CASE 15.1 Fitness Retreads, LLP: A Sequel

Terry Edwards, Sandy Knight, and Andy Reisinger, partners in Core Fitness, were meeting in the conference room of their athletic club in State College, Pennsylvania, to discuss their new venture, which was based on the R's of recycle, repair, refurbish, reuse, and resale or scrap. Andy Reisinger admitted that when they initiated this venture as a complimentary business to their network of fitness and health clubs in Central Pennsylvania, he was very skeptical and thought that it would detract from their primary business activity of providing upscale facilities and exercise equipment and related programs for adults. What had started as what he considered to be a bad idea of one of the other partners, Terry Edwards, was showing promising growth and a steady stream of new revenue.

Background

Core Fitness was an established organization with health and fitness facilities in five communities in central Pennsylvania. The business had grown on a steady basis since it was established in 1985, and it now was operating seven clubs in these five communities. It had three clubs in State College because of the size of the student body (45,000) enrolled at Penn State and the population of professionals in the surrounding areas. In 2007, the business seemed to be stagnating in terms of memberships and revenues. It had initiated a number of group exercise programs, such as boot camps, karate, and Pilates, but the business was not experiencing the growth that the partners had anticipated. Terry Edwards, the partner responsible for procurement and maintenance of equipment, had purchased some used equipment from a bankrupt club in the Pittsburgh area, which had saved Core Fitness at least $15,000 after paying the purchase price and the costs associated with repairing and refurbishing the equipment to an "as new" status. Terry decided to repair the equipment that they were replacing instead of having it hauled away to a landfill. Terry had to buy new parts as well as having the equipment repaired, but he was able to sell the equipment to individuals for their home gyms and make a good profit. The success of these two related activities led Terry to recommend that Core Fitness start a new complementary business of buying used equipment for refurbishing, repair, and resale either to individuals or other businesses.

Current Situation

Terry Edwards responded to Andy Reisinger's comments by thanking him and expressing appreciation for his support at the outset of their new venture. Terry reported that "Fitness Retreads" had experienced remarkable and steady growth in revenues over the five previous years. He was able to utilize their two mechanics on a full-time basis and had to add a third full-time individual to accommodate their growth during the past two years. Terry felt that there were some additional opportunities that the company could exploit. For example, it had been contacted by competitors and clubs in other areas about providing repair service for their equipment and possibly selling them equipment that had been prepared for resale. Thus far, the company had only been selling to individuals and local businesses with facilities for employees.

Sandy Knight, who was responsible for club programs for members and some of the marketing, reported that the core business was again experiencing a growth in membership and increase revenues. She felt that the group fitness programs and an HMO-sponsored program (Silver Sneakers) for retirees at the university had a very positive impact, but she also felt that the new enterprise allowed them to add equipment and keep all of their equipment in an excellent state of repair, which was very beneficial and gave Core Fitness a competitive edge in its market area.

Terry thanked her for her compliments and added an important caveat, namely, that they were going to need more space if they expanded the business of Fitness Retreads. Andy, who had been quiet since his initial comment, joined in again by stating his support of expanding Fitness Retreads and that he felt that there were additional opportunities besides those offered by Terry. He also stated that he felt that there were some excellent real estate options in the local area for purchase or lease. He felt that they should move Fitness Retreads from the space in one of their State College facilities to the new space and use the existing space for equipment or activities for the expanded demand of their core business.


Answer the two case questions below - Upload to appropriate drop-box by Sunday midnight.

1. What is your evaluation of the various proposals made by the partners of Core Fitness and Fitness Retreads? What challenges and issues do they face? What factors in the current environment favor their proposed activities?

2. What other suggestions would you make for expanding Fitness Retreads? Why?