Financial woes force The Fitness Experience into Ch. 7 bankruptcy liquidation

In the sad conclusion to a tale of retail rags-to-riches with growth, acquisitions and a bright future that went dark, The Fitness Experience has filed for Ch. 7 bankruptcy, meaning the company will liquidate in the near future and be no more.
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In the sad conclusion to a tale of retail rags-to-riches with growth, acquisitions and a bright future that went dark, The Fitness Experience has filed for Ch. 7 bankruptcy, meaning the company will liquidate in the near future and be no more.

Although the filing in the U.S. Bankruptcy Court, Northern District of Illinois, Chicago, slipped in late on Jan. 21, rumors about potential bankruptcy, financial woes, store closings, accounting discrepancies, suppliers put on payment moratoriums, and attempted acquisitions by others have bounced around the industry for a solid year.

"We always held TFE up as a model to our other retail partners," said Richard Shaffer, sales manager for Vectra Fitness, one of the Midwestern retail chain's key vendors. "The situation is just too sad for words."

Although hard to have foreseen at the time, the downward spiral likely began two and a half years ago when Illinois-based The Fitness Experience acquired Ohio-based Exercare, announcing that move at the 2002 Health & Fitness Business Show when the staff contingents showed up on the second day all wearing TFE shirts. Suddenly, the business became a much bigger multi-state, far-flung retail endeavor that demanded an entirely different management and broad knowledge as it moved to merge the two chains.

Rumors coming into SNEWS® headquarters really began to heat up after Jan. 15, when Ohio stores were mostly closed with signs posted in the windows that claimed closure "for inventory" or "for training." The rest of the stores shuttered their doors for the last time on Jan. 19 when all remaining 36 outlets and all employees received a memo from President Doug Pearson, titled "Update on December Commissions, Etc." That memo read, in part:

"Last week, you were promised an update on the December commissions (that were due to be paid on January 15) no later than Wednesday, January 19. Well, here goes....

"We've now gone more than 24 hours without a return phone call from the prospective buyer, who had indicated this deal should close Tuesday (yesterday) and that the December commissions would then be paid. We still have no deal. At Bank One, (our representative) continues to remind us that the bank quit funding our operation as of January 7 and they do not intend to provide additional funds to cover the December commission payroll. Our business consultant, Steve Nerger, has reminded me that it is not responsible to continue to have you come in to work without a funding source from which you will be paid.

"As a result of the above developments, the time has come to temporarily shut down the operation until your paychecks can be covered. Please lock up your building now and make sure the bank's inventory is as secure as possible…"

Two days later, however, the business filed Ch. 7 and it is highly unlikely the 150 employees remaining, who are all due December and January wages and/or commissions, will ever see the money. Sources say some are due as much as $10,000, can't pay rent, and are desperately knocking on doors all around the Midwestern area. 2nd Wind Exercise owner Dick Enrico told SNEWS® he had one Michigan employee drive unannounced to his main office in Minnesota looking for work.

"It's unfortunate. There are a lot of people running around looking for work," said Enrico, who was rumored to be in talks to buy TFE's Wisconsin stores, but said he will be moving into that area another way this year with as many as 15 stores. "To shut down in the middle of the busy season, you've had problems long before that."

TFE's Pearson did not return voicemails and an email requesting comment by deadline. The main offices in Ohio and Illinois were shut with phone systems set on automatic answer. The website (www.fitnessexperience.com) was still live on Jan. 24. However, in a July 9, 2004, SNEWS® story when the retail chain sold its five St. Louis-area stores to True Fitness, Pearson was asked about continued rumors of bankruptcy. He said at that time he didn't consider that an option. "The situation," he said in July 2004, "doesn't deserve the use of the word 'bankruptcy.'"

In a SNEWS® story Sept. 9, 2003, a year after the merger, when Pearson and vice-president and former Exercare owner Brian Massie discussed forward-thinking plans for customer and staff education, Pearson said the company was showing total sales of $68 million through its then 55 storefronts. He had said management thought it could reach sales of $80 million in a year, with a goal in two years of hitting nearly $100 million. At that time, the chain's top five brands were Life Fitness, True, Vision, Pacemaster and Vectra. In subsequent interviews, Hampton was also named as a top supplier.

Creditors and employees due many millions
With a filing only one day ago, lists of unsecured and secured creditors haven't yet been released to the court. However, it has been rumored that both Life Fitness and True as unsecured creditors (both have some secured debt) are between $1 million and $2 million, with Life at the high end. True did not return calls, and Life declined to comment about the money owed. Both companies will be looking for distribution in their backyards.

"We were disappointed to learn that The Fitness Experience closed its doors," a Life Fitness spokesperson said. "Several companies have expressed an interest in taking over the territory but nothing has been finalized. We currently are looking for distribution in these areas."

Pacemaster Vice President Tom Staub, who called the bankruptcy "disheartening," said his company is owed nearly $400,000, and it is "looking at all avenues available for any amount of recovery." Nautilus/Schwinn is apparently also owed a substantial amount -- up to about a half-million -- with others such as Vectra, Hampton, Bodycraft and some accessory companies owed smaller amounts. Most suppliers put TFE on pre-pay a long time ago or simply pulled out of doing business with the chain, so most of the money owed suppliers is debt that accumulated prior to spring 2004.  

"We saw the handwriting on the wall," one supplier said.

The first document filed with the bankruptcy court noted that "debtor estimates that, after any exempt property is excluded and administrative expenses paid, there will be no funds available for distribution to unsecured creditors." The filing shows an estimated number of creditors as "200 to 999," and estimated debts as $10 million to $50 million.

Acquisitions gone south
Not to say that as financial troubles deepened that suitors didn't appear to try to acquire the company. Several large, well-known, current retailers and others were at the table with TFE and its business consultant for a time, but all apparently backed away.

Doug Kortemeyer, active in specialty retail in the area for more than two decades, was part of one group that wanted to buy six stores in Wisconsin. He told SNEWS® talks ended Jan. 6 -- about the same time talks with others came to a sudden halt.

"After further review of the financial information that had been supplied to us from TFE, our financial advisors felt that our purchasing the Wisconsin operations of TFE would not be a wise move," Kortemeyer said. "Between our legal counsel and financial advisors, they felt that there were too many open issues and liabilities hanging out there, and that it was best that we not open ourselves to that exposure."  

One retailer rumored to be in talks, Scott Egbert, of Chicago Home Fitness, said he did talk to TFE management but "it didn't work out." He added that his operation is going to look at stores in Chicago and Michigan.

"We're going to aggressively pursue opening in Michigan and Chicago," Egbert told SNEWS®, "in the prime Fitness Experience locations."

Meanwhile, while all lament the chain's passing, rumors about discrepancies and financial issues continue to move quickly from coast to coast.

"It's unfortunate for everybody -- vendors, management, the employees," Enrico said. "It's a very, very, very, very, ugly deal. There'll be a lot of unhappy people and customers."

SNEWS® View: Sad is indeed the word to use in this case. Everybody we talk to can't believe how far the company let its financial troubles go, basically backing it into a Ch. 7 corner without even the option of a Ch. 11 reorganization. We still remember the glow at the Health & Fitness Business Show in August 2002 when the companies merged, and the future truly seemed bright as the owners had great plans for establishing a gold standard of retailing. But a multi-state merger got more and more complicated, and those details began to suck down what was a successful Midwestern operation. Stores were cut from a high of 55 to 36 by July 2004 -- what Pearson called "right-sizing" as a part of a long-term reorganization plan -- to get out from under the extra expense and burden that the merger had placed on the chain.

In the past few months, the calls and emails received by SNEWS® have increased with nearly an avalanche from all corners of the industry in the last week or so. Of course there is a lot of second-guessing and rumor-mongering going on. No, don't believe all you hear, but that doesn't mean you should discount all you hear either. Although the bankruptcy itself may be finished quickly, additional legal wrangling could reveal more and drag on a lot longer. What can't we begin to express or to print? The frustration, anger, betrayal, hurt, loss and accusations (some quite despicable) now sweeping across the industry. The Fitness Experience was an important retailer. This is a tragedy, indeed. And the pain will be felt for a long time, likely much longer than after the bankruptcy of the original Busy Body in 2001. In addition, the Midwestern states are now nearly devoid and may be nabbed in part by those who had been shopping for TFE -- depending on where True and Life want to swing their allegiance. There is a plum for the picking, and whoever moves most quickly and wisely will get the post-TFE fruit.

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