LIBERTY FITNESS: And then there were three…
February 12, 2009 by Sean Kelly
Filed under Business
In 2005, Entrepreneur magazine ranked fledgling women’s workout franchise Liberty Fitness #415 on its Franchise 500® list, #101 on its Fastest-Growing Franchises list and #39 on its Top New Franchises ranking. In 2006, Liberty Fitness’ position on its Franchise 500® had slipped to #460 and its Top New Franchise ranking slipped from #39 to #42.
By 2007, Liberty Fitness had disappeared from all of the Entrepreneur magazine listings.
The Entrepreneur franchise listing for Liberty (now titled Liberty Weight Loss) tells an more dire tale. It shows 55 Liberty Fitness locations in 2005, 30 in 2006 and 31 in 2007. Today, the Liberty Fitness website indicates that there are just 6 locations remaining.
A former Liberty Fitness franchisee, posting on UnhappyFranchisee.com, predicts that within three months there will only be three Liberty locations remaining.
UnhappyFranchisee.com has posted emailed comments from this former Liberty Fitness franchisee that provides some important lessons of mistakes to avoid in investing in a franchise.
Liberty Fitness Franchise Owner Describes Chain’s Decline warns about the dangers of buying into a “hot new franchise” that has not weathered tough economic times.
Diversified Health & Fitness Wants Failed Liberty Fitness Owners to Pay Up tells of the dangers of the leadership bait-and-switch that can occur when a beloved founder sells the company to a multiconcept conglomerate that pursue their franchisees for money even a year after their failed clubs closed.
Does this mean that franchises are a bad investment? Not at all. It means that the wrong franchise – either the wrong concept, the wrong company, or both – is a bad, sometimes devastating, investment.
WHAT DO YOU THINK? SHARE A COMMENT BELOW.
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Ironically, this is the exact same story of the meal prep business. It started off as a hot item, got listed on Entrepreneur and is now all but defunct.
This is probably a key lesson to learn: the dangers of buying into a “hot new franchise” that has not weathered tough economic times.
Meal assembly is still dropping 50-60 stores a month so I’m sure there’s many owners out there who can attest to investing in a bad concept.
Tuckerbox:
I agree completely. Both Meal Prep and women’s express fitness were what I call “experimental franchises.” Neither had stood the test of time… so franchisees got the worst of both worlds:
The uncertainty of an untested concept
The fees and restrictions of a franchise.
Yes! Unfortunately, franchisees do not understand that they are NOT the Entrepreneurs and merely the resource for the franchisor, the Entrepreneur, to try to prove his concept in the marketplace.
The magazine Entrepreneur deals with the success and possible success of franchiSORS and many franchisees do not understand that the criteria for a franchisor’s success or possible success is all they are interested in when they do articles for the magazines and/or pick top franchises.
Entrepreneur’s revenue, of course, is derived from advertising by franchisors and not franchisees. An appearance in Entrepreneur is a kind of disguised earning claim that helps franchisors to recruit new prospects to the franchise system.
Unfortunately, this is very misleading for prospective franchisees who think that any franchisor covered by Entrepreneur is pure “gold.”
Carol-
Have you ever owned a franchise or worked for a franchise organization, or are you just giving an outsiders perspective?
When you are in business for yourself the actual definition of Entrepreneur is someone who undertakes risk in business. When you opearate a franchise, that risk is there. We are all Entrepreneurs.
Please enlighten us on your background in franchising, since you don’t see us as business owners.
Thanks,
Rita
Hi Rita! — I am the wife and the mother of failed The UPS Store Franchisees. I have researched franchising for over two years on a somewhat daily basis.
I, too, thought my husband and son were entrepreneurs who would partner with a big name corporation that offered and advertised the “unprecedented” opportunity to buy a UPS Store which would offer success and profits.
They found out the hard way that this was not TRUE —-three hard and very stressful years and not a dime was made and they are still paying on the startup debt long after the store was taken over by another franchisee who got the business for pennies on their investment. They subsidize UPS/MBE every month with a payment on a home equity loan that was incurred to pay for the startup of a new The UPS Store.
This process is called “churning” and is a means for franchisors who have weak and unviable franchises to maintain and even grow THEIR market share and EBITDA (earnings before interest, taxes, depreciation, and amortization) because it is the franchisees who take all of the risks of financing and providing the hard assets, the tangible assets of the franchise system that produce the EBITDA for the franchisors.
The SBA Advocacy Committee of the Congress does not consider that franchisees own a business of their own, or that they are entrepreneurs in the traditional sense of the word. But, apparently, the franchisees qualify under law as “small business owners” for the purpose of securing government secured loans and this, of course, is a subsidy of franchising, large and small franchisors, who cannot get a guaranteed “small business loans” from the SBA because they generally own none of the hard and tangible assets of the chain system they are trying to grow.
Read Wikipedia’s Article on Franchising for the citation for their comments to the Small Business Administration. Franchisees rent a brand name and a mandated method on which they must operate their businesses and the franchisors completely control the operations of the chain business and the individual units that the franchisees have built for them through the control of the unilateral franchise agreement.
The franchisors’ portfolios of signed franchise agreements are the basis for public stock offerings and private investment and securitizations for borrowing, etc… Franchisees are merely a “resource” for all of this financial activity. Franchise contracts are upheld by the courts for this reason.
It is the franchiSOR who franchises the concept under a contract who is the Entrepreneur and those franchisees who buy the franchised concept are merely resources for the franchisor to prove his concept in the marketplace.
Entrepreneur Magazine concerns itsef only with the success of the franchisor based on proprietory criteria that they don’t share with the public and this is why so many “weak and unviable franchise opportunities” appear on their lists. Entrepreneur and other business media and the SBA itself doesn’t look at “churning” and under public policy and regulatory policy, franchises are sold without talking about the inherently very high risk and return of ANY franchise for the individual unit franchisee —the Mom and Pop sector.
While there are some good franchisors who do produce profits for their franchisees, as Sean Kelly always indicates, ALL franchisors are permitted to sell franchises under cover of government regulation without disclosing unit historical performance statistics or in the event of new franchisees, without providing any kind of proforma in the disclosure document. Therefore, most franchisees buy with absolutely NO idea of the possibility of success or profits and the actual risk as indicated by historical unit performance statistics.
Read Les Stewart’s Franchise Fool for a look at the dark side of franchising and congratulate Sean Kelly of Franchise Pick and Les Stewart of Franchise Fool for being the only ones who haven’t barred my posting and the posting of other “unhappy franchisees” from their websites.
I am blocked out of the Blue Mau Mau site and Franchise Pundit for trying to tell MY truth and for trying to inform prospective franchisees that they are not “entrepreneurs” and merely resources for franchisors. And! most importantly to inform prospective franchisees that the franchisors who can overseed to begin with and then “churn” failed units and sell new and discounted units, as well, with impunity under the law, CAN and DO survive in the marketplace, even as many of their franchisees are bleeding to death.
Thanks, Rita, for your inquiry. You help me spread the word.
I appreciate your comments.
I sensed that you had never personally owned a franchise yourself based on your comments.
In my opinion, a franchise (in most cases) is like a diet. If you almost follow a diet, it almost works. In franchising, you must follow the system to reap the rewards.
As a multi-unit franchisee, I have never had a unit that did not succeed.
It appears the people with the most comments on these boards are people that did not fully commit to the franchise guidelines or work to make it “work”
Rita
Rita J. Wilson wrote: It appears the people with the most comments on these boards are people that did not fully commit to the franchise guidelines or work to make it “work”
Rita: Isn’t it the franchisor’s obligation to make sure that their franchisee’s maintain compliance with “franchise guidelines”? Isn’t that why they have franchisees sign 2-inch documents, have field support visits, inspections, and issue default letters and notices to cure?
I’m astounded by the number of express fitness franchisees who report that franchisor support staff NEVER visited their club, or only did at their opening. I’m pretty amazed at the difficulty many of them report even getting a call returned or getting any help when needed.
I suspect that a lot of this has to do with the Master Franchise structure and area rep system, where FRs abdicate their responsibility onto MFs who are not being held accountable for support. Would love to get some franchisee input on that.
But, Rita, if franchisees aren’t following the system, isn’t the FRs job to help – or make – them do so?
Carol Cross wrote: I am blocked out of the Blue Mau Mau site and Franchise Pundit for trying to tell MY truth…
Neither Blue Mau Mau nor Franchise Pundit discriminate against comments or commenters with whose opinions they disagree. My guess is that they blocked you because you made the same point (your truth) no matter what the context or post subject. You also condemn all franchises across the board.
Those traits tend to be conversation-killers and deaden potentially interesting threads. Like me, BMM & FP work hard to keep the conversation diverse, lively and interesting.
RE: Liberty Fitness owner Diversified Health & Fitness
Just read this disturbing comment from a former ShapeXpress franchise owner
http://www.unhappyfranchisee.com/2009/02/diversified-health-fitness-wants-failed-liberty-fitness-owners-to-pay-up/#comment-4737
Sean:
While I respect what you are saying about it being the franchisors responsibility to “make” franchisees execute, it is not always that simple.
For instance, I work with a health and wellness franchise and I own 6 locations. My franchisor recommended we “hit the streets” on Friday and offer all bank personnel HUGE discounts since they would be closed today (President’s Day) of 75% off program fees.
All of my locations participated. I had my teams visiting banks all last week with flyers, talking it up with current clients and promoting it. I followed the “system” for this event.
It is only 10AM and we have already tracked back $4K to this revenue with 7 more hours to go!
At the end of this month, I am sure (as usual) I will hear other franchisees in our system complaining that business is down, corporate does not do enough, etc…and they did not even participate in todays promotion. “It doesnt work in my area” is what they all say.
The franchisor could not physically come to all out locations and enforce that we participate. It is up to us to turn momentum into velocity. It’s unrealistic to think that franchisors keep us accountable to what needs to be done to grow our businesses.
I have a UPS Store and a Pak Mail store in my area. I do lots of mail orders. Not once have I have been visited by either of these businesses to solicit my business. However, the Kinkos rep came in, brought me supplies and that is who I chose to do business with.
I hear a lot of crying, but not much action from most of the people claiming franchises don’t work. An in the case of Carol Cross, she does not have the credability of being an owner to even comment. Once she takes a risk herself, her comments will be important to me—but she is not an owner. Its easy to risk from behind a keyboard.
Work the systems, and it works for you. Don’t and it won’t.
Rita
Oh! Come on Rita! You know this concept sector is SATURATED and fitness franchises are failing at alarming rates because of SATURATION AND the ECONOMY. Curves, 1,2,3, Fit, Butterfly, and many other franchisees are falling like flies. Many of them have tried special “marketing events” but they still haven’t been saved from financial failure.
I’m sure that you are grateful that you are surviving but why must you put me down. I notice you don’t refute any of my observations, but just attack me, personally.
It is the franchisors and the multi-unit franchisees, perhaps, who “work the system” and it works for them, I agree. As a multi-unit owner, you have spread your risk and have a better chance of survival, and aren’t perhaps qualified to talk about single-unit owners.
Are you trying to indicate that there are no unviable franchise opportunities being sold to the public and only unviable franchisees who don’t try hard enough?
Aren’t you being smug and unrealistic?
Hi Carol-
Not trying to put you down. I just think unless you personally own a franchise, you have no credible opinion.
There are “researchers” and there are “doers”. There are people that actually operate businesses and there are people that “teach” how. People that can’t do it, consult.
I am not in the exercise business. I never have claimed to be. I work in an upscale wellness environment where my clients have ample disposable income. We don’t work off drafts. For that, I am grateful–since I am not stuck in the middle like a Curves or Shapes Express.
I truly believe there are a lot of individuals out there that think the franchisor is supposed to do the heavy lifting. That is not their responsibility. They are to give a system and ideas for the franchisee to implement.
Do I consider myself a business owner…YES, I do.
Do I consider myself an entrepeneur, YES, I do.
I take ownership of my income, future, and longevity.
When you own a franchise, I think you opinion will be valid. Until then, keep consulting.
Rita
Carol-
Honestly, I am not meaning to put you down. Just like you can share your beliefs, so I can I.
I actually like the debate -=)
I just think there is such negativity on here about franchisors, and I actually have a really good relationship with mine. I consider myself blessed. I think it is important that happy franchisees be as vocal as unhappy ones.
Hope you understand. Rita
I do not have any insight into fitness franchises, but rather meal prep franchises. However, the main point of original article: the dangers of buying into a “hot new franchise” that has not weathered tough economic times, is something anyone who is looking to get into a franchise needs to keep in mind.
Like fitness, meal prep was heavily reliant on customers with disposable income. But the thing to keep in mind is what happens when thinks get touch? Will customers keep coming? Can they afford you? Can it weather touch economic times? I still agree with the point that just because something is a franchise does not mean there is actually a system in place that will work if followed.
And there are plenty of people out there who will hype and bandwagon an idea just because they want to cash in. Meal Assembly is full of gold rush mentality opportunists that made the system seem better than it really was.
As seen by meal prep, the system is constantly changing, changed at the corp office and at the local level and not necessarily in agreement with each other. Support and visits may be limited. Buying into the franchise is buying into the idea. Just because you follow the rules doesn’t mean you will be successful.
It’s good to hear your business is working for you, but I don’t agree with the statements of “work your business” or “if you follow the rules you’ll be successful”. I don’t believe enough franchises have that solid of a system in place to make that valid.
But I also agree, not all franchises are bad.
Okay Rita! I think we have different goals.
I am trying to educate the “unhappy franchisees” to understand that regulatory policy was developed to promote franchising and to protect franchisors from whatever percentage of franchisees who would ultimately FAIL out of their systems. Robert Purvin of the AAFD and Susan Kezios of The American Franchisee Association have pointed out that the failure of the FTC to mandate that franchisors disclose any unit historical performance statistics to new buyers is a fatal flaw of the FTC Rule.
There is naturally a conflict between successful and unsuccessful franchisees —the winners and the losers. The fatal flaw in the FTC Rule permits franchisors to sell franchises that have indicated low or no profitability for a good percentage of the franchisees to new buyers, and then to indulge in “churning” of failed units to maintain their EBITDA while continuing to sell NEW units out the front door.
My point always is that there is cooperation in the status quo to hide the very high risk of any small business (See Startup Franchise Failures –Small Business Trends) and to suggest that the franchised retail business is the answer to a business of your own AND a job. However, the actual risk factors, in terms of unit profitability and unit failure, are not required to be disclosed to new buyers.
It is the original sin of the FTC Rule promulgated in the late 70’s that I am trying to uncover.
The “hybrid” legal relationship of the franchisor and the franchisee does render the franchisee merely a resource of the franchisor when the prospective franchisee signs the usual non-negotiable boilerplate contract that protects the franchisor from misrepresentations made outside of the contract during the sales process.
The successful franchisees who are making profits or who are hoping to break even and to make profits don’t generally post on these sites
The successful franchisors can only “lawfully” make “earnings” and “success” claims WITHIN the government disclosure document and the actual contract —-but most franchisors don’t do this, after 30 years of regulation.
Does your franchisor make an earnings claim to its franchisees? Is your franchise a home operated business? Were your startup costs several hundred thousand dollars?
They do not make earning claims, but let you talk to all current franchisees complete with phone numbers and email address in the documents.
No, we are retail based businesses in upscale shopping centers.
Each unit has an opening price (including start-up franchise fee) of $40,000-$60,000 which includes redesign and grand opening advertising.
I made my investment back on my 1st unit within 2 months. But I also followed their system to the letter.
I opened a 2nd location within 6 months of the first and completely paid cash for it from the first units sales.
Many times franchise owners are not willing to hit the streets and go get business. They are more involved in selecting biz cards, decor, and long lunches than marketing. I made sure everyone in a 1, 3 and 5 mile radius knew about my locations.
Do meal prep and exercise franchises get out of their buildings and visit schools, hospitals, and people that could support their building. As I said before, the UPS store that is in my shopping center closed, but the owner was never marketing. It does not take a lot of effort to hand out flyers.
No, this is not the solution to every problem–but you can be successful with most franchise operations.
I have worked hands-on with dozens of franchise systems and their franchisees on local store marketing programs, and I can tell you that Rita makes a valid point about franchisee marketing.
While the percentages vary by system, every franchise system, there are three types of franchisees. There are those who are eager to invest in and try new promotional ideas and initiatives, even those they are skeptical of. There are those who are slow to embrace the new ideas, but will watch the first group and follow their lead eventually. And then there’s the third group which you couldn’t move with dynamite. As mind boggling as it sounds, the last group would rather fail with someone else to blame than take accountability and struggle to breakeven or profitability.
The best systems have more of the former and fewer of the latter, with the average mix being perhaps 30%/50%/20%. The responsibility is the franchisor’s to select the right franchisees, set the right expectations, and continually sell them, involve them, motivate them and give them the right local store marketing tools.
Rita’s bank example rings very true.
However, there are also concepts and franchise systems where all three groups are failing. Enthusiasm can’t carry a half-baked concept like Meal Assembly Kitchens – there just aren’t enough people who want what they’re selling (or even understand what they’re selling). eBay drop off stores were another hyped loser concept that cost hundreds their savings if not more.
And while women’s express fitness may be viable in some areas, some of these locations can’t support one club, much less three or four.
So while I agree many franchisees need to promote more aggressively, I do not agree that when the system as a whole is failing that you can blame those who failed for “not following the system.” Following a failing system may be why they failed.