Rande LaDue, distributor of PACE hydraulic exercise equipment, is seeing a fitness industry trend: independent express fitness clubs opening in markets and locations that could not sustain a Curves franchise.
In an interview posted on FranBest.com, (see PACE Express Circuit Training Equipment) LaDue states:
One of our biggest areas of growth right now is selling into markets where a Curves club has just gone out of business. There may have been 50-60 loyal members who loved working out but have been left high and dry; maybe this was not enough members to cover the high franchise fees, but usually more than enough to cover basic expenses.
LaDue gives the example of Kimberly Ellingsen, a former Curves member who opened her independent New Image Fitness when the local Curves club closed. According to LaDue, Ellingsen “had over 50 former Curves members signed up before she opened her PACE club, then recently had her grand opening and signed up dozens of new people.”
[Pictured, above right: Rande LaDue, Owner, Hydraulic Fitness Products. For information on PACE exercise equipment, email PaceEquipment@gmail.com]
Independent clubs pay no franchise fees or royalties.
The most obvious reason is cost. Independent clubs cost less to start, and less to operate. In some low-volume locations, that cost difference could be the difference between success and failure.
According to the Curves website, the cost of a Curves franchise is $24,900 (new equipment) or $19,900 (refurbished equipment) with delivery of the Curves equipment ranging from $3,000- $5,000. A PACE new equipment package is well under $15,000, with training included (normally a $1000 option).
According to Curves, “Curves charges a monthly franchise royalty and a monthly advertising royalty based on a percentage of gross revenues….The franchise royalty is 5% of gross revenues, with $795 being the maximum monthly payment by a franchisee and $195 being the minimum. The advertising royalty is 3% of gross revenues, with $395 being the maximum monthly payment by a franchisee and $95 being the minimum.”
Independent clubs pay no franchise or advertising royalties, as opposed to yearly costs ranging from $3480 to $14,280 Curves owners must pay. Additionally, Curves owners have other costs, including mandatory purchases and program participation costs.
Independent clubs have freedom to experiment.
In recent discussions on UnhappyFranchisee.com, some Curves owners have complained that they have trouble retaining members who plateau and/or get bored with the non-adjustable Curves hydraulic equipment, yet they are prohibited from going to weight-based machines or even the adjustable hydraulic machines offered by PACE.
Curves franchises face stiffer penalties for failure.
The penalties for failure also seem to be greater for Curves owners than independent operators. Many comments by Curves owners here (see the comments on Robert Lay’s Story) cite the fact that they are pressured to pay closing or “failure” fees if they cannot remain open for the full term of their agreement, and that they are pursued for “future royalties” despite having done their best to keep their Curves clubs open.
Independents stake their claims.
There’s no doubt that Curves pioneered the concept of circuit-based express fitness clubs. However, many, many franchise clubs are fighting for their survival in oversaturated or underpopulated markets. Where these clubs cannot survive, independent clubs – unburdened by franchise fees, royalties and corporate mandates – may be able to thrive. If they do, the independent owners and suppliers like PACE will have Curves to thank.
WHAT DO YOU THINK? SHARE A COMMENT BELOW.
* According to LaDue, PACE equipment differs from the Curves machines in that PACE equipment can be adjusted to increase or decrease resistance.
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View Comments
I get that the idea here is to blame everything on the big bad franchisors, but you are misleading anyone looking to get into business. From the business owners (not just Curves) that we've worked with, it is rent that is the number one issue for them. They signed leases for spaces that, when the economy tanked, they could no longer afford (and many should never have been in in the first place).
We’ve seen clubs like this in spaces 2000-3000 sq. ft. when they could, and should, be in spaces half or less than half that size – I’ve seen Curves and similar clubs in spaces as small as 1000 sq. ft. It’s not like they have a pool or showers! If you’ve only got a few hundred clients you don’t need that kind of giant (almost completely open) space. And rents today can be gotten down to <$1/sq. ft. outside a “city center” (and many city center strip malls and properties are doing deals that just 6 months ago would have gotten you laughed out the door!).
Do the math. On the low side, these clubs have to pay just $290 a month in franchise fees - and if they are failing that would seem to me what they'd be paying. That relatively small amount is not THE issue. The thousands and thousands in EXTRA rent each month is THE problem. Most are OVERPAYING by $3,000, $4,000, $5,000 or MORE each month in rent, no sir, the franchise fees aren’t even close to the number one reason a business like this is failing.
looking at JUST rent and franchise obligations:
“Old” business in way too expensive or too large a location: $290 - $1190 franchise fees + $5000+++ rent = $5290 - $6190 /month (and then some)
“New” business in a reasonable location of 1000-1500 sq. ft.: $0 franchise fees + $1000 - $2500 = $1000 - $2500
The $2790 to $5190 potential difference there is NOT coming from not paying franchise fees.
Telling people that so long as they don’t have that nasty franchise fee to worry about they will do fine is absurd. The reason these “new” businesses are able to make it when the previous businesses failed is that they are getting into leases with far less a monthly liability. Period. And if a new business owner does not take advantage of that ability to get a smaller, cheaper place, they are sure to fail too.
Nice advatorial for Pace though.
We were paying $3,200 a month in rent for one club and $2,700 at the other, down from $5,000 when we turned our double-sized club into a single after the second club opened, That's nearly $71K a year in rent alone.
How we WISH that franchise fees were our biggest concern!
Mike:
Thanks for your comment. You raise some good issues, but I think you're missing the big picture.
When people buy franchises, they give up more than franchise fees, royalties & advertising contributions. They rely on what the franchisor tells them about the concept, acceptable locations, what rents they can support, etc. They give up their ability to adapt and change the business concept if it's not working, to expand what they sell and how they sell it, to set their own hours, call their own shots, etc.
In giving up their autonomy, franchisees make a huge leap of faith that the franchisor will keep franchisee success as their priority, that the concept is sound and will evolve as necessary, that the franchisor will provide the benefit of their experience and a "proven system" to eliminate the start-up mistakes they would make as independents - including paying too much for rent, leasing too much space, going into the wrong location.
The Curves website says "We assume that franchisees have no experience or knowledge in the operation of a fitness and weight loss facility." A widespread problem of high rents and oversized spaces did not happen in a vacuum... it sprung from a program that claimed to give expert guidance to people with no industry or business experience. You can't say "no experience necessary" one minute and "you shoulda known better" the next.
You make the claim "The thousands and thousands in EXTRA rent each month is THE problem. Most are OVERPAYING by $3,000, $4,000, $5,000 or MORE each month in rent..."
Is CI addressing this problem? Are they actively assisting franchisees in getting rent relief, renegotiating rents and terms, etc.? If, as you say, the independents are coming in with much better terms, surely CI can address this problem before the clubs close... and they are forced to resell the territory to the next person.
Rent is also relative to top line sales. High rent percentages are a sign that member recruitment and retention strategies aren't working.
The Curves website states "With a Curves franchise, you'll be in business for yourself, not by yourself."
I think that whether that statement is true, in practice, is what it comes down to. Many of the commenters here express that they feel they are indeed on their own and in business BY themselves anyway... that they are burdened with the downsides of both a franchise AND being on their own, without the upsides of either.
Findlay, OH club closed without notice. The landlord got word by fax. Doesn't sound like the franchisee had been trying to get rent reduction or help:
http://www.thecourier.com/Issues/2010/Jan/06/ar_news_010610_story4.asp?d=010610_story4,2010,Jan,06&c=n
I own a Curves in a small town of 6,000. I am the second owner and barely bringing in $3,000 a month. My rent is only $750.00, so unlike some of the contributors to this site - the nearly $300.00 franchise fee/advertising fee, the 3
music licenses, and a fairly large payment to buy the club - are a big deal. And I have to pay for local advertising, as no one ever joins as a result of CI advertising.
I don't feel that Curves International is "there" for us. I have to work all of the hours myself as I can not afford the payroll and taxes involved, I'm supposed to be out on the circuit with the ladies, check eligibility for each of the members receiving their membership through Medicare Supplement Insurance every month and record and report their workouts to Curves before the 5th of every month (or I don't get the payment for that member 2 months later), report my income to them by the 7th of every month ( or they will charge you the maximum royalty and advertising fees), hit the streets to "sell" memberships, keep my own books (as I obviously can't afford a bookkeeper), do all of the housekeeping chores, etc., etc. and go to trainings to do things the "Curves Way".
I obviously don't make a cent, but I just want women to have a place to go that they like to be - to take care of themselves, but I just don't see how I can hold on much longer. The $300.00 that they take out may be what saves me from going down the drain - I don't know what I'm going to do...
Worn To A Frazzle in Washington
Admin,
“…maybe this was not enough members to cover the high franchise fees, but usually more than enough to cover basic expenses.”
“How could an independent club – with no established branding or name recognition – survive where a powerhouse like Curves could not?
The most obvious reason is cost. Independent clubs cost less to start, and less to operate. In some low-volume locations, that cost difference could be the difference between success and failure.”
While your statements above are partially correct they don’t come close to telling the whole story. The “…high franchise fees…” are relatively low compared to other businesses and are “…usually…” a very small part of the “…basic expenses.”. The primary premise of your article was that not paying the franchisor’s monthly fees ad infinitum is THE operating cost that makes or breaks the clubs. That is simply not true. You also stated that they have “…mandatory purchases and program participation costs.” I looked into this as I thought it was something I was unaware of. It’s not, the programs (like the Insurance/Medicare programs that someone talks about above) are ALL completely voluntary and any associated fees are only taken from incoming payments. i.e. if no money comes in from the program to your club, no money goes out. Same thing for the “mandatory purchases”. No one has to buy anything from Curves. And many of the things (clothing, supplement, artwork, etc…) that they do buy from their franchisor is stuff an independent club would buy anyhow. They just buy it from someone else. The reason I point this out is that it’s another expense that is NOT eliminated by not being part of a franchise. So as I said, the ONLY thing eliminated is the $290-$1190 in franchise fees which for many most is a single digit percentage of their overall operating expenses. BTW, to actually be paying the maximum of $1190 a month, a club would have to be grossing $14,875+ a month. So it’s hardly THE expense that determines “success [or] failure”.
Regarding the overpaying of rent, you asked: “Is CI addressing this problem? Are they actively assisting franchisees in getting rent relief, renegotiating rents and terms, etc.?”
The first thing I ask any business owner is if they’ve tried to get a rent reduction. I can tell you that many of the Curves owners I’ve worked with have said that it was in fact suggested to them by Curves - but that they (the owner) didn’t really think it was possible and never tried. Actually, that is the mistaken belief of most business owners - that they can’t renegotiate. However, do you really believe that is it the job of the franchisor to renegotiate the leases for all its franchises? That is simply not practical.
“They rely on what the franchisor tells them about the concept, acceptable locations, what rents they can support, etc.”
My understanding is that Curves still does make recommendations on this based on what 150(?) members brings in and says to keep your expenses below that. I’m not sure if that is the exact amount or current as it’s been quite awhile since someone showed me the calculation sheet they got from Curves. As I’m on the “keep you open” side of things instead of the “get you opened”, I can’t really state for certain if this is still what happens. But I know that it certainly used to.
But I still work with people who needed 350-400 and more members just to break even. You say that is all Curves fault because their website says ““We assume that franchisees have no experience or knowledge in the operation of a fitness and weight loss facility.” and believe that that basically means they are saying “No experience necessary”. I say “No experience necessary” doesn’t mean “Don’t do ANY research.”.
But who is to blame is a whole different debate, one that I’m not interested in getting into on an internet blog. My issue was and is that you are misleading people into thinking that so long as they open an independent facility and are not liable for the $290 to $1190 in franchise fees that they will succeed where others failed. No mention of ANY other operating expenses, the ones that make up the vast majority of your operating expenses, is mentioned. I believe that that is a dangerous position to hold.
Don't listen to this guy !
The Franchise fees are not the biggest issue here.
The big expenses are: rent, payroll, gym and office expenses, advertising and promotion over and above the Curves amounts.
And there are lots of other expenses that inexperienced owners do not anticipate like Socan, hydro, bank charges, insurance, Curves give away product, accountants fees, telephone , internet, and so on that add up to thousands per year.
You will be proven VERY wrong. if you think that you can be sucessful at one of these operations as a one-woman owner operator. This is a complex business requiring many skill sets from fitness and diet expertise, to well developed business systems, IT, people management and sales and marketing.
During the 30-minute workout "bubble" , gobs of easy cash flow was the norm.
Its now almost 10 years since the height of that bubble.
Take a ride on some hot new trend, and when it looks like the peak is never going to end, SELL IT, and move on.
businessguy writes: The big expenses are: rent, payroll, gym and office expenses, advertising and promotion over and above the Curves amounts.
And there are lots of other expenses that inexperienced owners do not anticipate like Socan, hydro, bank charges, insurance, Curves give away product, accountants fees, telephone , internet, and so on that add up to thousands per year.
You will be proven VERY wrong. if you think that you can be sucessful at one of these operations as a one-woman owner operator...
Curves disagrees. Their website claims this is a low overhead business that can be run by an owner and one PT "young person or student." From their website:
Profit with Low Overhead
A Curves franchise can operate in a space as small as 1,000 square feet which keeps rent and other operating costs as low as possible. Payroll expenses are minimal when a franchise owner-operator hires a young person or student to work Monday through Friday evenings. Other costs include insurance, utilities, and small miscellaneous expenses.
businessguy writes: This is a complex business requiring many skill sets from fitness and diet expertise, to well developed business systems, IT, people management and sales and marketing.
Curves website: We assume that franchisees have no experience or knowledge in the operation of a fitness and weight loss facility.
Are you saying that Curves is setting unrealistic expectations in terms of investment and expertise required? That franchisees go into this business unprepared for the harsh realities that await them?
You people stuck on the franchise fees really are missing the point. If the members aren't happy with results or want more we can't do it because we are limited to conformity. I live in the south were it is too hot to walk outside, or it rains to much like today. My women have just signed a petition of over 23 member in my 112 membership role. It states that if I do not get three treadmills then they will move on to the other woman only gym in our town that has this stuff. This would be a 2,000 investment for all the treadmills. I am sorry what am I to do close? I am having the worst Jan. sales that I have ever had. I will not be able to get enough new members quick enough to cover the losses. I know doing this will violate my franchise, but not doing this will close my club. I can't make it now, and to lose $782 a month is enough to close me down instantaneously. So my point is I am limited and yes a small amount can kill a club.
Next Step:
CI prohibits clubs from having treadmills?
Why do they say adding treadmills is prohibited?