Shaping Up Is Hard to Do

Curves International could use a good strong protein shake. According to an article in The Wall Street Journal this week, the once thriving women’s fitness club chain has seen its revenues decline, 16% of its U.S. clubs close, and complaints flow in from franchisees who say that management is “refusing to change its business model to meet the challenges” of a more competitive marketplace. 

The numbers are revealing. Curves’ revenues fell last year by 10%, from $84.1 million to $75.6 million, while net income fell from $16.4 million to $15.6 million, the Journal reports. In the U.S., Curves currently has approximately 4,000 locations — half the number it had in 2005. Meanwhile, the article adds, Curves’ competitors, including Anytime Fitness and Snap Fitness, saw increased growth.

Other factors have affected Curves’ performance, including the economic downturn and its impact on people’s discretionary income, and a failure on the company’s part to adequately screen franchisees. High on the list of franchisee’s gripes, the Journal notes, is that the company won’t allow round-the-clock, unsupervised access to the clubs, even though that flexibility is offered at rival fitness centers. Management responds that unfettered access with no qualified staff on the premises could result in unsafe conditions for clients.

The article quotes company founder and CEO Gary Heavin as saying that the company is “reinventing Curves,” instituting a new weight-loss program, providing better training for franchisees and their staffs, and launching an online “university” to offer related fitness instruction.

KnowledgeToday asked several faculty to look at Curves’ prospects for getting back on track. Wharton management professor David Hsu described Curves’ situation as “a good illustration of the strengths and weaknesses of a franchising model. On the one hand, the model addresses the entrepreneurial challenges of starting up without a corporate reputation and the resources necessary to get a business off the ground. On the other hand, entrepreneurs typically have to conform to a range of headquarter policies and so effectively cede autonomy to make adjustments in response to the business environment.” 

The Journal story also “illustrates a tension about how uniform a product has to be across locations of a franchise. While things like the equipment and overall approach or philosophy of the franchise should probably be the same across locations,” Hsu says he is unclear why headquarters “would not allow certain locations to extend hours so long as the mission of promoting safe exercise for women is accomplished. For example, I would have thought that if a given location wishes to bear the cost of a trained night shift manager, that franchisee should be allowed to extend its hours. I do understand the decision by headquarters [not to] allow unsupervised exercise.”

Ultimately, he says, “Curves’ corporate strategy cannot cater to the preferences of everyone — and they do have to make choices about which market they serve. Losing some market share to competitors that are differentiating by policies illustrates how entrants can take advantage of the uniform product nature of franchised products. However, I think Curves is thinking along the right lines by extending their products into related areas which are consistent with their founding principles.”

Wharton marketing professor David Bell suggests that “the bad economy is no doubt hurting discretionary spending, and it’s probably also the case that many ‘unqualified’ franchisees jumped in when the going was good. Gym customers are also notorious quitters…. It’s not unusual to have a 30% and higher attrition rate — hence, a great need to have new customers flowing in to maintain growth. It’s probably also the case that the franchises that were added later were more marginal — i.e., worse locations and operators.”

Bell very much doubts that extending the hours “will have the kind of leverage that the proponents believe it will. More likely there are demand side factors working against Curves (consumer economic crunch, boredom, loss of motivation, etc.) and supply side factors (lack of proper management structures, incentives, training) working against it as well.”

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