Relatively new Texas-based retailer G.E.T. Fitness Enterprises (www.getfitness.us) was awarded by U.S. Bankruptcy Court, Northern District of Texas, Dallas, the assets for the Keys Fitness brand on Nov. 26. Those assets did not include the Keys Fitness' license to the Ironman brand.
Court documents show that Terri McMillon (Greg McMillon's wife -- Greg is co-owner of G.E.T. Fitness) was awarded the assets for a purchase price of just under $795,000. For that, G.E.T. Fitness Enterprises acquired all Keys Fitness branded products, including existing strength equipment inventory valued at $1 million, as well as rights to the Keys Fitness trademarks, logos and website, Charlie Hudspeth, vice president and co-owner of G.E.T. Fitness Enterprises, told SNEWS®.
Hudspeth said he would continue to offer the Keys Fitness KF and ST strength lines, but added, "We will not be carrying on with any of the (Keys) cardiovascular equipment. By streamlining to just strength, it's easier to manage with a smaller workforce and a smaller warehouse. We wanted to keep the company streamlined, simple and easy to run." Hudspeth told us he was undecided on what to do with the limited cardio inventory he acquired -- a few bikes and treadmills -- but was thinking of liquidating it with the clear understanding it carried no warranty.
Why would a retailer want to get into the manufacturing biz? Since February 2008, Hudspeth has operated the G.E.T. Fitness store in Dallas (click here to see the April 11, 2008, SNEWS® story, "G.E.T. Fitness braves economy to open new retail store in Texas"), but he is a 10-year veteran of the fitness industry, having worked for Fitcorp USA (another Texas-based fitness retailer), and has sold Keys Fitness strength equipment since it entered the market. "I've been a big fan of the strength products, so it seemed like a natural move to acquire the company when the opportunity came up," he said.
"I always wanted to be a rep, and never could find a right fit over the years to go over to the manufacturing side," said Hudspeth. "But I just couldn't turn down this opportunity, which really came up suddenly." He learned that the Keys assets were available and looked closely at the possibility of acquiring them just a few weeks before Thanksgiving. Hudspeth said that when he placed his bid for the assets, there was a competing bid from one other company, but that competitor's name was not divulged to him.
Hudspeth will now divide his time overseeing the G.E.T. Fitness retail business and the Keys Fitness manufacturing business. Former Keys Fitness employee Brian Brown will be the person primarily in charge of Keys Fitness manufacturing in China and overseeing the warehouse. He will also be in charge of servicing current retailers who carry Keys Fitness equipment. Though the cardio side of Keys will go away, the strength side of the business will continue as usual for current retailers, who Brown has been in contact with.
Hudspeth said that he will be responsible for identifying new retailers to carry the Keys strength lines, and will do it when the Keys product is once again fully stocked, which could take 45 to 90 days. "My only role with the Keys business is new business. I am staying out of Brian's way otherwise," Hudspeth told us.
SNEWS asked Hudspeth whether he was hesitant to move into the manufacturing side of the business in the current economic climate, but he said he was confident he could succeed by running a lean operation.
"In a nutshell, it's all about overhead," he said, pointing out that the G.E.T. Fitness retail operation is run very lean, employing few people and literally using his garage as a warehouse. As for Keys Fitness, Hudspeth said he is not keeping the former Keys Fitness warehouse or corporate office, and will move Keys to Dangerfield, Texas, where he can use an inexpensive warehouse. He is also greatly reducing the number of Keys employees. Whereas Keys used to employ about 30 people, the operation will now be run by Hudspeth, Brown and a few additional people for customer service and the warehouse. "We will have reduced overhead for Keys 75 percent, from warehousing to employees," said Hudspeth. "The warehouse in East Texas will be run very lean and will allow us to survive these times." Also, he said that because there are only a handful of Keys SKUs on the strength side, managing the brand will not be nearly as challenging as managing a broader lineup of products.
He added that by running lean his company will be able to operate on lower margins, so he will be able to provide retailers with products at a lower cost, and therefore pass on lower prices to consumers. "We're going to be able to offer the market some of the best values in strength equipment," he said.
As for carrying Keys in his own stores, Hudspeth told us he's now dropping the line because, "It is a better business decision to offer the Keys strength line to a bigger retailer than ourselves in Texas." Hudspeth said he'd be replacing the Keys brand in his stores most likely with Star Trac and Body Solid strength equipment.
SNEWS has been told that Star Trac is in negotiations to acquire Keys' former Ironman assets and the license, which are now held by World Triathlon Corp, however no one at Star Trac would confirm this. On Nov. 20, the U.S. Bankruptcy Court, Northern District of Texas, Dallas, approved the sale of Keys Fitness assets, and Ironman-branded inventory was returned to licensor World Triathlon Corp. (Click here to see the Nov. 21, 2008, SNEWS® story, "Court approves sales of Keys Fitness assets; who will get them next?")
To read more about the sale of Keys Fitness assets, click here to see the Nov. 17, 2008, story, "Keys Fitness ownership seeks court approval to sell all assets."
--Marcus Woolf with Michael Hodgson
SNEWS® View: Interesting end to the Keys bankruptcy saga and it is nice to see that at least on the strength side, the Keys brand continues on. With the cardio side of the business so crowded and competitive, Hudspeth's decision to drop cardio from the Keys product mix is a smart one. Key's strength line fits in very nicely as a high-value B-line that offers specialty and sporting goods retailers a solid strength brand at, especially in today's economy, an attractive price point. Now, the only remaining piece of the puzzle from this story is a firm date stamped on when and if Star Trac manages to secure the Ironman license for fitness equipment from World Triathlon.