quote:

CycleBar is like SoulCycle if you were to strip out the grapefruit-scented candles, Instagram-celebrity trainers and culty vibe. A small army of spandexed thirty- and fortysomethings can typically be found spinning and sweating to the thump of Britney Spears or 2000s hip-hop playlists in a studio that feels more like a nightclub. Ripped, self-helpy instructors dish out tough-love mantras, while a leaderboard hovers overhead to inspire some and taunt the rest. The CycleBar aesthetic is so upscale bland, so tech-bro chic, it’s what you might imagine if Amazon were to birth a boutique spinning chain.

Chances are, a fan of the CycleBar experience will probably also like Pure Barre, where women tuck and pulse their way to toned fulfillment. For Pilates types, there’s Club Pilates, outfitted with rows of torture-chamber-looking reformer equipment, whereas those craving a cardio burst can hit up the treadmill-based interval training of Stride or join the crew at Row House. A dance workout at AKT promises a Shakira-esque physique created by the pop star’s celebrity trainer, Anna Kaiser. For pent-up aggression, there’s Rumble Boxing, a nightclub-style gym that Justin Bieber has frequented, while traditionalists can burn away that fat at Body Fit Training. Finally, to unclench those knotty muscles, you can downward-dog at YogaSix or get massaged by a flexologist at StretchLab.

There are about 3,000 of these fitness studios—sometimes several in the same suburban strip mall—and it’s no coincidence that they seem like different versions of the same thing. In 2015, California entrepreneur Anthony Geisler began acquiring these small studio chains. Between the time Equinox acquired SoulCycle in 2011 and Peloton fell back to Earth in 2022, Geisler quietly built the world’s biggest boutique workout empire, Xponential Fitness Inc.

To get there, he employed a growth model more typical of a McDonald’s or Dunkin’ Donuts. Instead of owning all the studios, Xponential franchises them, selling investors rights to the brand along with a business plan and the promise of corporate support. Three years after Geisler sold his first fitness franchise business, LA Boxing, he saw potential in a small California chain, Club Pilates. He bought it for roughly $2 million and about two years later sold a majority stake to private equity heavyweight TPG at a valuation of $100 million. TPG and Geisler decided to form Xponential, offering budding mini-moguls—some of them suburban, middle-class Pilates moms and creatine-popping dads who began as customers—the chance to own a Club Pilates. Soon they could own a CycleBar or YogaSix, too. “The things we hear from our franchisees all the time is, ‘I’m sick of making money for the man, I want to make money for myself, I want a second lease on life,’ ” said Geisler in an interview with Bloomberg Businessweek in November at the company’s headquarters in Irvine, California.

At the time Xponential surfaced, it seemed as if there was no limit to the long tail of bougie fitness. These weren’t the big box gyms of yore. Instead, the studios promised something more religious—along with the green juices and intermittent fasting breaks, a way to work your core or biceps that offered both a badge of honor and a way of life. To expand Xponential’s franchise business, Geisler targeted what he calls “corporate refugees,” people who were tired of working the traditional 9-to-5 or wanted to invest their 401(k) savings in something more lucrative. Persuading the studios’ die-hards to put their nest egg into opening a franchise wasn’t particularly hard. “I really loved the idea of bringing a big-city experience to the suburbs,” says Lisa, a CycleBar owner in Texas. “I was really drawn to inclusive fitness.” Samantha, who often went with friends to her local CycleBar, fell hard for the company’s pitch: For a few hundred thousand dollars, she’d collect checks amounting to about $400,000 a year just by following the corporate playbook.

But even as the pitch proved compelling to more and more Xponential customers, many found themselves trapped in a financial nightmare. On Samantha’s due diligence calls with Xponential’s team, she says she was reassured that the business practically ran on autopilot and that she could keep her corporate day job. But in 2022, soon after buying the franchise, she attended Xponential’s annual conference in Las Vegas and learned many of her peers were bleeding money, just as she was. “That was my first big shock,” Samantha says. “I realized I had been misled.”

[...]

More than 30 former and existing franchisees—not including some who are or were in active litigation with the company—spoke to Businessweek on the condition of anonymity because they feared legal retribution. They say Xponential deliberately misled them and their peers about the strength of the individual franchises prior to signing the agreement. Many of the franchisees—like Lisa, Samantha and others using first names here—are identified with pseudonyms to protect their identity. While they say that Covid-19 played a big role in struggles across the fitness industry, some signed the agreement post-pandemic and claim the company inflated revenue and profit projections based on unrealistic membership numbers and grossly underestimated costs. They also say it promised them the ability to run businesses as investors rather than as hands-on managers, oversold the success of other franchisees and was deceptive about the level of corporate support it would provide.

[...]

“Their model is very broken, and they shouldn’t be selling anyone on it,” says Brent Zartler, a franchisee who sold two of his three CycleBar studios in Florida and is trying to sell the remaining one. He says Xponential often touted one of his studios to potential franchisees as having a record 500 members before it even opened. “What they don’t tell these franchisees is it’s just been a slow, steady death with that studio,” says Zartler, who’s lost more than half a million dollars on his business and is planning to file for bankruptcy. “I’ve been working in gyms for 20 years, and I’ve never worked in a business where there’s been such a high attrition rate.”

[...]

Today many of the company’s franchisees—some of them once the brands’ biggest enthusiasts—have either declared bankruptcy or lost their retirement savings. Others have suffered nervous breakdowns or are under psychiatric care, attributing partial blame to Xponential. Wall Street is starting to sense some cracks in the company, which went public in 2021. In June a short-seller report alleged that Xponential was an “abusive” franchise and “a house of cards.” In August, AKT franchisees sued Xponential and Geisler, and recently more than 100 franchisees signed on to a potential class action lawsuit against Xponential. “Our investigation reveals systemic, substantial fraud in their model,” says David Bovino, founding attorney at Bovino & Associates PC. Meanwhile, even as the company announced another major acquisition in December—of weight loss chain Lindora—the US Securities and Exchange Commission is starting to investigate claims against the company, says a person who asked not to be named citing private matters. (A spokesperson for the SEC declined to comment. Xponential said the company is unaware of any investigation and hasn’t been contacted by the SEC regarding one.) “It’s not your average entrepreneurs starting a business and failing, which is normal,” says Kyle, a former Xponential franchisee who lost $1 million on his CycleBar studio. “This franchise is really sophisticated with their messaging and really good at getting new blood and sucking them dry.”

[...]

Emily, a former data analyst, and her husband are also trying to get out of their contract. After they became CycleBar regulars, Xponential told them in 2021 the cost to open their own studio would be between $400,000 and $500,000 and even gave them a loan. But it ended up costing the couple more than $700,000 to open the studio and, within a month, membership plummeted. It turned out this was a chronic problem for franchisees, in which revenue derived from memberships was often far below what Xponential projected. Problems were compounded by the company carpet-bombing promos for studios rather than helping them grow a sustainable membership base, Emily says. Earlier this year, when she told an Xponential executive her studio couldn’t get traffic up and might have to shut down, he threatened her. “He said, ‘You have children in the room, so I’m not going to go into all of the details, but the punchline is, you’ll be f---ed if you close,’ ” Emily says. (A spokesperson for Xponential said the company doesn’t tolerate or condone mistreatment of any kind.)

A few months later, the couple emailed corporate, explaining they couldn’t make payroll and would have to close their studio. After months of ignoring their calls, Xponential’s corporate team quickly responded by informing them they were in default and potentially subject to major liabilities. Today the couple is more than $1 million in debt and narrowly avoided foreclosure on their home by filing for bankruptcy this fall. “It has cost them zero dollars for me to open my studio, and they’ve made money off me, but I’ve lost everything,” says Emily, who’s now under the care of a psychiatric facility, which, she says, is largely because of the stress the business has caused. “It’s cheaper for them to strong-arm me into gifting them my studio, sign everything over, and then they turn around and sell it again to somebody else and let them go through the same thing. They’ve done it so many times.”