Clubs need to get financially fit

Gym members nationwide are flexing their muscles in anger after a series of sudden closures that have left them out of pocket.

Every month one gym is shuttered in Beijing, according to the Body Building Association, while at the other end of the country in Kunming at least 20 went out of business during 2010.

When Aok08 Fitness Club in the capital's Chaoyang district was closed "for renovation" in December, more than 100 members blocked the doors and demanded their fees be reimbursed. The gym briefly reopened only to close again, this time for good.

Property owners placed a sign on the window informing members to contact the club's managers. "I called the consultant who handled my membership but his cell phone is now out of service," said Li Zhaofeng, 32, who last September signed a two-year contract with the club. He has not yet received any compensation.

The closure is one of many to hit fitness fans in recent years, with even large chains like Nirvana, CSI Bally and Haosha are shutting branches to survive in a fiercely competitive market that insiders are too heavily discounted.

Members of a fitness club in Beijing's Fengtai district ask for a refund on Monday after they heard about the club's gym renovation plan. Provided to China Daily

With 16 outlets and about 80,000 members nationwide, Nirvana is arguably the country's leading gym brand. However, on Jan 12 executives suspended operations at five of its six Beijing clubs for three days over "rent issues".

Handfuls of protesters, made suspicious by staff members packing up clothes, staged a demonstration to demand an explanation on the night before the temporary closure.

"We stayed there until very late that night," said Xing Chuang, 38, who works out at the company's Xicheng district branch. "I simply wanted an explanation for why they're closing down and what they're going to do for members."

On Jan 12, thousands of members received an apology from Nirvana via a text message that said: "As a private company, we do not have support from the State or any consortium. In a highly competitive marketplace, it has not been easy for us to continue our business."

That day, hundreds gathered outside its branches to protest.

 Rental price hikes

Fitness clubs are not the only businesses offering prepaid services that have gone bankrupt, leaving customers high and dry. Beauty salons, car valet centers and golf clubs, to name just a few, have been offering discounted membership cards for years. Many are finding that cut-price rates are not enough to cover their rising overheads.

"Although the price of everything else is going up, discount membership cards are more generous than ever," said a gym consultant who was recently laid off and did not want to be identified for fear of damaging his job prospects.

"It costs only 4 or 5 yuan (60 or 75 cents) a day to go to a top Beijing gym with a swimming pool and sauna. That's even cheaper than a public bathhouse."

While gym owners complain that the lack of cash flow is the straw that is breaking the camel's back, consumer protection groups say the lack of supervision for prepaid services is making it easy for companies to shut up shop and keep the money.

A spokesman for Nirvana who declined to give his name told China Daily he did not want to comment on the recent closures. However, shortly after Nirvana reopened its branches on Jan 15, general manager Wang Cheng told China Central Television that, in 2009, the company was running at a loss of 17 million yuan ($2.5 million). He said rental costs had almost tripled to 7 million this year.

"Every club is facing sharp rent hikes, while membership fees have continued to fall," he told interviewers, adding that he felt the fierce competition had "hurt the market". In response to questions about why Nirvana was still running promotions for new members two days before the temporary closure, he said it was a "normal business activity".

Members wait at the entrance of a fitness club in Beijing's Fengtai district on Jan 24 after hearing it was going to close. With police officers as witnesses, the gym boss promised it was not shutting. CFP

The Nirvana closure was the second time Xing Chuang had been locked out by a gym. Until 2001, he exercised at a small fitness center that also shut without notifying members. "Luckily, that time, it was the last month of my membership, so I didn't lose that much," he said. "Although (the incident) was one of the reasons I decided to join a large gym with a good reputation."

Xing, who recently paid 5,999 yuan to renew his membership with Nirvana until 2015, added: "It's not about money. I'm more worried about where I can go to work out if Nirvana goes out of business. The situation at other gyms might be even worse."

Liu Tao was one of thousands of people affected when CSI Bally closed its franchise in Beijing's Jianwai Soho on Sept 13. He said that even though "they haven't dealt with us", CSI Bally executives were telling the media that they planned to absorb Nirvana's costumers.

To get his money back, the 34-year-old has filed complaints with the Beijing Consumers' Association and Chaoyang district's industrial and commercial bureau, contacted the media and joined online discussion groups. He also visited a franchise owned by the same people to negotiate. Every method has so far failed.

Song Kai, director of human resources and administration at CSI Bally, told China Daily that all resolutions will be done "according to the law". He refused to elaborate. Meanwhile, Beijing Redstone Jianwai Real Estate, the property management firm that runs Jianwai Soho is now suing the franchise's owners, Beijing Sanhuan Fitness Co Ltd, for unpaid rent.

A notice posted outside the gym directed users to an alternative branch about 4 kilometers away. However, angry members in a QQ instant messenger group complained they had received no refunds for the money they paid up front for personal training sessions.

Stricter laws

Liu said he consulted lawyers about members filing a joint lawsuit but was told that, as the consumers were not related, they could only file actions separately.

"I've suggested (to policymakers) several times that they change the law and allow consumer associations to represent people in joint lawsuits against businesses," said Qiu Baochang, director of Beijing Lawyers Association's consumer rights protection committee. "So far the change hasn't happened."

In the meantime, Qiu is calling for stricter supervision of businesses that offer prepaid services.

In 1998, the People's Bank of China and the State Administration of Industry and Commerce introduced a membership card trial, which required issuers of such cards to have net assets of at least 50 million yuan. Fixed assets had to be at least 50 percent of total assets.

However, five years later, the central bank lost its regulatory function to approve membership cards in the revision of the Banking Law. The procedure was abolished in 2007, the same year the China Consumers' Association listed "prepaid traps" as a major difficulty in protecting consumer rights. Today, no regulations protect customers who sign up to prepaid services.

In Japan, where laws on prepayment are extremely strict, companies must deposit prepaid revenue in a special bank account that stops them disappearing with the money, said Wu Jingming, an associate professor of economic law at China University of Political Science. That way, if the company folds, customers are guaranteed compensation.

He also explained that, even though there is no national legislation on prepaid services in China, some cities have introduced regulations to protect consumers.

In Beijing, for example, rules introduced in October 2010 require businesses to inform customers before they relocate or cancel services, as well as offer reimbursement. Deputy Mayor Cheng Hong also recently told a meeting to discuss the government work report that the municipal authority is drafting laws to offer consumers more legal protection.

Officials and lawyers in Qingdao, a coastal city in East China's Shandong province, in January drafted a regulation that proposes the use of a third-party platform to limit the likelihood of businesses leaving customers out in the cold.

"We still need to explore the feasibility, such as when the money can be paid to the merchant," said Sun Peixu, general secretary of Qingdao's consumer protection committee. Future discussions with financial institutions are needed before the regulation comes into effect on Mar 15, the World Consumer Rights Day, he added.

(China Daily 01/27/2011 page1)