24 Hour Fitness has sold its 19 Midwest clubs to Genesis Health Clubs, saying the Midwest markets it was in did not have the population density required to sustain the 24 Hour Fitness business model.
This is one of the eight clubs in the Kansas City, Missouri, area that will convert to a Genesis Health Club effective June 15. (Photo by Pamela Kufahl.)
Update: This story has been updated to include details about a subsequent sale of the St. Louis, Missouri, and Oklahoma City 24 Hour Fitness locations and an additional purchase of Gold's Gym locations.
24 Hour Fitness, San Ramon, California, has sold its 19 clubs in Kansas, Missouri, Nebraska and Oklahoma to Genesis Health Clubs, Wichita, Kansas, for an undisclosed amount. The changeover will be effective on June 15, according to Frank Napolitano, president of 24 Hour Fitness.
Rodney Steven, owner of Genesis Health Clubs, told Club Industry that after the transaction closed with 24 Hour, he sold the four 24 Hour Fitness clubs in St. Louis, Missouri, and the two locations in Oklahoma City to Gold's Gym International for a sum he could not disclose. Steven also shared that he purchased six clubs from Gold's Gym on Tuesday: two in Lincoln, Nebraska, two in Omaha, Nebraska, and two in Tulsa, Oklahoma. (More details about these additional purchases can be read here.)
Napolitano told Club Industry that when private equity firm AEA Investors bought 24 Hour Fitness in 2014 and CEO Mark Smith and Napolitano came on board, the intention was to rationalize the company's portfolio, meaning they planned to concentrate on areas with significant density to support a cluster of the company's clubs.
"And our gyms are quite large, so a cluster of them requires a pretty significant population," he said. "And if a city doesn't have a significant population, our model doesn't work particularly well in that city. We took a look at this particular part of the country, and those cities are simply smaller than our threshold, so that's why when we were approached by Genesis about acquiring them, we listened and ultimately came to a deal."
A memo sent by 24 Hour Fitness to staff noted that Genesis intends to hire as many 24 Hour Fitness team members as possible. A Genesis representative was to communicate employment opportunities on Tuesday, including details about application processes, employment offers and scheduling for June 15 and beyond.
Staff at the 24 Hour Fitness clubs that are being sold were informed of the sale on Tuesday.
Napolitano said that despite the sale, 24 Hour has plans to grow in its core markets.
"We are continuing to grow in all of our core markets and expanding in markets that make sense for us," he said. "It's not that we are retrenching or wanting to shrink. It's simply we are rationalizing into which markets we will grow and stay."
24 Hour Fitness is selling the clubs to Genesis less than a year after exchanging some clubs with LA Fitness. In November, 24 Hour Fitness took over two LA Fitness clubs in the Oklahoma City area and expanded in Omaha, Nebraska, by taking over one LA Fitness club there. In exchange, LA Fitness, Irvine, California, got 11 24 Hour Fitness clubs in Arizona where it already had 37 clubs. The exchange moved 24 Hour Fitness out of Arizona and LA Fitness out of Nebraska and Oklahoma.
At the time of the exchange, Napolitano told Club Industry that 24 Hour Fitness already had a strong presence in Omaha and in the Kansas City area.
"We believe the Midwest offers interesting possibilities for us to make those cities core markets for 24 Hour Fitness," he said at that time. That statement was made before Steven approached 24 Hour with a purchase offer.
The acquisition of these 19 24 Hour clubs along with the sale of the six clubs plus the purchase on Tuesday of the Gold's Gym locations makes Genesis Health Clubs one of the largest players in the Midwest with 44 clubs.
In May, Genesis purchased four of the corporate-owned Gold's Gym facilities in the Kansas City area. During the past five years, Genesis has made 13 other acquisitions in Kansas and Missouri. New clubs in Kansas came from the purchase of Maximus Fitness in Lawrence and Leavenworth in 2011 and then three Maximus Fitness locations in Topeka in 2014. The company also purchased MAX Fitness in Manhattan, Kansas, and Midtown Athletic Club in Overland Park, Kansas, which is a suburb of Kansas City, in 2015. In Missouri, Genesis acquired St. Joseph Tennis and Swim Club in 2013 and two Ozark Fitness clubs in Springfield in 2014.
At the time of the Gold's Gym club purchase, Steven said: "Over the past several years we have moved into many markets that I have wanted to open clubs in for some time. I've always wanted to have a presence in Kansas City, and our Overland Park club has been a perfect fit for our brand. I'm excited that we have the opportunity to open four more clubs in the market, and KC can expect more exciting news of growth in the future."
Napolitano said of Genesis: "They do a great job. They run great clubs. Rodney I'm sure will invest significantly in the new assets and make them into Genesis gyms, which are somewhat different than ours. He's a great operator. We were happy to do business with him."
24 Hour owned 441 clubs as of Dec. 31, 2015, according to the Top 100 Clubs list form that the company submitted to Club Industry in May for this year's list (which will be released in July). The clubs were in 17 states: California, Colorado, Florida, Hawaii, Kansas, Maryland, Missouri, Nebraska, Nevada, New Jersey, New York, Oklahoma, Oregon, Texas, Utah, Virginia, Washington. After June 14, Kansas, Missouri, Nebraska and Oklahoma will be off that list.