Fitness Gallery Arizona to liquidate under Chapter 7 bankruptcy

Barely five years after being touted as the best in the business and seemingly unstoppable, the Arizona stores that were the birth of the Fitness Gallery chain have been shuttered and will be liquidated, owner Donnie Salum told SNEWS®.
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Barely five years after being touted as the best in the business and seemingly unstoppable, the Arizona stores that were the birth of the Fitness Gallery chain have been shuttered and will be liquidated, owner Donnie Salum told SNEWS®.

Ch. 7 bankruptcy papers, meaning total liquidation, were filed Oct. 25 with the U.S. District Bankruptcy Court, District of Arizona. That came two weeks after Salum had initially filed for Ch. 11 bankruptcy reorganization on Oct. 8.

The Ch. 7 papers said: "Debtor, Fitness Gallery Inc., herewith moves to convert this case to one under Chapter 7. The firm does not believe that it can appropriately continue to operate and the outlook for reorganization is not favorable." The filing also seeks to have the court appoint a trustee to administer the case and to oversee liquidation.

"It's been such a war. I almost feel relieved," Salum said. "I lost control of it with the recession and 9/11 and over-expansion and under-capitalization. It was a recipe for disaster."

As of Tuesday, Oct. 19, the two remaining Arizona stores (Scottsdale and Ahwatukee) were shut and notes were placed on the doors announcing they were closed because of bankruptcy filing. The notes stated the case number (04-17746) to allow customers to go to the court, if needed.

In the initial Ch. 11 case now overridden by the Ch. 7 filing, the top unsecured creditor was True Fitness with an estimated $1.28 million in money due listed in the paperwork, although it is rumored to be much higher. Second on the list of the top 25 was Task Industries/TuffStuff, due $354,545. Third was Schwinn Cycling & Fitness ($134,723), and fourth was Kettler with a balance due of $71,308, according to the statement filed Oct. 14 with the court. Other industry vendors on the list were Ivanko ($43,443) and IntellBell ($32,151). Since most vendors in the last nearly two years were requiring COD on products, these bills represent debts mostly from before 2002. In the previous Ch. 11 filing, Salum estimated debt as between $1 million and $10 million.

"I waited too long to even file Ch. 11," Salum added.

Others on the list include banks, advertising agencies, newspapers, investment firms, sign companies and billboard agencies. Other unsecured creditors beyond the top 25 are not on the list and include smaller amounts to companies like Schiek Sports, which is owed $6,092, SNEWS® learned.

"It's a tough business world out there, and the fitness industry is a tough industry," said Scott Eyler, vice president of sales and marketing for True Fitness. "We don't ever feel good about dealers failing.

"We stuck by them longer than anyone else. We hoped they'd pull out," added Eyler, who told SNEWS® in March that he "fully expected (Donnie and his team) to be in the business next year."

Eyler also said True is "taking care of" 66 Fitness Gallery customers who have paid for products in part or in full "to do what is right."

Donnie Salum began the Fitness Gallery in Arizona, incorporating it on May 14, 1997, according to corporate records filed with the state of Arizona. Those papers show both his brother, Billie, and Donnie as directors through the 2000 annual filing in November of 2000. Billie's name disappears from the 2001 paperwork, which was filed six months late in April 2002, as SNEWS® found during research for a March 2004 story (see story, March 22, "Fitness Gallery AZ owner says he will overcome mistakes"). That coincides with Billie's separation from the chain to assume sole ownership of the two Kansas stores, soon followed with the same for the Colorado stores (now Fitness Equipment of Colorado Inc. dba Fitness Gallery), both now flourishing separately.

Meanwhile, Donnie had also jumped into the Houston and Atlanta markets, which he also eventually lost -- but not before the chain received effusive recognition, including from an industry publication that wrote "not many chains as young as Fitness Gallery have shaken up the industry the way this chain has."

"I made some big mistakes, and it all comes down to me," Donnie Salum said. "Fitness Gallery is still going strong. It's just without Donnie Salum. Donnie Salum is gone."

On the company's website (www.fitgallery.com), which still touts the brother's partnership and their pictures and continues to be the web presence for brother Billie's Kansas City and Colorado stores, the company stated on its home page: "Due to our rapid growth, we have been a model for success to many other dealers across the country."

The site also quoted Task Industries, dated 1999: "Fitness Gallery's future success is truly immeasurable at this point. We at Task Industries know what their potential is and will be completely behind them as they expand into new locations and markets."

For TuffStuff, the potential for its business with Fitness Gallery has gone south. Pete Asistin, vice president of sales and marketing, said the company developed a strong partnership that had accounted for about 20 percent of TuffStuff's business and was its largest single account for five years. The company has been slowly working to replace that quantity of revenue.

"It's difficult to replace those kinds of numbers. This hurts," Asistin told SNEWS®, who said the company had begun to expect something like a bankruptcy since Fitness Gallery began to close stores a couple of years ago. Although Asistin said he was "shocked" by the Ch. 11 filing, he also called it a "relief" that the saga is now over.

The new Ch. 7 filing doesn't really change the situation for unsecured creditors like TuffStuff since they are out most, and usually all, of their money anyway, with no recourse for going after it any other way.

"There's nothing surprising here," said John Schiek, owner of accessory manufacturer Schiek Sports. "No grand news here. Most people did expect it."

Although the industry seemed to be basically just playing a waiting game on the fate of Fitness Gallery, that doesn't mean anyone is really happy about the news.

"Anytime something like this happens it not only hurts the companies -- like us and True and Schwinn -- but it also hurts the industry," Asistin said. "That's not good. It doesn't shed good light on us. This is sad."

Despite knowing his stores will be dismantled, Donnie Salum said he is grateful some manufacturers continued to support him as he tried, albeit in vain, to get his head above water again. Now that the retail venture is gone, he said he plans to "decompress for awhile. I want to do a lot of nothing."

Next? "I plan on being back in this industry quickly," he said. "This is where my love is."

SNEWS® View: Here ends the grand tale of yet another fitness retailer that had been ringing up huge sales numbers and had a growing business -- until he went too fast and too far. It also ends the speculation that had been swimming around for months and months about a potential bankruptcy or takeovers by suppliers or employees. Donnie doesn't try to transfer the blame elsewhere but keeps it squarely on his shoulders. One can't call it mismanagement, perhaps, as much as ignorance, too much ego, and egregious errors that are sometimes made by small businesses that look at the top line rather than the bottom line. Despite being adamant last March the business was going "to get our arms around this thing and then move forward at a slower pace," Donnie found the hole was too deep and too dark, sadly. Money lost? Check. Lessons learned? Check. As we said before, whether someone is friend or foe of Donnie Salum, the business failure still reflects on the industry as a whole. And that's never a good thing.

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