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1. Review the chapter 2 closing case, "Fitness First and the UK health and fitness club industry" (pg. 73 in the hard copy version, your page in the e-version may be different).

2. Submit your responses to the questions below by Sunday of week 3 (5/24):

Closing Case

Fitness First and the UK health and fitness club industry

In July 2014, John Wartig, the chief financial officer of Fitness First Ltd, was preparing for a meeting with his CEO, Tony Cosslett, to review Fitness First’s capital expenditure plans for the next five years. Both were relative newcomers to the company: following the acquisition of Fitness First by private equity firms Oaktree Capital and Marathon, Cosslett was installed as CEO in June 2012; Wartig was appointed CFO six months later. Fitness First claimed to be the world’s largest privately owned health club group with 540 clubs and over one million members in 21 countries. In January 2014, Fitness First announced a £350 million five-year programme of capital investment which would include £50 million on upgrading and rebranding its UK clubs and £64 million on expanding its presence in Asia, including entry into China. John Wartig’s concerns related to Fitness First’s UK operations: given the intense competition within the UK health club sector, would Fitness First’s investment in upgrading its facilities and repositioning within the market yield a satisfactory return to its owners?

Fitness First Ltd

In 1993, Mike Balfour established the first Fitness First health club in Bournemouth, England. The company’s floatation on London’s AIM in 1996 fuelled rapid expansion, initially in the UK, Germany and Belgium and then into Australia, Hong Kong, Spain, Malaysia, France, Holland and Italy. However, rapid expansion strained its finances and, following a steep fall in its share price, it was acquired by Cinven, a private equity firm in 2003. Following two years of restructuring and refocusing, Fitness First was bought by another private equity group, BC Partners, for £835 million. Yet, despite its market leadership in the UK, financial performance was poor. By 2011, Fitness First was teetering on the brink of bankruptcy and in 2012 was acquired by Oaktree Capital and Marathon Asset Management. The new management team closed some clubs and put others up for sale. By 2014, there were 80 Fitness First clubs in the UK, down from 161 in 2009. During 2014, CEO Tony Cosslett initiated an upmarket repositioning of the chain in an effort to enhance members’ experiences and to avoid direct competition with budget chains. The new strategy comprised using IT to provide fuller information and a more customized experience, rebranding to establish Fitness First as a ‘national authority’ on fitness and exercise, a redesign of the clubs and retraining staff to enhance their knowledge and customer orientation.