Brands sell, and a franchise/license can give a club instant name recognition. But is a franchise or license right for you? A look at the pros and cons.

Like it or not, bigger, branded clubs enjoy certain advantages over their smaller brethren.

If you're not the biggest club out there, and you find yourself competing against larger businesses, you may decide to niche, developing your own unique membership base. You may try to offer personalized services that bigger entities can't. Or you may simply choose to become one of the big boys, joining their team through a franchise or license.

For club owners (or potential club owners), a franchise or license can be a practical road to a successful business. While certainly not for everyone, a franchise/license can help lower the risks involved with starting your own health club.

“Across the board, franchisees have higher survival rates,” notes Mark Siebert, president of iFranchise Group (www.iFranchise.net), consultants specializing in franchise development and implementation.

In fact, according to the U.S. Department of Commerce, 90 percent of franchised businesses are still operating after 10 years, compared to only 18 percent of independent operations — something that entrepreneurs should consider when entering the fitness business.

“The good thing is it's easy to get into this business,” says Gary Heavin, the founder and CEO for Curves International, franchisor of the Curves for Women fitness centers (see “Ahead of the Curves,” opposite page). “The bad thing is it's easy to get out of.”

What's the Difference?

A franchise/license may improve the success rate for a business, but what exactly are you getting yourself into when you become a franchisee or licensee? More to the point: What is a license or a franchise, and how do they differ?

Although many people in the fitness industry will give you a different answer to this question, legally, there are some definite criteria separating a franchise from a license. “A franchise is a legally defined term,” explains Siebert.

According to Siebert, a franchise meets the following criteria: use of a common trade name, provision of significant operating control or assistance, and the payment of a fee. (For a more definitive explanation of a franchise, visit iFranchise.net and read about the Federal Trade Commission's Franchise Rule.)

“If you've got name, assistance and fee, you are a franchisor, regardless of what you call it,” he explains.

Still, some companies may claim they offer a franchise when they actually offer a license, and vice versa. If you are uncertain, remember Siebert's definition, and consider this simple advice from Roger Wittenberns, founder, president and CEO of the international women-only health club franchise Lady of America: “If you look like a duck, walk like a duck, quack like a duck — you're a duck.”

On the other hand, if you look like a duck, walk like a duck, but don't quack, then you're probably a license. Whereas franchises meet three criteria, licenses typically only meet two — such as rights to a trademark name and payment of a fee.

Generally speaking, licenses are less expensive than franchises, which often pay a bigger initial investment and an ongoing percentage of profits. For their fee, licensees receive the rights to a trademark name, but often get to run their own businesses (as long as the licensed logo and name are used correctly). On the downside, there is no quality control for licensed clubs because the licensors aren't always involved in their operation.

“It does make it a challenge in terms of maintaining a level of control between facilities,” says Stephen S. Roma, co-owner of WOW! Work Out World, a small licensor with facilities in New Jersey, Massachusetts, Connecticut and Japan.

In order to maintain the quality of the WOW! name, Roma and his father Stephen P. and mother Mary (also owners) contract out licenses for one year at a time only. If the licensed club does not meet expectations, then WOW! has the option not to renew the license. (Powerhouse Gym has the same agreement with their licensees.)

Quality Control

Since franchisors are supposed to set operating procedures for franchisees, they are more involved with the quality control of their brand. Specifically, in exchange for franchising fees, the franchisors should support franchisees with promotions, advertising, site design, etc. Moreover, the franchisor makes business decisions that franchisees must agree to follow.

In other words, buying into a franchise doesn't allow much creative control for franchisees. According to iFranchise.net, the franchisor will generally give the franchisee very specific instructions on how the business is to be run — everything from site design and appearance requirements to required promotional campaigns, operations manuals, training programs and the like.

“People who always want to do their own thing would probably not be happy with a franchise,” maintains Ben Amante, senior vice president of Gold's Gym franchising. “When you join a franchise, you join a team.”

And being part of a team offers a certain amount of security and comfort, especially for those who are new to business ownership. “The reason you buy a franchise is it's a shortcut to success,” explains Wittenberns. “You're in business for yourself, but you're not by yourself.”

Still, not everyone agrees that a franchise makes clubs part of a team. “When I looked at franchising years ago, I felt you get minimum support,” says Robert Dyer.

Instead of going with a franchise, Dyer opted for independence. Today, he owns Fit For Life Center in Fort Worth, Texas, and Women's Fit For Life in Arlington, Texas.

“I felt like they talked a good deal…,” Dyer continues, remembering his experience with franchisors, “but you get really very little support from their corporate headquarters.”

While some experts may question the amount of support that a franchise brings, one thing is certain: A franchise delivers a recognizable name. The same holds true for licenses. And as Mike Uretz, CEO and president of World Gym points out, a proven brand can be more valuable than anything else a franchisor/licensor can provide.

“The benefits apply to both [franchising and licensing],” he says. “In franchising, there is a higher degree of standardization generally, and in licensing there is less standardization, less control. What else comes with that brand name…, those things are incidental with the main benefit of having a nationally recognized name.”

A nationally recognized name can give a club leverage in a competitive market. “It's more instant credibility to the operator,” says William Dabish, president of Powerhouse Gym, an international licensor.

A franchise/license can give credibility because consumers tend to view brands as “safer.” Right or wrong, the majority of Americans — club members and nonmembers alike — feel more comfortable with a recognizable name. According to the U.S. Department of Commerce, consumers prefer recognized brands over other names by a margin of 2 to 1. In addition, although only 8 percent of businesses are franchises, they represent 40 percent of all retail sales in the United States.

But having a big name does not necessarily guarantee instant success. It only gives you the initial edge, Uretz notes. “It's going to bring people in the door, but it will not keep them there,” he says. “If you don't offer [great] service and deliver it, they'll leave you.”

The Importance of Talent

Arguably, it's not the name on the club that influences consumers; it's the talent inside. In the eyes of Rick Caro, president of Management Vision and chairman of the Spectrum Clubs, licensing or franchising doesn't automatically make a club stronger than an independent business.

“I'm not so sure that I know there is a benefit,” he explains. “If there is a World Gym operator that is successful, it's because he came as a good operator. He might have been successful if it was a Gold's or a Powerhouse or a Joe's Gym.”

In addition, Caro doesn't buy into statistics claiming that franchised or licensed clubs are more successful than independents. “I don't think that necessarily any of that is proven,” he says.

In fact, a licensed or franchised brand could hurt a business, depending on market and perception. The branded clubs — more visible because of bigger advertising budgets — often present a very “standardized” image of club members, reflected in both the choice of models and even in their logos. This “big guy” imagery may pay homage to the chains' roots, but do the images reflect modern clubgoers? Put another way, if the most visible and largest clubs on the block present an elitist image (even if their membership doesn't reflect this), do they intimidate prospects from joining health clubs?

“When you think back to the inception of those brands…it will date back to when that's what the fitness industry was,” explains Roma. “I don't know if their names and logos match up with the industry today, and I don't know if those names and logos match up with those clubs today.

“People insinuate those names with bodybuilding — right, wrong or indifferent. This could potentially be detrimental to the older market.”

It could also be detrimental to women, who, turned off by clubs with “big guy” images, may choose a women-only health club instead. Both Lady of America and Curves for Women have capitalized tremendously on this niche.

“We're thrilled because there is a huge population from the age of 25 to 70 of women who prefer to use a facility that is women-only,” says Wittenberns. “If [clubs] choose to use the gorilla, they may push this market away,” he says, though he does concede, “there certainly is a place for the gorilla.”

This begs the question: How do you decide what franchise or license opportunity is right for your market and your needs? First of all, you need to do your homework.

If you're an existing club thinking of switching to a license/franchise, poll your members to see how they would react. If you're a new operator, do demographic research around your location to determine which brand best suits your potential market. (For more on demographic research, refer to “Demographics & Dividends,” October 2001. You can also find the article at our Web site, www.clubindustry.com.)

“When someone decides to go in a franchise [or license], they have to pick the brand very carefully,” Amante recommends. He suggests potential clients research the company by visiting its Web site and using resources such as www.franchise.org, where you can compare franchises.

In the case of a franchise, interested operators should closely examine the franchisor's Uniform Franchise Offering Circular (UFOC), an information disclosure from the company. The UFOC provides 23 different categories of information, including fees, company financial statement, earnings claims, bankruptcy and litigation history of the company, and more. The International Franchise Association (IFA) recommends that both your attorney and your accountant review the UFOC before you sign any contracts.

In addition to reading up on the company, talk to some other franchisees or licensees. See how they feel about the company. Are they satisfied with their results? If they aren't, they'll tell you.

Besides making inquiries of licensees or franchisees, ask yourself a few basic questions as well. Why would you choose a franchise or license, for example? Then consider what the license or franchise provides to its clubs.

“How strong is the brand?” says Amante. “What kind of assistance do they get?”

You'll also have to consider whether the franchisor or licensor will want you. After all, franchisors/licensors often set standards to protect the integrity of their brand.

For example, Lady of America looks for individuals with financial wherewithal (you should be able to support your business completely out of savings during the early stages, if necessary) and passion for the health club business, according to Wittenberns. Business experience is ideal, but prior club experience is not necessary.

Franchisors not only want individuals with financing, passion and experience, they also want people who are flexible. “Who would not be accepted is somebody that immediately starts saying, ‘I want to use your name, but I want to do things my way,’” Wittenberns says. “No franchise will accept someone who comes in with a desire to change the company's standards.”

The franchise may also look into a potential candidate's reasons for wanting to be a franchisee. People interested in getting into the business for the wrong reasons will quickly find themselves getting the corporate brush-off.

“We're looking for someone with a passion for service and a passion for people,” explains Heavin of Curves. “We turn down one out of three people. We don't feel they're right for it…. Guys who think it's a great way to meet women.”

Losing a Franchise Family

Even franchisees welcomed into the family may find themselves disowned if they act with impropriety. “We had one franchisee who had seven aliases,” recalls Heavin.

“Sometimes you get a bad apple in the bunch,” he admits.

Legally speaking, franchises can be revoked for any breach of contract, or if the franchisor feels the club is not meeting company standards for quality. In most cases, says Amante, Gold's Gym franchises are revoked if they are financially unstable, or if they misrepresent the brand to the public. Uretz says World Gym has revoked franchises if he finds out franchisees are selling cheap memberships, which “is a sure sign that the gym is in trouble and it's going out of business.” Other bad signs: too many complaints about service or rude employees.

Franchisors will generally visit their franchisees annually or biannually — to make sure the clubs are up to standard. In addition, since many franchised clubs are in daily communication with corporate headquarters, they can report any infractions within the network. After all, franchisees don't want one bad club to ruin everyone's reputation.

“In the case of World Gym, we have 300 gyms, so we have 300 spies out there,” Uretz says.

According to Caro, though, many franchisors/licensors don't look at their team members closely enough. “No one investigates to find out if there's a really lousy operator out there,” he says. “The only time they yank [a franchisee] is if they don't get any money.”

This may paint a negative picture of franchising, but many operators of franchised/licensed clubs heartily endorse their business choice. In the end, then, the question of whether to remain independent is a personal matter that only you can decide. And if you are already running a successful club, you may not need to switch to a franchise/license model.

“If you have experience…, then you don't need to franchise,” Heavin states. “But absent that years of experience, then you are very foolish not to franchise. Why reinvent the wheel?”

Whatever you decide, remember that a franchise or license doesn't guarantee success. As Dyer points out, most clubs have the same basic equipment and programming. In the end, it's service that differentiates competitors. “And I don't think a franchise means better service,” Dyer says.


Ahead of the Curves

With a franchise location opening every 12 hours, Gary Heavin, founder of Curves for Women, shows that ladies can compete with the big boys of franchising.

“I opened my first women's fitness center when I was 20 years old, which was 26 years ago,” says Gary Heavin, founder and CEO of Curves International. “All those years ago, I was aware it's better to focus because the women's market has specific needs that is best met by a women's only environment — everything from equipment size to the environment.”

Today, Curves International has focused its energy into being one of the fastest-growing franchises in the United States. The January 1999 and 2000 issues of Entrepreneur Magazine ranked Curves for Women the No. 1 top new franchise, and the February 2001 issue declared the company the No. 10 fastest-growing franchise.

The first Curves for Women opened in 1992 in Harlingen, Texas, and the first franchise set up business in 1995. Nowadays, the company opens an average of 40 new franchise locations every Monday. Generally, one new Curves for Women franchise begins business every 12 hours, according to company statements.

“We're now at 2,700 locations,” Heavin claims. “We've had a huge growth spurt this year. In the next five years, we plan to have 10,000 U.S. locations and 10,000 worldwide. We're also going to focus on our weight-loss program rather than our 30-minute fitness program.”

Curves sells 99 percent of its franchises via word of mouth, according to Heavin. Last year the company spent a mere 0.98 percent of its budget on advertising.

Costs to start a Curves are minimal. Operators can buy a franchise for $19,900, which includes the “Quickfit” 16 station exercise circuit, wall charts, music, cue tapes, start-up forms and supplies.

The locations, themselves, are small, self-functioning units designed to be as maintenance-free as possible. Typical rents are under $1,200 a month so that Curves can operate profitably on low overhead. Approximate costs to run the business monthly (variable by location) come in around $2,650, according to the company.

Since the circuit practically runs itself (the cued tapes keep members moving through the routine), staffing is also minimized, consisting of an owner/operator and a student intern. Curves franchisees don't require any exercise experience; they are trained during a five-day course and certified as Quickfit personal trainers.

Members pay $29 a month to use the Quickfit circuit, which is designed to give a full workout in 30 minutes. The circuit has a cardio component and also focuses on strength training.

“Strength training has been the missing link in women's fitness,” Heavin says. “We are the first to provide a true strength-training environment for the overweight woman.”

Clearly, Curves for Women has struck a chord with American women, especially first-time exercisers who don't feel comfortable in traditional coed gyms, and the franchise is able to operate successfully in smaller markets that would not support some other clubs. Why? According to Heavin, the club is one of the first to provide a comfortable environment for women in small towns.

“We don't have the frills of the spa areas or expensive amenities,” he says. “Our efficiency allows us to go where no one else will go. I call myself the Sam Walton of women's fitness.”

While the “no-frills” approach may work in many small towns, higher-end health clubs in big cities probably don't have to worry about the fast-spreading chain eating up their business. Curves has clearly found its niche market, working to eliminate the pounds put on by another franchise.

“We have one Curves for every seven McDonald's,” brags Heavin.

Watch out, Ronald.


Franchising vs. Licensing

FRANCHISING

Advantages: More quality control, more security, more support, name brand recognition, ideal for those new to club ownership

Disadvantages: Less independence, more expensive, more regimented, may not be ideal for someone with many years experience in the club industry

LICENSING

Advantages: Less expensive, offers more independence to club owners, name brand recognition, ideal for those with prior club experience

Disadvantages: Less quality control, less security, less support, not ideal for those new to club ownership


The Facts on Franchising

  • There are an estimated 1,500 franchise companies operating in the United States doing business through more than 320,000 retail units.
  • 75 industries use franchising as a means to distribute goods and services to consumers.
  • Average initial investment for nearly eight out of 10 franchises, excluding real estate, is less than $250,000.
  • Average royalty fees range from 3 percent to 6 percent of monthly gross sales.
  • Most franchise companies have fewer than 100 units.
  • Average length of a franchise contract is 10 years.

Information courtesy of www.franchise.org


Franchise Resources On the Internet

The following Web site links provide information on franchising, tips, opportunities, and more:


What's in a Name?

Proud of your franchise? Happy to be independent? Let us know. Write to us at: Letters to the Editor, Club Industry, One Plymouth Meeting, Suite 501, Plymouth Meeting, PA 19462. E-mail: jjanda@primediabusiness.com. Fax: (610) 238-0992.