Canada's Fitness Source acquired by Forzani Group, expansion plotted

In an effort to branch further into the fitness arena, the Forzani Group has acquired the Fitness Source's nine retail locations in Ontario, Canada. Terms of the deal were not disclosed.

In an effort to branch further into the fitness arena, the Forzani Group has acquired the Fitness Source's nine retail locations in Ontario, Canada. Terms of the deal were not disclosed.

"We are looking forward to building a strong national chain within the next 48 months," Tom Quinn, president of Forzani's franchise division, told SNEWS®. Fitness Depot currently nearly dominates Canada's specialty fitness market nationally, although smaller regional retailers have area hotspots.

The Fitness Source (Â -- owned by Tony and Rose Caparotta -- has been in business for more than 15 years. The Caparottas have been contracted by Ontario-based Forzani to run the business. The Fitness Source employs 60 people and no layoffs are planned, Quinn said. Canada's largest sporting goods retail holding company, Forzani (TSX: FGL) said the acquisition was financed through existing credit facilities and will be immediately accretive.

With annual sales of CDN $20 million (USD $17.4 million), the Fitness Source provides fitness equipment and accessories for residential and commercial use. Stores average 3,800 square feet and equipment sold includes treadmills (Bowflex, Keys, Vision Fitness, True Fitness, Cybex), ellipticals (Octane, Vision, Cybex), home gyms/strength training (Body-Solid, Bowflex, Hoist, TuffStuff), as well as balance and training aids and accessories for exercise, yoga, Pilates and boxing from various brands.

The specialty fitness market is an industry that Forzani has been eyeing for some time, Quinn said, with the company toying with either starting from scratch or partnering with an established outfit. The company has nine other retail banners, from general sporting goods to outdoor to golf.

"The size of the Canadian fitness market currently, depending on who you talk to, can be anywhere from CDN $700 million to $800 million (USD $611 million to $698 million) at retail -- and we do a lot less than that," Quinn said. "Obviously, in our general sporting goods banner, we're in every mall in the country and have most of the best real estate, so to go further and gain market share based on our population base we have to get into other categories that we're not that strong in currently -- and fitness is a natural."

For fiscal year 2005, Forzani made more than CDN $1.3 billion (USD $1.1 billion) at retail under its four corporate banners -- Sport Chek, Coast Mountain Sports, Sport Mart and National Sports -- and as a franchiser of nine brands.

Talks started with the Fitness Source five to six months ago after Forzani's research showed the quality of its operation, its direct link to organizations and trainers, and its reputation in the marketplace. There are no plans to change the name, but Quinn is taking a wait-and-see approach on signage and brand mix.

"A lot of the brands they have in the stores are very good brands and that'll probably be maintained. It's just a question of what's going to happen in terms of the product assortments offered to the consumer," Quinn said, "That is something I'm going to be reviewing with the whole group in the next four weeks."

Another area that Forzani will be focusing on with Fitness Source is franchising and expansion. In an Oct. 11, 2004, SNEWS® story (Click here to read "Forzani Group to take on specialty fitness in Canada with a twist"), we reported that Forzani was on its way to entering specialty fitness retail with a prototype store in mid-2005 and franchising across Canada in spring 2006. The concept was to combine a personal training studio with an equipment showroom that would bundle a starter package of training sessions with equipment sales to get customers started on the right foot and keep them as customers as they progressed. So far, nothing has happened, but the Fitness Source acquisition could be the platform to get the ball rolling.

Quinn said there are ton of ideas being talked about, but he wants to go through the process first before a final plan is announced.

"We didn't just buy nine fitness stores. We think there is the potential to run anywhere from a low number of 30 stores to a high number of 75 stores across the country," he said. "It'll depend on how effectively we can build a franchise model for the existing businesses and how the prototype will work. Then the idea would be to get everything in order over the course of the next six to seven months."

Based on the Fitness Source's equipment assortment, Quinn added that "it's absolutely essential to have the service level behind the product to make sure it can be serviced when it's sold to the consumer." He said Forzani is looking to launch a pilot store in the Toronto market in August, and then go into markets with several locations at the same time

"I think with their contacts and level of expertise and marrying that with some of the things that we do on the retail side from back office, store design, marketing and various other things, we think it's going to be a fairly solid success to develop a very good fitness banner," Quinn said. "It'll help us -- if we can grow to 'X' amount of stores in the next four years -- build our overall business."

SNEWS® View: Why would a large corporate entity start from scratch when a retailer with a solid reputation could give it a jumpstart in the market? This makes total sense for Forzani, which is obviously looking to give Fitness Depot a run for its money. Although Quinn would not commit about the company's plans for any conceptual changes, the concept it had proposed as desired in October 2004 was a solid one that some retailers in the United States have seen great success with when managed properly. Granted, the training-retail combinations isn't as easy to run, but they can be a win-win for all involved, from brands and the retailer, to trainers and consumers. We suspect that Forzani will indeed use the already established Fitness Source foundation to move into this arena or at least to test it in some new locations…such as Toronto.


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