to do everything in our power to work with the acquired franchisees to strengthen their business operations. Our motto is “your success is our success,” meaning that the better our franchisees perform, the better we will perform as a company.

Our philosophy is that, in order to be a good franchisor, we need to be a good parent. In being a good parent, we strive to provide our franchisees with the tools it takes to be successful business people. While it is unfortunate that some of our acquired franchises are in the process of winding down when we take over, we still do everything we can to resuscitate them. Though it may not be reflected on your site and others like it, we have reams of letters and e-mails from our franchisees praising our efforts.

I can assure you that there is no “role playing” when it comes to our acquisitions. All of our transactions have been at arms length and have been very thoughtfully, if not contentiously, negotiated. I believe anyone who has had the pleasure of dealing with our acquisition team can attest to that.

Lastly, we certainly do not see ourselves as donning a billowing cloak and scythe with DHF stenciled across our back. Rather, we prefer to see ourselves as the “savior,” to use your words, breathing life back into systems that have seen hard times. If we can be successful at this, we see a great opportunity when the economy rebounds as the parents of twelve fitness chains soundly planted in freshly potted soil.

I hope this gives you and your readers some insight into our business. Thank you again for this opportunity.

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* Old Fitness Franchises Never Die, They Just Get Acquired by Diversified Health & Fitness.

Graphic:  Diversified Health & Fitness

As the recent closing of the Kailu, HI Curves for Women fitness center shows, a failed franchise location is a loss for many involved.

In this case, franchise owner Robbi Ugini must deal with the personal and financial agony of defeat.  Her 5 employees are suddenly jobless.  Her 270 members are without a fitness club.  Her landlord has a vacant space, and her lender will, most likely, have a defaulted loan.  And the franchisor will not be receiving future royalties, revenue from purchases or advertising contributions.

What started as a dream ended in disappointment

According to the story by Nina Woo in the Honolulu Star Bulletin, Ugini opened her Curves franchise in 2005.  The initial location in the Enchanted Lake shopping center was doing well with 435 members.  Her lease was up just two years later, and Ugini relocated to another location last year, above Agnes’ Portuguese Bake Shop. The business struggled in the new location, with just 270 members.

Ugini tried selling her Curves for Women franchise for the fire sale price of $15,000, but could get no takers.  Part of what hampered the sale was the additional equipment investment the new owner would have to incur, per the franchisor’s requrements.  When a prospective buyer recently pulled out at the last minute, Ugini decided to close the doors and liquidate.  According to the article:

The closure was abrupt, leaving some 270 members in the lurch. Five staff members also lost their jobs.

“I made sure my staff was paid,” said Ugini. “I had the very best staff in the world.”

Ugini said she is working on notifying everyone of their options. She said members’ payments made on Oct. 5 have all been canceled.

Qualified members can request a travel card, she said, which allows them to use another Curves on Oahu for up to 20 days after they have been issued.

Some have gone to the Curves in Kaneohe, which is owned by a different franchise owner, but it won’t be able to take everyone.

“I am going to contact everyone,” she said. “It’s just going to take me a little more time to get to everybody.”

Some members paid on a monthly basis, some prepaid for three months and others for the entire year.

VR Business Broker calls Curves a fad and the franchisor uncaring

A business broker named Mark Heilbron, a business broker at VR Mergers & Acquisitions, had some harsh words both for the Curves franchisor and the Curves franchise fitness concept, which he categorized Curves as “a trendy kind of business.”   Heilbron said he sold a couple of Curves franchises in recent years, but has listed many that never sold (the glut of Curves resales on the market, some priced at $1.00, has been reported here.  See How to Open a Health Club for Half the Cost, and How to Buy a Curves Franchise for $1.00… or Less!).  According to the article:

“It’s a faddish type of business,” he said. “They made a lot of money and then when the trend went out, people who were still in them lost a lot of money.”

While buyers are more cautious in these economic times, Heilbron said they are still out there, with money they’d rather invest in a business than in the volatile stock market.

“Most people get talked into buying a franchise, and you’ve got to realize, depending on who the franchisor is, that most don’t care whether the franchisee makes it or not,” he said.

With the closure, Curves now has 17 locations on Oahu.  According to Curves International, the Texas-based chain has more than 7,000 locations in the U.S.

Related story (Unhappy Franchisee):  CURVES FOR WOMEN: Business Broker Slams Curves Franchise and Franchisor

CURVES FRANCHISE OWNERS: Share Your Story Here

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Photo:  Bobu.  Licensed by Creative Commons.

(Franchise Pick)  Also read:  Is Curves for Women a Good Franchise Investment?

Franchise Dreams Becoming Nightmares for Many Fitness Club Owners

When Curves for Women franchise owner Logan Chung abruptly closed his two Chicago area fitness clubs, he left his employees without paychecks and members without a fitness program.  However, a group of members have banded together to possibly buy and reopen the Elmwood Park location, and Curves International is hoping to find a buyer for the Oak Park club.

According to the Wednesday Journal:

Two local Curves women’s fitness centers closed their doors, Aug. 31. But a spokesman for the company says they’re hoping to reopen them.

“There are several people interested in taking over the ownership of the clubs, and we’re just waiting for them to submit their paperwork,” said Becky Frusher, a spokesperson for Curves at their headquarters in Texas. “Our main concern is for the members, and we’ll get new owners in the clubs as soon as possible to minimize the disruption to them.”

Logan Chung owned the two locations-one on South Boulevard in Oak Park, the other on North Avenue in Elmwood Park. Employees and members say the closure was unexpected, and Frusher says Chung also has not contacted Curves’ corporate office or returned phone calls.

Chung was reached by the Journal recently at a cleaners he owns in Gary, Ind., but he declined to comment.

Carmeline Biscan, a three-year manager at the Elmwood Park Curves, says several employees have yet to receive paychecks for the entire month of August, and a handful of customers also have not received refunds for prepaid memberships.

Renata Mayfield and a group of seven or eight other members are interested in keeping the Elmwood Park location open, which Curves calls its “North” Oak Park location.

Mayfield says they received a starter kit and are waiting on a price to run the location.

“It could be a couple weeks,” Mayfield says. “We were hoping before the end of September that we would have this all straightened out.”

Photo:  Bobu.  Licensed by Creative Commons.

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(Franchise Complaints)  Related posts:  THE INCHES-A-WEIGH “LICENSE”: THE PERFECT BUSINESS OPPORTUNITY?

Inches-A-Weigh Franchise Failure Prompts Fraud Probe, Lawsuits

Lite for Life Offers Help to Members of Closed Inches-A-Weigh

A FranchisePick.com reader writes the following warning about the Inches A Weigh franchise opportunity:

As a former Inches a weigh owner, I would strongly urge anybody thinking of purchasing one to stop dead in your tracks, turn around and run the other way. The organization will make you all kinds of promises they are incapable of fulfilling. They are overworked, underqualified, and their methods are extremely outdated. Ask any corporate representative how many centers have closed in the past year. The way they respond to that question should be enough to convince you I speak the truth.

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(FranchisePick.Com)  Also read:

Curves For Women Franchise: 20% of Curves Franchises Closed in MA,

HAS CURVES FOR WOMEN ABANDONED ITS FRANCHISE OWNERS?,

Insider Advice for Curves Resale Franchise Buyers,

200+ comments: Is Curves for Women a Good Franchise Investment?

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In a recent Concord Monitor article, AG bureau looks into gym closings, Kate Davidson reports that 2 more Curves for Women franchises have closed their doors abruptly, leaving their members stranded and their owners’ dreams dashed.  Davidson writes that unhappy members who paid for services they didn’t receive have taken their complaints to the MA Attorney General :

The attorney general’s consumer protection bureau is reviewing complaints against Curves For Women gyms in Concord and Penacook, which closed last month without notice and without refunds for members who already paid membership fees.

The Curves franchises closed during the first week in March, displacing about 400 women who worked out at the two locations, according to owners of other Curves gyms who have taken on some of the members. The memberships are transferable to any other Curves location, but compensation was not offered to women who decided not to move to a new gym.

The attorney general’s office received four complaints in March and April against Atasal Enterprises LLC - owned by Janet Lasata of Gilmanton - which was doing business as Curves For Women in Concord and Penacook.

According to Senior Assistant Attorney General Lauren Noether said the complaints were from members who had paid for services they never received.  The AG lists the complaints on its website as “open - in progress.” According to the story, Atasal Enterprises was “not in good standing” by the secretary of state’s corporation division, as the company failed to file its annual report by the April 1 deadline.

Hat tip to sadderbutwiser for the article link.  Photo:  Bobu.  Licensed by Creative Commons.

WHAT DO YOU THINK?  SHARE A COMMENT BELOW.

(FranchisePick Franchise Blog)  Thanks to the readers and contributors of FranchisePick.com, our pages contain a wealth of great franchise buying advice from insiders and franchise owners you’ll find nowhere else.  If you’ve got a question, post it and you might get a thorough and insightful answer, such as this one regarding the purchase of an existing Curve fitness franchise.  Thanks to Kunst for his/her response. 

RMZ asked:
“I am considering purchasing an existing 2.5 year old franchise in a community of 4200 (2500 women with the median age being 45.5) that has one other full-service gym.
The current owner is absentee and has actually moved to another state. Current membership is 223 with 07 gross sales of around $80K, expenses of $55 and cash flow of $22K. The owner has not advertised at all in 07, but spent about $2,000 in advertising in 06. 07 gross sales are about 25% less than 06.
“The asking price is $30K. What do you think?”

Curves for Women franchise owner Kunst replied:

“One of our clubs is similar to this. About 10,000 population and 231 members. One full-service independent gym. Our revenue and expenses are higher (your club must be at $29/month; ours is at $39). P&L profit about $16,000 last year. The problem with this situation is the population. As with all gyms, 1/3 to 1/2 of your members are going to leave each year. That means you’re keeping them on average 2-3 years, which is good, reasonable, and normal. The problem is replacing them. It is true in general that Curves membership levels are down significantly over the last several years, and the main reason is that it’s hard to replace the members you lose. In a larger community, there are fresh faces all the time, but in a smaller community like the one you’re talking about, this is probably not the case. One reason the owner hasn’t advertised is probably because everyone knows Curves is there and either is a member, was a member, or knows people who are members. The best marketing for that kind of community tends to be people-gathering events, which is more demanding of time than money.

“Here’s what I recommend to anyone considering buying a resale club:
1. Get a 2007 P&L from the owner, preferably with each month in a separate column. Analyze that puppy until you fully understand it.
2. Make sure you understand the membership numbers and how they relate to revenue. Look at product sales. If this area has been neglected, it may be an improvement opportunity for you.
3. Ask for the membership numbers by month since the club opened. You will probably see an initial spike that reached a peak and has been dropping for some time. It may or may not have leveled out.
4. Marginal (i.e., new and cancels) membership changes pretty much go straight to the bottom line. If membership drops, revenue drops with it.
5. Sometimes a new owner can energize a club and raise it to a higher level. Sometimes not. Do some due diligence and make the case both for and against this.
6. Talk to everyone you can about the club. If possible, talk to the employees. Talk to members. Have your wife join if that is feasible, or work out there on a travel pass if she is a member at another club. Most important of all, talk to every Curves owner in the area. Most will be very willing to take the time to answer your questions and give honest advice.

“Is $22,000 an adequate return for you? Make sure that number is real. If you don’t have to spend a lot of time, that’s a pretty good return on $30,000 but it’s not enough to live on. Because we have four clubs, we do just fine on per-club profits that would not be sufficient for most people if they have only one club. Are you going to maintain the same staffing structure? How do you intend to run the club? It usually doesn’t work well when the female owner isn’t engaged enough. Our comparable club has 3 employees and my wife manages it by phone and by being in there 1-2 times a week. Our other clubs have managers and she spends about the same time on each of them. She does not work in any of the clubs on a regular basis. She is an absolute expert on every aspect of Curves operations, which gives a solid foundation you won’t have at first.

“We have really good employees who have been with us (4 clubs) on average nearly 3 years. Employee turnover is no fun, so make sure you have a handle on this and a plan for how you would handle someone leaving.”

WHAT DO YOU THINK?  COMMENTS WELCOME.

 Photo:  Bobu.  Licensed by Creative Commons.

(FranchisePick.Com)  In it’s article Curves sheds a fifth of its fitness centers, BostonNow Business reports that both membership and number of Curves for women franchise clubs in Massachusetts has declined significantly in the past three years.  According to the article citing information from the Boston Business Journal:

“…Owned by local franchisees, last year the number of Curves gyms in Massachusetts dropped 20 percent to 156 from 194 in 2006, and was down nearly 30 percent from the 218 sites that were operating in 2005, according to research by the Boston Business Journal. Membership levels in the state also dropped 20 percent to 62,400, from 77,600 in 2006.

“A spokeswoman for Curves International Inc., headquartered in Woodway, Texas, attributed the falloff to a shift in company strategy.

“‘We have always tried to keep every club open and that’s not always the best decision,’ said Becky Frusher, Curves’ corporate communications manager. ‘There are some owners who shouldn’t have bought a Curves … that’s normal with any retail business. We’ve taken a different approach of, maybe we shouldn’t struggle to keep every club open.’ …

“Donna Henderson, who manages the 500-member Curves in Watertown, notes that Curves gyms in Waltham, Brookline and Belmont have closed recently…”

“Nationally, the fitness chain’s stature has also flagged. According to Entrepreneur.com’s annual Franchise 500 rankings, the company dropped from No. 2 in 2005 to No. 185 this year.”No experience necessary.  Unless you fail.  Then you should have been experienced.

According to Curves, the reason for the failures was presumably that the franchisees weren’t “business owner” material.  Does that mean Curves tightening up their franchise requirements, and seeking franchise owners with prior fitness club experience?  Not according to their website, which says they assume franchise owners have no experience.  They’re shift in business strategy seems to be to stop feeling bad about it and accept a 20% failure rate as “normal with any retail business.”

So in your search for a solid franchise opportunity, be wary of those who say you can be “In business FOR yourself, but not BY yourself.”  Once you’re OUT of business, you’re definitely BY yourself… So go into it understanding that there’s NO system that, if followed, assures success.

WHAT DO YOU THINK? LEAVE A COMMENT BELOW.

(FranchisePick.Com)  Where Would Jesus Work Out?

Ever ask yourself that question?  Me neither, but I bet it would be at Lord’s Gym.

According to the Nashville Business Journal, a group of entrepreneurs including Off the Grill founder Alan Thompson is launching a “faith-based retail and fitness business” with plans to franchise the concept.

Their group, Club Management Systems LLC, plan to open Community Life Centre in 13,500 square feet of space in May, 2008  in Spring Hill, TN. The Centre will include a fitness center - the Lord’s Gym - an Off the Grill franchise, coffee shop and a dry cleaner.

According to the article:  “Partnering on the venture are Thompson, Chip Wilson, Joe Brannon and Scott Frith. Wilson, spurred on by his 10-year-old idea, brought the team together in early 2007 and approached Thompson….Brannon and Frith are also partners in Vision Marketing Group LLC, a preexisting ad-placement company that will market the idea.”  Source:  Nashville Business Journal

WHAT DO YOU THINK?  DOES THE LORD’S GYM HAVE A PRAYER?  LEAVE A COMMENT.

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