In October 2010, US-based World Gym Fitness Center acquired California Fitness Centers (Taiwan), becoming Taiwan’s largest fitness franchise. World Gym, the former training ground for California Governor Arnold Schwarzenneger, now has 18 outlets and facilities across the island, with almost 90,000 members and 1,000 employees.
According to Global View monthly, World Gym is not well-known in northern Taiwan, but the company hopes to change that with an aggressive expansion program. When World Gym entered the Taiwan market in 2001, their main competition came from the US-franchised California Fitness and locally run Alexander Health Club. At the time, leases for commercial buildings were three times higher than now, so in order to pick their battles wisely, World Gym decided to start in Taichung, central Taiwan, with a modest strategy of adding one location each year, until mid-2009.
Based on a confidence in their managers and professional coaches, and indications that the industry climate was ripe for consolidation, World Gym set its eyes on acquiring California Fitness, which had a similar business culture and clientele. Yet World Gym’s business model differed from that of Taiwanese fitness centers, where managers are often fitness coaches, prone to exaggerating their business performance when talking to the media.
This is not the case with John Caraccio, president of World Gym Taiwan operations, who headed the acquisition of California Fitness. Armed with a strong management background, he had a thorough understanding of how to run a business in the fitness industry. Caraccio intends to expand World Gym’s base quickly, starting with 12 large full-service health clubs, and 15 smaller ones called World Gym Express by the end of 2012, bringing the total number of outlets to 45.
He told Global View that he is bullish about the potential of Taiwan’s fitness market and explained his strategy to reverse some traditional myths. The traditional business model in Taiwan’s fitness centers is based on pre-paid memberships or annual memberships. Initial customer numbers appear encouraging, but after several years this is no longer the case, and a center’s business declines as it is unable to sustain membership renewals.
World Gym takes a different approach by charging a monthly fee, which is the norm in the US. For initial enrollment, one only pays about NT$3,000 (US$100.00), plus a monthly usage fee of NT$1,000 (US$33.00). Membership at World Gym Express is cheaper, about NT$600.00 (US$18.00) a month. From the fitness center’s point of view, monthly fees become established as a regular monthly income that is predictable and simple to manage.
According to Global View, many Taiwanese health clubs are faced with two common problems, the range of fitness equipment available is too broad and complex for customers, and the staff lack adequate training. Taiwan’s Youth Camp and Alexander Health Club, formerly well-known fitness centers, went bankrupt in 2005 and 2007 respectively. Their common mistake was to diversify their businesses away from the core to include miscellaneous services such as spas, swimming pools, ping pong, racket ball, juice bars, and restaurants in order to attract more members. However, this over-diversification made their business and financial operations unwieldy and difficult to manage.
World Gym will focus on their professional services. In training service professionals, most Taiwanese health clubs do not pay attention to international licensing and certification. For example, the aerobic exercises are taught according to a local system of master and apprenticeship, reported Global View. In the dance classes, the participants follow the dance moves of popular singers in the music videos – which are appealing – but not very professional.
The coaches at California Fitness are internationally certified, with at least six or seven years experience, plus the company’s culture is aligned with that of World Gym. This provided another motivation for the acquisition. Also, World Gym has an eye towards entering the Chinese market and Taiwan provides an ideal test market.
Currently, all the well-known Chinese fitness centers are franchised with lifetime memberships or annual memberships, similar to Taiwan’s model. According to fitness industry experts in Hong Kong and Taiwan, in five years, the Chinese fitness market will face the same problems that led to the failure of Youth Camp and Alexander Health Clubs, reported Global View. And this is one of the reasons why World Gym is planning to go public in Taiwan in five years, after they have successfully captured the Taiwanese market; they hope to duplicate this success in China.