Which way is Curve curving?

According to recent articles, Curves is the fastest growing franchise in the world. Are Curves and other lady-only fitness clubs like Lady Fitness or Liberty Fitness good businesses for individual investment? Would I invest in this franchise? Why is Venture Link going to open 2,000 Curves Fitness Centers in Japan over a five-year period?

A Curves franchise is buying yourself a low-paying job

Let’s learn a little about the business. A typical Curves gym occupies an apartment-sized 1,200 square feet and has 10 to 12 machines along with springy recovery boards for walking or jogging between machines. Curves are found conveniently in strip malls and office parks. The outside could easily be confused with a doctor’s office (you can’t see inside from the sidewalk). I understand that women have simpler workout desires than males, and most women aren’t going to the gym to be picked up by slick guys.

But, I struggle to see Curves as a good investment for the typical franchisee, especially for absentee owners. Gross revenue for an average club with 300 $30 members is about $110,000 annually. The total operating requirements, administration, payroll and fees I estimate to be about $105,000 (I assumed $6,500/month in employee and owner salary expenses, and $2,250 for ALL other expenses). A franchise will probably beat a $35,000/year office manager job. But, if I had $50,000 to invest, I would probably work elsewhere and diversify my investment by putting the cash in the stock market. But that’s just me!

I checked out some Curves for sale at CurvesResales and MSN Groups. The asking price for most of the locations are way overpriced given my financial estimates.

Keep in mind that ultimately a franchise is worth whatever someone else is willing to pay for it. The most common method of business valuation is the mutliples approach, particularly important being the EBITDA multiple (Earnings before Interest, Taxes, Depreciation and Amortization). Fitness Management lists a 5 times EBITDA multiple as typical for fitness clubs, so a fairly priced business selling for $200,000 at a 5 time EBITDA would have pre-tax earnings of $40,000. I saw one Curves with 300 members selling for $225,000, inferring that would be a fair price if EBITDA were $45,000 using the 5x EBITDA multiple.

Above we estimated gross sales to be $110,000 and expenses of about $110,000. Therefore, if I thought I could increase membership by a few dozen, I’d be willing to pay maybe $15,000 to get the franchisee out of their lease and burden of paying royalties and debt payments. A $225,000 sales prices seems absurd.

Why are there almost 50 Curves units in St. Louis already?

  • low investment: The investment requirements are low ( $50,000 to open a franchise, individuals must have at least a $75,000 net worth with $50,000 liquidity)
  • lifestyle: owners run a healthy, life improving business
  • operations: it is fairly easy to run with a strong brand name
  • career upgrade: many former and current personal trainers have dream of owning their own workout facility

I can only guess what the average membership base is for a Curves given the information available on the Internet. Curves franchise appears to be a truly lifestyle business that will require a lot of time and marketing. Here is a nice local Curves with pictures. The rewards are there, but they aren’t financial for the typical. Of course, if the franchisee can exceed the membership levels I used in my example and keep all expenses the same, Curves looks like a fun and worthwhile investment.