Blog: David Barton Gym's Demise Is Simple Economics

The news that David Barton Gym has filed for bankruptcy protection was another kick in the teeth for our industry. It also should serve as a reminder to every health club owner that the next new thing is not necessarily the right thing.

Certainly, David Barton facilities have a unique market position. They are gorgeous, appealing to high-end customers in urban markets. How exclusive are they? When we tried to work out at one during a trade show in New York last year, we were turned away. They wouldn't even show us around when we made it clear that we were out-of-town club owners hoping to see the facility. Nope. We'd have to fill in lead forms and meet with a salesperson. (The fact that this was a waste of time for both of us seemed not to matter.)

Our first reaction wasn't so much about the failure, but the success that preceded the failure. David Barton Gym carried a staggering debt load of more than $65 million for six locations. The company evidently was able to find individuals, institutions and vendors to lend it more than $10 million per club. Clearly, we are terrible at painting a vision for our business, because we've been lucky to obtain a fraction of that from banks and investors. We must be wasting our time presenting financial statements and reasonable expectations for growth and performance. Gotta go big, baby! Marble! Art! Design!

Now, we're thinking, maybe we should hire a spokesperson. When our lender calls, or we are out shopping for loans, we do the work ourselves. Obviously, that's a flawed strategy. We need a representative to say things like, "The cash flow is fine; it's just a large debt load to carry." Oh - is that all?

While we contemplate adding a little razzle-dazzle to our business plan, what can we learn from David Barton Gym's bankruptcy filing?

1. Our industry is terrible at seeing beyond the headlines. Is it really such a shock that David Barton Gym's business isn't sustainable? Let's assume their construction costs were, say, three times industry averages. Could they reasonably charge three times as much as their competitors, or gain three times as many members? What if their construction costs were four times higher? Five times? It wouldn't take much figuring to see whether they were on the right track, but nobody even asks.

We can also assume that their operating costs were nowhere near those of typical, successful health clubs. High-end fixtures, flooring, equipment and lighting simply cost more to operate and maintain than lower-end items, and we'd guess the staff was well compensated. There's nothing wrong with that, if you can afford it, which it seems they couldn't.

2. A partnership won't magically fix the business plan. David Barton Gym is entering into an alliance with Meridian Sports Club California, which is a mid-priced operator with facilities in California and Hawaii. We don't know why the folks at David Barton and Meridian think this is a logical alliance, but what the heck do high-end, fabulously designed upper-crust clubs have to do with mid-range clubs? It didn't make sense to us when Bally picked up Crunch, or Planet Fitness purchased World Gym, and this marriage of David Barton with Meridian seems equally odd.

3. History may well repeat itself. We'd like to think that David Barton Gym will be the last major bankruptcy or big-club failure that we'll see for a while, but we doubt it. There are too many big, would-be visionary concept clubs rolling out all over the country and the world, and some are surely doomed, for many of the same balance-sheet reasons.

In the interim, we'll keep trying to exceed our members' expectations of what a health club should offer, while doing so at a reasonable price. We'll save the razzle-dazzle for those with the foresight to hire spokespeople.