The cost of living crisis and the inability to innovate in the same way as independent brands are behind the F45 training crisis now affecting franchisees, an expert told 7NEWS.com.au.
F45 Training offers 45-minute high-interval circuit training sessions through owned and operated “studios”.
At least 20 locations in Australia have closed in recent years, including at least 10 this year alone.
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Earlier this week F45 Bowral appeared in court for a hearing on an application for winding up proceedings – where Peter Hillig was appointed liquidator.
Part of the issue is that gyms have a lower barrier to entry than other business licences, RMIT Associate Professor of Design, Thinking and Marketing Kevin Argus told 7NEWS.com.au.
This means that less is required of a competitor to break into the industry and fight against already established companies.
At the other end of the spectrum, a potential competitor to a franchise like McDonald’s would face much higher barriers to entry because of the resources and brand recognition behind the company.
Gyms have “high competition and low barriers to entry,” Argus said.
To start an F45 studio, franchisees must cover the cost of the studio location, including its renovation, as well as the $50,000 franchise fee and purchase approximately $100,000 in equipment from “F45 HQ.” Studios also pay monthly fees to HQ.
In return, studios offer members F45 branded workouts and participation in their eight-week fitness challenge. It’s unclear how much help HQ provides with marketing.
The F45 model has also been criticized for not having a stronger guard of territory as other established franchises do, creating too much competition among the brand’s own studios.
Gyms are mostly “variations on a theme” and studios are guaranteed to be in close proximity to competitors who may be independently owned, the Argus said.
“It’s a model where you’re really … relying on your brand to somehow have more appeal and more choice,” Argus said.
When the market is good, the franchisee will benefit from the brand’s recognizable formula, Argus said.
“Users know what to expect,” he said.
“This is organized centrally.
“In growing times, it can be more attractive than a stand-alone (gym).”
The market has faced less stable times such as the COVID-19 pandemic, Argus said.
Gyms now face significant economic conditions that affect middle- and lower-income people, he said.
There has been “upheaval” in how people spend their money, he said.
While franchising provides security in stressful situations, it can be restrictive in stressful situations, Argus said.
When times are tough, an independent gym may be able to customize its offerings more easily than a franchise.
“Independent businesses can leverage more,” he said.
“How they cater to customers, how it fits their current situation.”
“When economic conditions affect the market, if you’re not flexible (in how you respond) it’s quite likely (customers could drop off).”
“Boom period then things go upside down”
Constant trends in the fitness industry are also having a big impact, Argus said.
“In the fitness industry, we are seeing a lot of repetition. During the boom, things go awry.”
While interest in health and fitness remains strong, the fluctuating trends of trends such as high interval training, spin classes, pilates and more mean that a gym that specializes in one particular exercise may face uncertainty.
“F45, they’ve been riding the wave of growth and interest in fitness,” said Argus.
This is partly driven by social media, where people are told it can “transform their lives”, he said.
“Interest rates are not the problem.”
However, some franchisees are said to have taken bank loans of up to 100 per cent of business costs at the height of this F45 wave and were “banking on momentum”.
“No independent gym will do that,” Argus said.
“But you need a very broad reach and market to feed the number of gyms that are being established.
“It sounds good when you’re in this hype and growth (boom) …. that’s when interest loans hit.”
The current cost of living crisis means people on average incomes are now rethinking their spending, the Argus said.
“They’re looking around and can’t justify the premium membership cost,” he said.
There may be nothing wrong with the product on offer, but in these circumstances, customers may “just choose a cheaper competitor”.
No “functional problem” with the F45
F45 Training has also suffered public branding damage due to losses with celebrities David Beckham and Greg Norman over payment for their endorsements of the company.
However, Argus does not believe this is a significant issue affecting the F45.
“It affects investors more than customers,” he said.
Customers are simply looking at the value the brand provides them, and there is no “functional problem” with the F45’s offering, he said.
The interest in the market “is deeply rooted in (customers’) personal and social self-esteem,” Argus said.
“It’s a market of people who are very driven,” he said.
The brand also offers its users a sense of community and ‘social connection’, which gave it a unique appeal.
“The group scenario means you all belong to a movement,” Argus said.
“They’re not the only ones doing it anymore.”
It will be “interesting” to see how the company adapts to new market conditions, Argus said.
“They’re in an industry where I don’t think the appetite for what they’re offering is going away,” he said.
“Grown too fast”
At its peak, F45 Training was valued at $2 billion.
Founder of C3 Training – another popular gym group training gym – Serkan Honeine previously told 7NEWS.com.au that he has brought dozens of F45 branch owners to him in the hope of a rematch.
“We’ve talked to a lot of F45 franchisees … and they all have a similar narrative,” Honeine said.
“They all say F45 grew too fast and when they expanded overseas they lost sight of supporting local franchisees here in Australia.”
This year F45 franchisees in Minto in NSW, Liverpool, Alexandria and Surry Hills have entered liquidation.
The Coogee location notified members it was closing in May, although no ASIC notice was issued.
Franchisees Endeavor Hills and Traralgon in Victoria, the Devonport location in Tasmania and the Springfield location in Queensland also filed for bankruptcy earlier this year.
Phillip’s franchisee in the ACT was appointed restructuring specialist in April.
There are currently 257 locations across Australia listed on the official F45 training website – including 89 locations in New South Wales, 64 locations in Queensland, 51 locations in Victoria, 32 locations in Western Australia, 13 locations in South Australia, four locations in the ACT , two locations in the Northern Territory and two locations in Tasmania.
This includes the Phillip and Bowral locations.
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