Category: Business

Think your gym time is killer? That hour on the elliptical machine? That muscle-taxing combination of burpees, lunges, and side planks that make you want to collapse in a pile of sweat and tears?

Try owning the gym.

With his fifth City Fitness location recently opened in Fishtown, and No. 6, the biggest and swankiest of them all, planned for 44,000 square feet in the Sterling apartment building at 18^th  Street and JFK Boulevard late this year or early next, founder and CEO Ken Davies is in a good place. But it wasn’t that long ago just the opposite was true.

The financial hole Davies was in was the ultimate cardio challenge.

He hit bottom in 2008, a year after opening the first City Fitness on the edge of Northern Liberties, at Second and Spring Garden Streets, just as a recession was bearing down. He reached the precipice of bankruptcy before pulling back.

“I was beat up,” Davies, 44, a standout wide receiver at Radnor High School and Millersville University, recalled recently. “I didn’t even enjoy it anymore. I wasn’t even working out.”

It’s a wonder he was making it out of bed those days.

Davies, who is divorced, had drained the $175,000 he had accumulated in a 401(k) from earlier lucrative jobs in risk management and commercial real estate. He was missing mortgage payments on a house in Stratford, which he had remortgaged for $125,000 and then for an additional $25,000, to help meet his capital needs. He also was delinquent on repayment of a $1.25 million loan from the U.S. Small Business Administration, owed $75,000 on credit cards, had an unsecured loan for $50,000, and needed to repay $70,000 he had borrowed from two friends.

Plus, he had lost his primary job in information, analytics, and marketing for the commercial real estate industry because he didn’t disclose his gym business.

One of the worst times, Davies said, was “when I basically slept in a van for a week because I was locked out of my house because I couldn’t pay my mortgage.” The other was when his debit card was declined at Wawa for a $1 purchase.

“That was the lowest point in my life,” he said.

City Fitness is now profitable, with gross revenues of $7.5 million, 100 employees, and national growth aspirations, Davies said.

“I believe he is someone to watch in the fitness industry,” said Wes Deming, principal of All Commercial Capital L.L.C., who was a member of City Fitness before agreeing three years ago to serve as its financial adviser. As such, he is helping Davies locate expansion financing.

“It can be tough,” Deming said.

That’s true for many reasons, said Mike Trimble, a vice president in commercial lending at TD Bank. Lack of collateral is one, because most gym owners lease facilities. Another is uncertainty of membership duration.

Which explains the lack of enthusiasm Davies encountered early on:

“One banker said, ‘If you were Walt Disney, we wouldn’t lend to you if it was a gym.’ They hated gyms. Even to this day, even with my success, it’s still difficult.”

Incorporating in May 2005, Davies started paying $20,000 a month to rent the Second and Spring Garden location, which he expected to have open for business in 2006. He was selling memberships for $29.99 a month based on poster-board depictions of what he planned for the site.

About 300 memberships were sold. Buyers turned against Davies when no gym materialized, accusing him on at least one blog site of stealing their money, he said.

It took five months to secure the Small Business Administration loan. Build-out  took  an additional six or seven. The first City Fitness gym opened in August 2007. By then, about 10 percent of the presale members had asked for refunds, Davies said.

Then “things turned from bad to worse,” as can be expected when expenses — equipment leases, instructors, software, office and cleaning supplies, rent — exceed income. Membership sales were slow and revenue from personal training virtually nonexistent, which Davies largely attributed to the recession. Debt mounted.

To help turn things around, he borrowed the low-cost strategy of a competitor, Planet Fitness. City Fitness memberships dropped to $19.99 a month, quickly attracting 1,000 sign-ups.

“They have a great model,” Davies said of Planet Fitness, where memberships are currently offered for $10 a month. “But you can’t provide the gym I wanted.”

That’s a place where equipment is replaced every three years, a robust schedule of group exercise is offered along with top-notch training programs, and where service with a smile and fastidious cleaning are priorities, said Tom Wingert, marketing director for City Fitness. Memberships now start at $49.99 a month.

“City Fitness’ costs are a direct result of how expensive it is to maintain the level of quality seen in our clubs,” said Wingert, who last year created the city wellness initiative, My City Moves, to achieve another City Fitness objective: community-building.

“Fitness is a moving target,” said Tracy Shannon, an owner of competitor Sweat, which has been in business since 1997 and plans to open its eighth gym in March at 1 South Broad Street.

Success is “about staying ahead of the game” and keeping members happy, Shannon said. “If you think you have it figured out, it changes.”

It wasn’t until 2012 that Davies could open a second location, in the city’s Graduate Hospital section. A smaller “express gym” opened in South Philadelphia in November 2014, followed in April 2015 by what Davies said has been the only failure so far, a personal-training studio in Society Hill at Fourth and Walnut Streets. It reopened Feb. 6 as an express gym.

Opening in December in Fishtown was a full-scale gym that will offer 25,000 square feet of workout space when fully built out. TD Bank is sold on what Trimble said is “a model that works.”

Integral, he said, is “an unbelievably strong brand particularly driven by the quality of the offering and Ken’s commitment to building a culture there.” TD has provided $1 million in financing for Fishtown, and a $100,000 letter of credit to support the Sterling lease.

These days, Davies said, he functions in a state of  “productive paranoia”  because “things can always change.”

“It’s something that keeps me driven but grounded at the same time.”