Fitness First to slim down by selling 24 clubs, as low-cost gyms grab market share

Leading health club provider Fitness First has put 24 of its 97 Australian gyms up for sale as its British parent company restructures to clear $890 million debt weighing the group down.

But industry experts say the sales do not indicate a slowdown in the sector, with Australia’s ageing population and obesity levels suggesting the industry can keep expanding in line with Australian waistlines.

Rivals, including Smart50 star and 24-hour gym franchise Anytime Fitness, have expressed surprise at the Fitness First announcement.

“I knew they were trying to sell the entire business last year, but it appeared that process had finished,” Anytime founder Justin McDonell told SmartCompany.

“We are definitely growing. We are at 160 clubs now and we are on track to get to 200 or 220 for Christmas.”

Fitness First’s Australian business had been placed on the sale block late last year, but talks with potential buyers went quiet around Christmas and were not revived.

Industry sources say about 55 head office staff were made redundant recently as the company attempted to trim costs.

McDonell says he believes Fitness First is still profitable, but says the chain’s aggressive growth of recent years has slowed as problems in the groups British and European operations become worse.

Fitness First was previously owned by British private equity firm BC Parters, but is in the process of being transferred to fellow private equity firms Oaktree Capital and Marathon Capital as part of a debt-for-equity swap.

This deal is designed to wipe out the group’s $890 million debt, although it is now clear asset sales will also take place.

Fitness First’s Australian managing director, Pete Manuel, said the sale process would be conducted by restructuring firm 333 Capital and it will be a condition of sale that all member and staff rights are preserved.

“With a change in ownership of our company comes the opportunity for a full review of the portfolio of Fitness First clubs in Australia. We have identified 24 clubs that do not fit our vision for the brand and these clubs are being put on the market for sale. All operators review their portfolios from time to time and this is overdue for Fitness First here in Australia,” Manuel said in a statement.

He said the removal of the group’s debt will give it “significant financial firepower going forward to improve the quality of existing clubs and develop new ones.”

“Once the restructure is complete, Fitness First will have the strongest balance sheet in the industry and our members will quickly start to see improvements in existing clubs and new clubs opening.”

McDonell insists there is room for different gym formats in Australia, but concedes the rise of 24-hour, low-cost gyms in general, and Anytime Fitness particularly, “may have affected them slightly” in the last two years.

At the same time as Anytime Fitness’s numbers have exploded, rival Jetts has open 155 gyms in less than five years.

Under the 24-hour model, gyms are unmanned for most of the day, meaning labour costs are much lower.

“Our operating costs are lower so the price can be lower. And then it’s just the convenience of being able to train when you want.”

Anytime has sold 340 territories so far and McDonell wants to increase this to 400.

“We study demographics and when we look at that there is still massive growth in Australia, even with market competition.”

Industry analysts IBISWorld say the gym sector grew at a paltry 1.4% in the past five years and suffered a severe slowdown during 2008 and 2009 at the height of the GFC.

However, IBISWorld is tipping growth of 2.4% in 2011-12.