24 Hour Fitness Eyes a New Future After Reorganization

2020 was a long year for 24 Hour Fitness CEO Tony Ueber and his team. Not only were they dealing with the COVID-19 pandemic and the resulting mandates to temporarily close health clubs, but in June, the company was forced to enter Chapter 11 reorganization.

“It was a leadership and management challenge that has got to be pretty unprecedented in time,” Ueber told Club Industry during a phone interview in January.

24 Hour Fitness, San Ramon, California, filed for bankruptcy on June 15.It emerged from Chapter 11 on Dec. 31 with an optimized cost structure and leaner balance sheet after eliminating $1.2 billion of funded debt.

Ueber had two objectives with the Chapter 11 filing. The first was to survive, and the second was to set up the company to thrive.

To survive, Ueber and his team had to make difficult decisions, such as furloughing staff in March 2020, although they kept on more corporate and club employees than may have been warranted by the circumstances. The reason? They needed those people to help the company thrive. And toward that end, the team adapted a mentality beyond just “hunkering down” until things cleared up. Instead, they worked on their change initiatives to transform the organization.

At the corporate level, much of the streamlining started before the pandemic and the Chapter 11 filing. When Ueber became CEO in January 2019, the former owners charged him with transforming the business and accelerating growth. As a result, Ueber changed out some of the executive leadership team at that time, recruiting people from outside the industry who could share outside best practices and expertise while keeping some fitness industry veterans.  

As part of the shutdowns, the furloughs and the Chapter 11, the team re-allocated positions between departments, adding talent and capabilities in certain areas while eliminating positions in others. Inside the clubs, they changed operations, revising job descriptions, compensation plans and organizational structures.

Much of that reorganization was in the area of sales. Prior to Ueber joining 24 Hour Fitness, the company had begun implementing a new club membership process that virtually eliminated sales staff based on research that indicated people dislike a “hard sell.” The overall effort, called EVO, wasn’t well implemented and resulted in membership decreases, Ueber said, although he declined to share how much of a decrease the company experienced.

Now, the company has reinvented its approach and crafted roles for club sales and service experts in recognition of the dual responsibility of engaging and enrolling members while ensuring member needs are met. Senior sales and service experts work with sales and service associates, and compensation plans offer incentives for club teamwork. The focus of the new sales process is to meet customers where they are and sell to them the way they want to be sold rather than how the company wanted to sell to them.

“At the end of the day, what we're doing is advocating for the importance of fitness,” Ueber said. “And we want people to be successful in their fitness journey as opposed to just selling the membership that they may or may not ever use.”

It’s still early in the implementation process, but the performance has exceeded Ueber’s expectations in the markets where clubs have been able to remain open, he said.

24 Hour Fitness also is working to meet customers’ needs by adding third-party content to its 24GO app that includes more than 1,000 free on-demand workouts to support fitness at home or in the club. The app also provides for touch-free in-club check-in at indoor and outdoor club locations and offers a workout reservation system for those club markets that require reservations per local government and public health agency guidelines.

24GO Plus, the premium digital subscription (included with club membership) features customizable smart workouts, audio coaching and access to more than 50 weekly live-coached virtual group fitness classes, individual personal training sessions and more.

24 Hour Fitness also offers the 24GO TV workout channel with free streaming content through the 24GO app and on YouTube.

Company Size and Future Plans

Changes occurred beyond the operations and offerings within clubs. 24 Hour Fitness also downsized its club numbers from about 450 prior to the Chapter 11 filing to about 300 clubs in 13 states now. Prior to the Chapter 11 filing, the executive team had identified that the real-estate portfolio needed to be “rationalized” and had done a strategic review of clubs based on financial factors, past and potential future club performance, geographic considerations and the number of clubs needed to serve a given market, Ueber said.

“Obviously, it's been a very difficult time for us, and it's also been a very difficult time for our landlords,” he said.

The cooperation of the landlords throughout the process helped the company come to a resolution that was in the best interest of 24 Hour and the landlords, he said.

“Right now, we feel very good about the clubs that we have or we just would have rejected them and not kept them,” Ueber said. “So we’re extremely happy with where we netted out as far as the go-forward portfolio clubs.”

Looking forward, Ueber wants to reinvest in the remaining clubs in part by re-allocating more than 3,000 pieces of the best equipment possible and adding turf and half racks to the clubs.

“So I feel really good about where we sit today as far as the quality of the clubs that we have in the go-forward portfolio,” Ueber said.

Where the future takes 24 Hour Fitness depends in part on how the COVID-19 situation unfolds, particularly how quickly California—where a majority of 24 Hour’s clubs are located—reopens gyms to more than outdoor fitness.

“For now, our primary focus is on making sure that we're doing everything we can to effectively and safely operate the clubs that we can, keep as many of our team members with the company as possible and provide access to as many of our members as possible,” he said.

Those efforts include being members of the California Fitness Alliance, a group of health clubs in the state working to ensure health officials and politicians understand that health clubs are not spreaders of COVID-19. 24 Hour Fitness also has lobbied on its own in California, including having conversations with senior leaders in the governor's office.

“I'm super excited about the future,” Ueber said. “We were able to make significant changes to our balance sheet, significant changes to the structure and ways of operating for our business, and once we can get the rest of our clubs open, I think the sky is the limit for us going forward.”