FHI to gut business: Omni to close out, Busy Body sliced, what's next?

On the evening of Feb. 23, when the Omni Fitness website home page changed to a stark scream of 50 percent to 90 percent off all inventory, the writing was on the wall.

That morning, several insiders told SNEWS®, the district’s employees had been called to a surprise conference call. During that call, they were told all of the remaining 24 stores, i.e. the eastern branch of Fitness Holdings International’s formerly dominating 120-store national chain, were going to start close-out sales, signaling the eventual demise of the stores.

Putting a formal stamp on that message, the company filed late in the day on Feb. 24 a motion to close an additional 32 stores, 24 of which were the above-menioned Omni stores and eight of which were West Coast Busy Body outlets. FHI originally filed for Ch. 11 bankruptcy reorganization Oct. 20, 2008, in the U.S. Bankruptcy Court, Central District of Los Angeles. (Click here to read an Oct. 21, 2008, SNEWS story, “Omni/Busy Body Home parent FHI files Ch. 11 reorganization for entire group, plans sale of stores.”)

On Feb. 24, the company also filed a motion asking the court to expedite its hearing on the matter “to the earliest available date,” citing a loss of approximately $9,409 per day. In a statement filed with the papers, President and COO Kenton Van Harten stated none of the stores were profitable in 2008.

Although once at a peak of 120 stores, FHI at the time of the October filing said it ran 111 stores — 67 Busy Body and 44 Omni. In late October, the court approved closing 20 stores, and then added four stores to the list in November and another 30 in December. Add those 54 to the current 32 and that leaves 25 stores, which are now only in California, Colorado and Alaska. Company presence in Arizona, Nevada, New Mexico and Washington has already been eliminated.

“The loss of this size of distribution is very sad for the industry,” said Bernie Boglioli, vice president of sales for supplier LeMond Fitness. “Obviously, they were the major player — or one of them — and when you lose that number, it makes it tougher.”

He cited sensitivity in the industry about how consumers will be bruised by the implosion of such a large chain, but Boglioli added that these days FHI’s stores will join one of many empty storefronts or going-out-of-business sales by much larger names.

Sources informed SNEWS that employees were not told an exact timeframe for closures; however, court documents state, “The debtor anticipates that many of the store closing sales will be completed by March 31, 2009, and the last of the store closing sales will be completed by about May 31, 2009.”

No additional inventory is being shipped to stores for the ongoing sales, and sources told SNEWS that warehouses are as good as empty with little or no inventory.

In late November, FHI had received court approval to hire a financial advisor and investment banker, who had been for several weeks calling retailers to offer stores or groups of stores for purchase. A memo, which SNEWS obtained, was being passed to potential buyers giving a positive spin on “attractive unit economics,” “well-recognized brands,” and “favorable demographic trends.” To see a summary of some financial information from the papers, click here to see a Dec. 8, 2008, SNEWS story.) Retailers with whom SNEWS spoke told us they laughed at the offer of buying a store when they said they figured they could just wait it out until the chain shut down and then snap up a location on their own.

Other sources have told SNEWS there may be current, long-time employees shaping up business plans to move into some locations. Already others have begun to move into some of those areas, positioning themselves for the closures and a future economic upswing. Last year, they included a new Total Fitness Equipment run by Matt Arcata of the old TFE chain (www.totalfitnessequipment.com), and two new Fitness Showrooms run by Fabio Ravasi (www.fitnessshowrooms.com).

“It’ll be interesting to see how quickly people move in to backfill those locations,” Boglioli said, noting good operational skills, knowledge of the area and a little capital could go a long way.

The court had set March 2 as the deadline for FHI to file its plan of reorganization, with a hearing on the plan now set for March. 17.

–Therese Iknoian

SNEWS® View: With the reorganization plan due in a few days and the chain already being eviscerated, we must wonder if FHI is instead planning to request a switch to total liquidation of the stores. Word is already spreading that these closures won’t be the last. With only 25 stores left (and that number is shifting under foot), it’s truly a blow to the industry to see this implosion — a bit of déjà vu as we noted in our first story in October 2008 since this Busy Body chain rose from the ashes of a former Busy Body chain, also run by Hancock Park, which is the investment firm that owns FHI.

In the mid-Atlantic market, we have already seen others move into spots left vacant by Leisure Fitness’ forced bankruptcy in September 2008. Leases can be had for half or less than what they were going for, so with smart and conservative planning — and depending on whether you are a bull or a bear — some entrepreneurs may feel this is actually a good time to set up a fitness retail shop. To satisfy the distribution needs of manufacturers, there are indeed some gaps to be filled. We just hope that manufacturers don’t get in the way and force folks to expand beyond reality. Specialty fitness shouldn’t follow the Starbuck’s model of a coffee store every few blocks. Nobody needs to have treadmills or home gyms as accessible as a cup of joe. And even Starbuck’s was forced to realize the woes of its ways and started shutting down outlets due to market glut and over-expansion. If a convenient java doesn’t bring them in the door, a convenient treadmill won’t either. Certainly, FHI has suffered with the economic collapse in 2008, but the chain was losing money in 2008, per President Kenton Van Harten — lots of it — with the total liabilities reported to the courts in December 2008 as $28.8 million. If that weren’t a message to close doors and start reorganization, we’re not sure what was. In the end, there are many hundreds of people who have and will be out of work — many of them longtime and experienced fitness salespersons and managers. And ultimately, that is the huge pity of this size of a ship sinking.

–SNEWS® Editors