Gold’s Gym International, Dallas, filed for Chapter 11 on May 4 as a way to financially restructure the company after the worldwide shutdown of businesses from the COVID-19 pandemic affected the company, CEO Adam Zeitsiff shared with Club Industry.
The filing is for the corporate entity and does not involve franchisees, who make up the majority of Gold’s Gym locations, Zeitsiff said. He expects the company will emerge from Chapter 11 by Aug. 1, if not sooner.
“We are filing this to restructure the company, and this is strictly as a result of the pandemic,” Zeitsiff told Club Industry. “We were on a massive turnaround. We were refranchising stores, awarding company-owned stores to franchisees. We were all over the place growing our business. We were ahead of plan for the year. And then COVID-19 hit, and this is simply our way of acting swiftly to ensure we have a long-term viable and sustainable business.”
In fact, Gold’s Gym International had just come off its strongest year of worldwide growth in company history, finalizing 22 American franchise agreements and opening 35 locations in 2019, the latter of which was a company record, the company shared in January. In early March prior to the COVID-19 shutdowns, Gold’s Gym refranchised 24 locations in the Washington, D.C., area and refranchised two locations in Los Angeles and eight in Tennessee.
But the COVID-19 pandemic caused Gold’s Gym International to temporarily close all of its company-owned gyms on March 16. That week, it froze membership dues at its company-owned clubs, and that month it also furloughed 98 percent of employees at company-owned gyms.
Zeitsiff declined to share how much money the closures have cost Gold’s Gym, but during this time, the company has brought in no membership revenues, royalty revenue or other revenue, except minimal revenue from licensed apparel, products and consumables.
“We went from having a strong revenue stream and growing our business in 2020 to having nothing,” he said.
Gold’s Gym International, which is owned by TRT Holdings, ranked No. 8 on Club Industry’s Top 100 Clubs list, reporting 2018 revenue of $302 million for company-owned locations and franchisee fees. This number did not include revenue from individual franchised locations.
The COVID-19 pandemic was at the root of Gold’s Gym International’s decision in April to permanently close 32 of its company-owned locations, the first part of the company’s restructuring plan, which had been in discussion for weeks, Zeitsiff said. He does not foresee any additional company-owned gym closures, he added.
Taking Control of the Situation
Instead of living with the uncertainties of the COVID-19 pandemic, the restructuring allows the company to take control of the situation and create a more certain outcome by developing a plan that allows it to offset the negative impact of the pandemic and emerge as a stronger brand, Zeitsiff said.
“This is the right thing for Gold’s Gym so that we can be much more viable after this pandemic ends,” he said. “We want to get ahead of this. We have the fiduciary responsibility to make sure we have a company and a brand here for our members, for our franchisees and for the community for the next 55 years and longer. That’s the whole reason we’re doing this.”
Reopening Clubs During Restructuring
During the restructuring, Gold’s Gym International will continue to reopen temporarily closed clubs in accordance with local, state and federal guidelines. Gold’s Gym’s 63 company-owned gyms are in Texas, Oklahoma, California, North Carolina and South Carolina. As of May 2, only the gyms in Oklahoma had been allowed to reopen, but Gold's Gym has chosen to wait until May 8 to reopen its gyms in that state. Some of the company’s franchisees in other states have reopened.
As the clubs reopen, Gold’s Gym will begin to bring back available furloughed team members from the company-owned gyms and the global support center in a phased approach, Zeitsiff said. Gold’s Gym will continue to pay the wages, healthcare coverage, vacation and other benefits of corporate employees during the restructuring process.
Gold’s Gym also will continue to support its franchisees during the restructuring, Zeitsiff said. Most franchisees learned of the restructuring in phone calls on May 3 and May 4. Corporate employees learned of the restructuring early on May 4.
In a video shared on the company’s restructuring FAQ website (and viewable on this page at the bottom of this story), Zeitsiff said to Gold’s Gym global team members: “We would be nothing without you, and I am grateful for your dedication and support throughout this pandemic. Please know that you are at the forefront of our every decision, our every plan—and you have my word that I am working with our team every day to get you back into our gyms so that you can provide for your families and help our members achieve their fitness goals. I can’t thank you enough for being the absolute best part of Gold’s Gym, and I love you all.”
For vendors, the company “will be seeking court approval to continue paying suppliers and vendors in the ordinary course on a go-forward basis,” according to the Gold’s Gym International FAQ website. The FAQ also noted that because the filing does not affect franchisees, which account for more than 600 of the Gold’s Gym locations, vendors for franchisees would not be affected.
The Future of Gold’s Gym International
Even though restructuring is anticipated to be over by Aug. 1, the timeframe to get back to membership and revenue levels from pre-COVID-19 will take a long time, Zeitsiff said. However, he anticipates strong future growth for the brand, mostly through franchising and licensing, a direction he has been pushing since he returned to the brand in early 2019 as CEO, he said. Still, Gold’s Gym will continue to operate its company-owned clubs and potentially even add more of them to protect its current markets.
“It’s about how do we continue to grow through franchising, grow that business, grow our licensing business as well as maintain a very solid set of company-owned gyms,” he said.
Other Brands to Watch
Gold's Gym International likely won't be the only brand to restructure due to the COVID-19 pandemic. At least two other national club chains are looking at how to remedy their financial situation: 24 Hour Fitness and Town Sports International. Unlike Gold's Gym, however, both these brands were facing financial concerns prior to the COVID-19 pandemic.
(To listen to a podcast from May 2019 in which Zeitsiff shared his love for Gold's Gym and his plans for the company after his early 2019 return to the company, click here.)