Oct 1, 2008 12:00 PM

Some struggling express club franchisees are getting a lifeline from a new company that pledges increased franchisee support.

Diversified Health, Fort Lauderdale, FL, is taking a calculated risk that eventually could bring it accolades and status as one of the largest franchisors of express and women-only clubs in the country or could sink the remaining struggling franchises that it has been acquiring during the first year of its existence.

Created in July 2007, Diversified Health first offered two brands of its own: Rejuvenate Fitness Center and Spa for Women and The Zoo Health Club for men and women. However, as the company saw franchise sales of express clubs slowing, it began making bids on existing systems, says Andrew Barnett, Diversified Health's executive vice president of corporate development. That soon led to the company bringing into its fold Liberty Fitness, Liberty Weight Loss, Fit for Her, Sedona Fitness for Women and ShapeXpress and promising two more major acquisitions in the next few months. Keeping each company's brand intact, Diversified Health has said that it will give these struggling franchisees the type of support and structure that their previous corporate ownership did not give them.

Whether or not Diversified Health is viewed as a savior or is simply a company strategically trying to enhance its portfolio remains to be seen. Its owner is Roger Wittenberns, who used to own Lady of America club brands, including Ladies Workout Express. Several Ladies Workout Express franchisees failed under Wittenberns' watch. Will the brands under the Diversified Health umbrella do the same?

By the end of the year, Diversified Health plans to have 250 locations in the United States and 30 more internationally, says Barnett. Diversified Health also plans to go public.

“By the end of two years, I believe we will own every brand out there other than Curves, Lady of America and Contours,” Barnett says.

Building a Portfolio

Diversified Health is acquiring the company name, trademark, logo, Web site, and specific franchise and developer contracts of these brands. The company seeks distressed franchised clubs, Barnett says, and plans to turn them around by offering increased corporate support.

A lot of franchisees got into the fitness industry, Barnett adds, with the idea of making a quick buck or two, despite the fact that they had little or no fitness experience.

“We've built an infrastructure to make sure that we can help these people,” Barnett says. “We're not miracle workers, but we're certainly able to give them the opportunity to properly run a fitness facility. Even though we can't save everyone, and even though most of these franchisees are on the verge of going out of business, we at least give them the best opportunity of any chance of survival by actually giving them some real corporate support. Most of the systems that they are in, those systems have either run out of money or the people that own them don't have any interest in putting any more money into the system.”

Not all of the individual franchised clubs acquired by Diversified Health are troubled and distressed, Barnett says, citing one ShapeXpress franchisee who has been drafting between $40,000 and $50,000 a month. That's an exception and not the rule, however. A former ShapeXpress franchisee who has followed the company closely estimates that 300 ShapeXpress licenses were sold from 2002 to 2008. Only 100 of those clubs opened and about 70 closed, leaving about 30 clubs. Diversified Health says it purchased 38 ShapeXpress clubs in the acquisition this year.

“This move will allow our brands to grow exponentially,” Linden Wood, CEO of ShapeXpress, said in a statement in April regarding the asset purchase. “We are excited to watch Diversified's expert team of industry professionals take this company and its franchise partners to new heights.”

At the time of its acquisitions, Diversified Health listed 26 Liberty Fitness clubs, 17 Fit for Her clubs and six Sedona Fitness for Women clubs. Like Sedona, most of the Fit for Her locations are in Oklahoma, where ShapeXpress was headquartered. Wood is no longer involved in the day-to-day operations of ShapeXpress.

Last month, Diversified Health acquired Citrus Gym, a chain in Brazil that was formerly owned by John Kersh, the former director of international development for the International Health, Racquet and Sportsclub Association. Kersh recently became the director of international development for Anytime Fitness, Hastings, MN.

An industry observer says Diversified Health's purchase of these contracts gives the company an instant revenue stream. Diversified is not yet selling franchises for the brands it has acquired, says Barnett, who adds that the company will wait until it stabilizes the franchise systems and makes sure franchisees are satisfied before selling franchises.

Felicia Sanders, vice president of operations for Diversified Health, says the company holds conference calls with franchisees every other week and offers role-playing exercises and Webinars for them. Sanders and her team have hit the road, visiting with franchisees face to face. The company not only is looking to offer relief to existing franchisees, but it also is developing relationships with the clubs' landlords, Sanders says. If a club is about to close, Diversified Health wants to find a new owner to keep the club in business, she adds.

“For us, it's more about educating ourselves on the brands,” Sanders says. “We're not a company that's going to go in and mandate and dictate. We're not going to test a program with these franchisees. We want to go in with tried and true promotions. Our goal is to get at least two or three franchisees from each brand, ask them to at least keep the door cracked for us. If we can win a few of these franchisees and we instill these marketing programs in place, the word will start, and it will start to trickle down.

“Do I feel like the mood of [franchisees] has changed a little bit with support? Yes. Are there some that we're going to be able to save? Absolutely.”

To Witt

Roger Wittenberns says he's a self-made man who earned his vast fortune in the health club industry. In his house, Wittenberns keeps a photo from 1984 of himself holding a dime in his outstretched hand showing the last 10 cents he had to his name at the time, he says.

Wittenberns' Web site, www.rogerwittenberns.com, shows that he has accumulated a lot more dimes since that photo was taken. The Web site features photos of Wittenberns' mansion, his race boat and his 1999 Lamborghini Diablo. Wittenberns doesn't hide what his personal wealth means to him.

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