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Item Description – The privately owned and operated 24 Hour Fitness franchise is facing financial challenges after the COVID-19 economic shutdown.Social distancing hit the fitness industry hard at the start of the global pandemic. Many businesses relied heavily on selling memberships that permitted the use of a physical location. When customers could no longer use that service, gyms and similar facilities had to scramble to find a way to pay the bills.Some got creative and tried to offset the loss of revenue by offering online workouts and access to experts. While this was a start, it still wasn’t enough for many.An announcement made on Monday revealed that 24 Hour Fitness was filing Chapter 11. It had secured $250 million to support the reopening of some locations with plans for most to be operating again by the end of the month.However, there was a drawback. To offset the losses, the chain would permanently shutter 100 locations in the United States. The closures would affect gyms in 14 states and would leave the company with around 300 clubs still in operation.COVID-19 Hardship Pushes 24 Hour Fitness into BankruptcyBusinesses that were previously struggling find themselves unable to stay afloat as coronavirus decimated the economy. According to 24 Hour Fitness CEO Tony Ueber, the pandemic is the cause of the hardship they now face.“If it were not for COVID-19 and its devastating effects, we would not be filing for Chapter 11,” Ueber explained. “We expect to have substantial financing with a path to restructuring our balance sheet and operations to ensure a resilient future.”Resilience is a top priority for many business owners right now. While communities roll back social distancing rules and businesses begin to return to normal levels of operation, we may not be out of the pandemic yet. Some experts warn that a second shut down could happen, and it may be worse than the first.“We’re going to have to face the harsh reality in some states that we may need to shut down again,” predicts Dr. Jonathan Reiner with the George Washington University School of Medicine.The university’s director for its Institute for Health Metrics and Evaluation shared Reiner’s concern with a warning: “Because of quarantine fatigue, because of the economic effects of quarantine, another round of shutdowns might have even larger effects on businesses that may be on the edge of not being able to stay solvent.”As many breathe a sigh of relief, assuming that a reopening means that the pandemic is over, we could be creating potentially hazardous situations for the population.“COVID’s not taking a summer vacation,” cautions infectious disease expert Dr. William Schaffner. “It’s actually having new opportunities to spread.”The first shut down showed that even big, financially strong corporations feel the strain of an inactive economy. 24 Hour Fitness was founded in 1983 and held the rank of second-largest fitness chain in the U.S. based on revenue, right behind LA Fitness. They had 420 clubs that employed over 22,000 people and served over four million customers before the shutdown.They will still operate most of their locations after filing for bankruptcy, but another shut down could bring even bigger challenges for the fitness industry.Innovation and Reinvestment in 24 Hour FitnessPart of the gym’s bankruptcy restructuring will involve plans for improvement and change among the services offered. Ueber shared plans for “reinvestment in our existing clubs, opening new clubs and introducing several new innovative products and services.”Those changes could be a key part of survival going forward. Multi-tier gyms are losing customers as people search for more affordable fitness options like Planet Fitness. Others are turning to boutique studio classes like those offered by OrangeTheory. In-home services like Peloton have seen an increase in customers as the pandemic forced many to avoid going out altogether.24 Hour Fitness was preceded in bankruptcy by competitor Gold’s Gym, which claimed to have been deeply affected by the pandemic in many ways. Gold’s closed 700 of its locations temporarily and 30 gyms permanently. They expect to get past bankruptcy by August 2020.The predominantly East Coast-based New York Sports Club is also considering the possibility of bankruptcy. Town Sports International (CLUB) reported in a regulatory filing that the “scope and duration of the interruption to our operations has substantially reduced our cash flow.” To help free up money, Town laid off most of its 7,000-person workforce and hasn’t made rent payments. The company owns around 200 gyms that include Sports Club locations in Philadelphia, Boston, and Washington, D.C. It also owns the women-only gym Lucille Roberts in New York.Before COVID-19, Bloomberg reported that 24 Hour Fitness had over $1.3 billion of debt from a 2014 leveraged buyout by the Ontario Teachers’ Pension Plan and AEA Investors. The company has managed to reopen some of its gyms in California, Colorado, Hawaii, Florida, New York, Nevada, Virginia, Texas, New Jersey, Washington, and Oregon.A statement issued by 24 Hour Fitness said that the company is “dedicated to the health and wellness of our members, our team and the communities we serve, and has been for more than 35 years.”“With the dramatic impact of the COVID-19 pandemic on the economy and the fitness industry, we are announcing a financial restructuring through a voluntary Chapter 11 filing that we expect will make us a stronger company.”BKDirectory will continue to monitor bankruptcy updates in the fitness industry and others affected by the coronavirus shut down. Check back for more information.