The FHI/Busy Body bankruptcy: Gaining perspective with history and a peek at the future — Part 2

In this two-part series, SNEWS is reviewing the history of Fitness Holdings International and Busy Body. In our first part that ran Feb. 8 (click here to see that story.), we looked at the first incarnation and the building of the second incarnation that was to eventually end in a late 2008 bankruptcy. In this second part, we take you through the transition from acquisition mode to bankruptcy filing, what many of the owners of retail businesses that were acquired are now doing, and at the status of the bankruptcy case.

Although the mad dash of acquisitions by FHI trickled dry in 2005, other fitness stores and owners were still growing. The economy, it seemed, just kept rolling, blind to the train wreck that was soon to come: Credit flowed, houses were built, spending increased, and fitness retail just churned along through 2006. Many today sigh deeply when they recall the glory days of 2005 and 2006, knowing their sales will likely never hit those highs again.

In contrast, FHI and its Busy Body Home Fitness chain in the West had already put on the brakes. In one attempt to rein in expenses in 2008 just three months before its bankruptcy filing, FHI merged Omni in the East with Busy Body in the West, completely negating its ongoing statements about being the best in the West and maintaining Omni as a separate division. But when debt is piling up, something has to give.

Perspective: FHI’s holdings, including Busy Body and Omni held tight in 2006 at 114. But the other two large groups grew — 2nd Wind jumped up 46 to 102 when it thundered into Chicago and expanded in the Midwest, while Scott Egbert’s various Home Fitness stores as a group increased by 13 to 61. Click here to see the SNEWS® 2007 FitBiz report summarizing the year 2006.

With this kind of growth, some cities found three, four or even five different stores within a stone’s throw of each other — a number that in most other economic climates would be a glut. In the 2006 climate? Nobody seemed to care and suppliers raced to encourage more doors — effectively building the industry up for a harder fall.

Indeed, what did SNEWS say in the March 2007 FitBiz report? “In the next year something has to give, and we think there will be realignments among this group (of three).”

Of course, everybody knows 2007 was the beginning of the recession although it wasn’t really called that until a year later. Fitness specialty, which had grown out of its britches frankly, was one of the retail segments to get whacked hard.

Those whose businesses were acquired by FHI in the previous couple of years (as detailed in Part 1 of this story that ran Feb. 8) were likely pretty happy about the decisions they had made individually to sell.

“Life is grand when you make the right choices at the right time,” Mike Cirillo, former co-owner of The Fitness Store in Los Angeles with Jim Watson, told SNEWS recently.

But they hadn’t all disappeared for good, despite non-competes that in some cases kept them out of certain channels or regions for a time.

We’ll be back

Although some retail businesses around the country — some highly admired — were gone, most of their owners, albeit not all, didn’t take long to move on to other fitness-related ventures. In fact, most stayed in and are still in the fitness industry. Some actually stepped back to what they had really wanted to do all along or what their core business was before it had expanded. And, despite some smiles, some did question the rampant growth.

“I thought they were growing too rapidly,” Gregg Spieker, owner of retailer Advanced Exercise Equipment who sold to FHI in 2004, told SNEWS about Busy Body. “But,” he added, “they were able to raise the capital to do it.”

Who are a few whose retail businesses were wiped off the map and what’s up with them now? In chronological order of acquisition:

>> Omni West became Busy Body when FHI acquired it from Life Fitness in 2003. If you go way back to a retailer-business-of-the-past, we’d be remiss not to mention Exercise Equipment Center, founded in 1974 by Leo Rubstello in Seattle, which eventually became that western arm of Omni Fitness. (Click here to see a series of stories and photo spreads from the SNEWS 2009 fitness magazine and as extra material on the web. The article about retired industry veterans includes an interview with Rubstello, among two dozen others who had 25 years in the industry.) Rubstello, at 84, is fully retired and says he doesn’t miss the industry a smidgen.

>> The founders of Fitness Warehouse of San Diego — the owners of Hoist Fitness — had actually formed a new business entity to buy four of the old Busy Body’s stores from the previous bankruptcy in 2001. They grew to nine total before being acquired in 2003 by the current incarnation. But that team is back in the retail game with The Gym Store in San Diego, which again was birthed from remains purchased in the current bankruptcy — ironically, then, the progression for those stores were Busy Body to Busy Body bankruptcy to Fitness Warehouse to Busy Body to Busy Body bankruptcy to Gym Store. Full circle, it seems. The Gym Store also acquired the URL (www.busybody.com).

(Click here to see a story about The Gym Store business and how it then sold some of those assets to others, including Egbert for Northern California and Alaska operations.)

>> Chip Hunnings, who with co-owner Bill Wagner, sold the Colorado-based All About Fitness group, is still running retail now with five total: his own Colorado Home Fitness opened in 2009 (www.coloradohomefitness.com), plus one All About Fitness and three U.S. Fitness stores in partnerships. Wagner still runs All About Fitness with Hunnings and has opened a specialty ski and bike shop in Colorado called Podium Sports (www.podiumsportsgroup.com).

With a non-compete for retail in Colorado that ended in May 2009, Hunnings wasted no time getting back into his home state from his expanded retail interests in North Carolina and Kansas. Although he hadn’t thought about getting back in, he found once he decided in 2008 to do just that, he said his wife pointed out that he seemed livelier, happier and generally more excited about every day. “It’s a real joy,” he told SNEWS.

>> Arlene and Phil Huddleston, who sold Exercise Equipment of Nevada in Reno in 2004, are operating a solid service and repair business called Fit2Go.

>> Spieker, who sold Advanced Exercise Equipment in 2004, is back doing purely what he always preferred doing — commercial sales. In fact AEE at the time of the sale was doing commercial business in nine states, while retail stores were in four. He now covers 10 states and is still specializing in Life Fitness (www.advancedexercise.com).

“Looking at the economic environment now, it was a great thing” to have sold, Spieker said.

>> Life Fitness and its parent company Brunswick are, of course, out of running stores and back to their core business of manufacturing and supplying after selling the eastern Omni Fitness division to FHI in 2004.

>> Cirillo and Watson, who sold The Fitness Store in 2005, are the only two among the sellers since 2002 who are retired. Cirillo is now running a small business called Shower Up that sells giraffe-neck-looking risers for shower heads for tall folks — motto: “Never hit your head on the shower again.”

Cirillo, 66, said he had heard rumors about the FHI business, but the acquisition went smoothly and they had plenty of money. The promise had been to run everything the way they had.

“I’ll be damned if they don’t do anything the way we did it,” he told SNEWS. “They never did it the way we did it. Everything went the wrong way.”

>> LA Gym founders Ran Radzewsky and Eli Ner-Gaeon moved back to Israel about three years ago, according to Rick Barbee, who was with the company for years, heading up commercial sales in the last few. Despite the fact, FHI executives said they were only retail-focused, LA Gym kept its commercial department, with the reasoning being it was being operated as a distinctly different business. Barbee picked up and left with his entire team in 2008 and moved directly over to Spieker’s AEE commercial business. At that point, that was about all that was left of LA Gym since the stores had either been closed or had their names changed to Busy Body.

“It was sad to see the name go away,” Barbee said. “It’s sad to see it completely gone.”

But wait … Mike Cirillo looked at the changes a little differently, a little more philosophically:

“It’s very sad to see the businesses gone, but as independent owners, when is the real pay-day in business?

“When you sell,” he said. “You have to just let it go.”

Economic turmoil

In 2007, many retailers hoped things would get better quickly and held tight, so most of the damage from the economy overall snowballed into 2008.

Perspective: In our summary of the 2007 year in the annual SNEWS FitBiz report, fitness retail was rough, but those at the top hadn’t changed much — yet. Click here to see that report. But all of that changed by the end of 2008. Our headline in our March 2009 FitBiz summarizing 2008 read: “Down, down, down: Can it get worse?” By the end of the year, FHI had dropped by about half to 57 total — and the end was not in sight.

In our March 2009 FitBiz, we wrote: “Before its peak of 120 at the end of 2005, FHI was still acquiring like there was no tomorrow. Unfortunately, tomorrow did indeed come as debt began to mount in late 2007, stores were on top of each other in some areas (we are not Starbucks), collectors came calling, and the credit crisis and economic collapse caused an implosion.” Click here to read the entire report. 

On Oct. 20, 2008, frankly many many months after insiders told SNEWS it wasn’t going to be long and employees began to disappear, FHI had filed for Ch. 11 bankruptcy reorganization. (Click here to see an Oct. 21, 2008, SNEWS story, “Omni/Busy Body Home parent FHI files Ch. 11 reorganization for entire group, plans sale of stores.”)

The industry learned in December 2008 when FHI filed its disclosure statements that the company allegedly owed the cumulative fitness industry about $10 million of a reported $28.8 million. (Click here to see a Dec. 8, 2008, SNEWS story, “Omni/Busy Body Home parent FHI notes liabilities of $28.8 million in court documents.”) In comparison, in its 2001 collapse under Rice Capital, Busy Body owed the industry $17.8 million, with the biggest debt to Precor of $6.6 million.

Busy Body name still alive

Although many associate the name “Busy Body” with the FHI-operated business, the retail name still exists in other markets, run by those who bought rights to it for use in particular regions: Florida-based Gyms To Go (Carlos Vazquez and Jon Larkin since 2001 have gone by “Busy Body Gyms To Go” — www.gymstogo.com); one of Stan Terry’s retail ventures in the Houston area goes by Busy Body (www.busybodyhouston.com); and FitCorp in Dallas uses the Busy Body name in that market (www.busybodytx.com).

What’s next? More retail infill but slowly, slowly, since that wasn’t the end of additional retail closures. At this time, much of the infill seems to be those who at least say they are not interested in running more than one, two or four stores. The market has reverted to the “mom and pop” ventures and some note that every time a company tries to go much broader or even national, it ends in a spectacular collapse.

Economists have indicated recently that the truly dark recessionary days may be over, but the overall retail and financial market not only won’t return to its pre-recession days soon (if ever) but also may take awhile to recover to healthy levels since unemployment may not have hit its peak. Fitness retailers have reminisced to SNEWS over the last year about those good ol’ days of retail when the economy was flying high. But we must be honest: We’re not sure some of what those days spawned may have been the best for the industry. Not that we begrudge those who did sell a lot and smile at the bottom line. We too love beefy bottom lines. But the ease of opening a door and having suppliers lining up (or, vice versa, having suppliers beg folks to open doors in potentially inappropriate areas) led to stores being opened where they shouldn’t have and, in some cases, by people who perhaps shouldn’t have been opening them, and in areas that simply didn’t need more stores.

Although many have said they think the fitness specialty industry is meant to be a stronghold of mom-and-pops, hindsight is 20/20 just as time fades memories. We will not be surprised if in a few years another retailer lifts its head to eye the broader market or even national landscape — perhaps egged on by a supplier — and decides he, she or they can do it better and successfully. It will happen, mark our words.

The FHI saga is not over, however. The unsecured creditors in May 2009 sued FHI owner Hancock Park claiming financial fraud prior to the bankruptcy filing. (Click here to read that report from May 22, 2009.) And when the court dismissed the case, the creditors appealed. (Click here to read that Feb. 10, 2010, SNEWS story.)

The industry is still acutely aware of the case lingering. Like waiting for a funeral to truly move on, the cumulative industry needs the case to come to a close with a final stamp of “case closed” by the courts.

–Therese Iknoian