Once seemingly the Golden Child of fitness specialty with stores that sometimes more than tripled typical industry per-store revenues, Fitness Gallery of Arizona in the last six months has pulled suddenly out of the Atlanta and Houston markets, split from its Colorado and Kansas divisions, and is on a cash-in-advance plan with most of its suppliers.
That, of course, has fed fast and furious rumors of potential bankruptcy, takeovers by suppliers or employees, and mismanagement fueled by ego. So SNEWSÂ® went straight to the source, owner Donnie Salum, to find out what happened, what was going to happen, and if the company was going to survive. We also talked to his brother and former partner Billie Salum, owner as of last month of the now completely separate Colorado and Kansas divisions (Fitness Equipment of Colorado Inc. dba Fitness Gallery), several suppliers and other fitness industry insiders to bring you a better picture of the State of the Gallery.
One thing that no one seems to debate is the error typical of many small businesses: Growth that is too fast and too far-flung. But that's not the only straw that nearly broke the back in Arizona.
"I see all the mistakes hitting me square in the mouth now," Donnie Salum told SNEWS, pointing to lack of response to the market, over-extending, not enough capital, and inappropriate business systems, among other things. "Growing the way we did was quite frankly crazy.
"These aren't excuses. I hate excuses. They're reasons we scaled back," he added. Being in debt, losing nine of his 12 stores and having to pay up on-the-spot to get equipment on the floor "isn't the most comfortable thing, but it's where we're at right now."
Donnie Salum began the Gallery in Arizona, incorporating it on May 14, 1997, according to corporate records filed with the state of Arizona. Those papers show both Billie and Donnie as directors through the 2000 annual filing in November of 2000. But on official papers in 2001 -- filed six months late in April 2002 -- Billie's name disappears from the corporate filing, coinciding with him stepping aside to assume sole ownership of the two Kansas stores and leaving Arizona and Colorado to Donnie. Meanwhile, Donnie had jumped into the Houston market (one store in a spectacular, glass-front, 16,000-square-foot building with a monthly lease of $20,000) and into the Atlanta market with three stores. So dashing, the Houston store was named by a then-industry publication as "best store concept" and the same publication effused in late 2000, "Not many chains as young as Fitness Gallery have shaken up the industry the way this chain has."
As Billie quietly flourished in Kansas, however, the leap by Donnie, a former Atlanta Falcons football player, into additional markets so separate from his Southwest home base sparked the downward spiral that was just beginning to accelerate. His own shake-up was about to begin.
"One, I should have never gone" into those markets, Donnie said. "Two, I should have pulled out faster."
But the combination of ego and determination (perhaps "a little caught up in the all hype," said Billie Salum) kept Donnie in the four stores in those two cities until desperation struck. Last fall, Donnie and his team by the dark of night emptied the three Atlanta stores and pulled away from rent-due landlords and advertising-money-due local papers, Donnie told SNEWS.
In Houston, the "midnight dash" was a late Sunday afternoon dash. However, stories conflict about what happened and what's owed, although Donnie agreed with one thing that Houston landlord Romin Jahangiri told SNEWS: Jahangiri noticed something was up at the building and confronted the group as the last truck load was about to go. After that, stories conflict again, with Jahangiri claiming his former tenant owes more back rent than Donnie says he does, with Donnie claiming Jahangiri ended up with the equipment that was in one truck, so he figures they're even.
"I'm not proud of all that, but you do what you have to do," he said.
Trying to rise again
Industry veterans have emailed and called SNEWS to tell us Fitness Gallery of Arizona is nothing but a house of cards at this point, and that it'll be lucky to make it through the end of March without either shuttering its doors or declaring bankruptcy. But Donnie says he's learned a lot of lessons and is determined to be around a long time.
"We're going to get our arms around this thing and then move forward at a slower pace, a more financially secure pace," he said, admitting he is just plain tired. "I've been back at graduate-level learning."
He said he's talking to outside investors so he can be better capitalized, he's getting advice from others outside the industry, he's analyzing systems, and he's trying to pay back the money he owes suppliers, landlords and advertising outlets. Plus, he's getting back into advertising in the Arizona market, noting that two years ago when he cut that back by 50 percent, he saw sales drop more than 20 percent.
"We fully intend on paying them back," he said of those he owes.
Cash and confidence
Billie Salum called the Arizona stores "savable," and said his purchase of Colorado in February helped give the Arizona division an influx of direly needed capital.
Scott Eyler, vice president of sales and marketing at True Fitness, one of several Gallery suppliers that is owed money, called the company a "good customer" that is "undergoing some financial issues."
"We're doing what we can to help them out," Eyler told SNEWS about the cash-in-advance payment for equipment and lower-than-usual margins. "We're helping them get through a bad time. Dealers are loyal to us, and we're loyal to dealers.
"We chose not to push them into bankruptcy because that wouldn't benefit anybody," Eyler added.
Although neither Eyler nor Donnie Salum would say exactly how much Gallery owes True Fitness (industry rumors have it anywhere from $1 million to $2 million), both agree it's not peanuts. Another major supplier, TuffStuff, is now owed less than $500,000, according to TuffStuff vice president of sales and marketing, Pete Asistin, and is also going forward with lower margins and cash-in-advance deliveries.
"No one wants to be owed that kind of money," Asistin said, noting that Fitness Gallery had been 20 percent of his company's business and its largest single account for nearly five years. "Any time you get a hit like that, it's devastatingâ€¦ I think (Donnie) learned a lot from this, and he's been humbled."
Purchase rumors still existed too. Did True per rumor ever consider buying all or part of the Fitness Gallery? Eyler said the company considered "multiple options," but never made an offer. Would it consider buying the company? "I don't know," Eyler said, but he added that True is not entertaining that option now.
"We fully expect (Donnie and his team) to be in the business next year," Eyler added.
Although other fitness retailers (see SNEWS story March 15) are flocking into the Arizona market, looking a bit like vultures, Donnie Salum maintains that he's here to stay, despite eating a bit of humble pie in the last couple of years.
"I'm not saying it's not ugly. I know what it looks like," Donnie said. But "I firmly believe I'm going to be around the industry for a long time. I'll be here."
SNEWSÂ® View: Whether for or against Fitness Gallery or friend or foe of Donnie Salum, all seem a bit saddened by the turn of events. Donnie made money, very good money that was better money than most specialty retailers. But it seems some combination of ego, machismo and image got the best of him since others pointed to the drain Atlanta and Houston would obviously become long before the fall began. What's next is a long, very hard, very steep uphill battle that many believe he can win -- with the right advice and business improvements that implement systems and consistency. Nevertheless, it's going to take him a long, long time to pay off debts. Best estimates show debt to True as a little over a million. Add to that TuffStuff's debt at a little less than a half-million, not to mention the money owed a couple of other vendors, as well as newspapers, landlords and for vehicles. That's a deep hole to get out of, and one he likely would not get out of if it weren't for its main vendors being so intimately involved with the business from the start and basically financing him with higher equipment costs. "Fitness Gallery did a lot of things right," said one industry long-timer, "but for every thing right, they did two things wrong." Now it just may be ready to do things right.