Surviving 9-11: Wahday Washington and Tony Wilson knew it wouldn't be easy to expand their business, but the gym owners could not have prepared for the tragedy that threatened to shatter their entrepreneurial dreams. (A Year In The Life).

IT'S 8 P.M. IN THE TRIBECA SECTION OF NEW YORK CITY and the first month of 2002 is drawing to a close. As the city that never sleeps begins to wind down. Wahday Washington watches activity at his most recently opened 24/7 Fitness location pick up. Treadmills hum and free weights rise and fall to the grunts of gym goes forcing extra repetitions while Washington talks about 12 months of events that seemed to conspire against the opening of his gym.

"Running one gym is fun. Two gyms--that's work. But three gyms has been just plain crazy," says Washington with a sigh as he reflects on expanding his business in the year, and the events that nearly brought his and business partner Tony Wilson's fledging fitness empire crashing down.

Early in the year, while making plans to renovate what would be then second fitness center, the duo were presented with the golden opportunity to buy out a competitor and open a third gym. Reeling from the one two punch of rising renovation costs and the expense of taking control of an existing facility, they found themselves in dire straits. And just when things seemed to be getting back on track came the events of Sept. 11. Through creative marketing business savvy, and sheer tenacity the pan was able to triumph. This is their story.

A YEAR TO EXPAND

Rewind 12 months to January 2001 and Washington and Wilson 50/50 owners of Johnny Lats gym, now 24/7-Gramercy Park are ignoring the deal that would give them their second location. They have successfully operated 24/7-Gramercy Park since 1997. Located in Gramercy, a Manhattan neighborhood stretching from last 30th to 14th Streets in Manhattan, 24/7-Gramercy Park is a bare bones hand core gym that attracts professional body builders and amateur hard bodies. This new deal would give them a location in artsy Tribeca an area south of Gramercy where creative folk live in ex-factors that have been converted to upscale and spacious lofts.

Washington and Wilson have been close friends since 1985 when Washington was a high school intern and Wilson was a college student and both worked as proofreaders at a New York firm. They always spoke about going into business together and when Jon McGrath the original owner of Johnny Lats (where Washington worked out) decided to retire in 1997, the two pooled $70,000 from family friends and savings and made the initial payment toward the $175,000 asking price. Four years later they were looking to broaden their horizons.

It made sense to expand in 2001. Business was good for them 24/7-Gramercy Park brought in $550,000 in 2000. "When we evaluated the growth we had at our first location [and] looked at the market we knew 2001 was the year to expand," Washington says.

This was part of an overall trend. The health and fitness industry had ended 2000 with its best year to date. Industry revenues reached $116 billion in 2000, up from $10.6 billion in 1999, according to industry watchdog International Health, Racquet & Sportsclub Association.

From 1989 to 1999, clubs nationwide experienced a 46% growth. By the end of 2000, with an average yearly membership fee of $599, a record 54.5 million Americans exercised in clubs and 32.8 million were regular health club members, up 7% from 30.6 million health club members in 1999. Furthermore, the New York City tri-state region (which includes neighboring New Jersey and Connecticut) saw a 1756 growth in health club membership in 2000--the largest increase in the nation.

TROUBLE IN TRIBECA

With a monthly lease of $15,000, the six story, pre-Civil War building in Tribeca would house the second piece in the Washington-Wilson 24/7 Fitness Empire. In buying the location, however, they underestimated the amount of effort it would take to turn their fitness center dream into reality. Looking back on the project, which he described as nightmarish at times, Wilson says, "There were, and still are, significant problems with the building.... We put hundreds of thousands of dollars into the facility and we're still not built out yet." Because the building was so old, it had to be fitted with a new electrical system, lighting had to be added, and the pair had to pay almost $100,000 to excavate the building's subbasement because of low ceiling clearance.

They signed a 15-year lease, estimating rebuilding costs at $250,000-$300,000 on remodeling, and another $175,000 on gym equipment To pay for this, they opted out of a pending real estate deal in Queens and collected their $50,000 deposit. They then raised additional money by selling prememberships to 24/7-Tribeca. "In presales we raised about $130,000," says Washington. "The gym's normal annual membership fee was $399, but for those who presigned, we dropped the price to $199." They presold more than 600 new members and the future looked promising. "Financially we were [over]extended but ... it was just too good to pass up," Washington says. And the area had its allure--it was within spitting distance of the World Trade Center and New York's financial district, movie studios, and a booming shopping area. Tribeca had a lot to offer.

By February of 2001, construction was underway in Tribeca when another opportunity presented itself. Adolphus Holden, proprietor of Adolphus Fitness and the partners' main competitor, approached them offering to sell his location. In exchange, they would assume the $150,000 debt Holden had accrued. Holden owed the IRS about $100,000, and he owed contractors an additional $50,000 for construction costs and other expenses. Adolphus Fitness, located in the Union Square area of Manhattan, was a mere five blocks from 24/7-Gramercy Park. They jumped at the opportunity to acquire the competition and have another revenue-generating location, despite the fact that the deal would stretch their already chinning finances. But with 24/7-Tribeca not scheduled to open until July--four months away--another source of revenue would be welcome.

Because resources were extended on the Tribeca location, Washington and Wilson decided to bring in a third partner. The partner, who they refuse to name, would own 50% of the Union Square location with Wilson and Washington owning 25% each. In April they would close the deal and rename Adolphus Fitness 24/7-Union Square. In desperate need of cash, Washington dropped the membership price from $599 to a "more reasonable" $299, and printed flyers and brochures advertising the new price and 24-hour availability of the gym, which previously closed at 10 p.m. Those changes resulted in a sharp membership increase--from 660 to 1,500. Also added were a juice bar, and aerobics, kickboxing, and trampoline classes that catered to the white-collar professionals in the area.

A TIME OF TRAGEDY

Things were looking bad. Bank loans came in segments, remodeling fell behind schedule, and there were cost overruns. Making matters even worse, some of 24/7-Tribeca's prepaid members demanded refunds when the gym failed to open as scheduled in July and still wasn't open by Labor Day. On top of the delays, the $15,000 per month lease on the Tribeca location still had to be paid. Combined with the expense of paying 24/7-Union Square's large payroll with its team of fitness instructors and a $100,000 tax debt (which was put on a repayment schedule Wilson worked out with the IRS), money was tight to the extreme. "The gym didn't open [on time]. People get upset when they prepay and promises are not kept," says Washington.

Expenditures were enormous. When the duo purchased 24/7-Gramercy Park in 1997, then Johnny Lats, they spent a total of $175,000. But so far, in 2001, they had lain out closer to $700,000 for the new locations and equipment. Payroll also skyrocketed as they increased staff. Serious damage control was needed. Wilson took out a secured $100,000 bank loan, leveraging the equipment at 24/7-Gramercy Park as collateral. He let frustrated members of 24/7-Tribeca exercise at 24/7-Union Square free of charge while waiting for construction to complete.

Then, on Sept. 11, things went from bad to worse.

Few businesses in the U.S. were unaffected by the tragedy of September 11, and none were affected more than those located in the shadow of where the Twin Towers once stood. Tribeca is one of those areas. Authorities shut down lower Manhattan, which looked as though martial law had been declared. All businesses not related to the financial markets were essentially closed because employees and customers could not get to their locations.

"It took us weeks to get back down there," says Wilson. "At one point, when we were trying to get our contracting crew down there, they wouldn't let them in without some sort of letter because the area was heavily patrolled. We couldn't get any trucks in. It was just very restricted."

Meanwhile, losses at 24/7-Tribeca would amount to almost $3,000 a day while the doors remained shut in the aftermath of the tragedy. At least 20% of the gym's prepaid members worked at the World Trade Center. To help offset the losses, Washington and Wilson had stopped drawing full salaries by the end of September. "As far as sales were concerned, that was the end of it," Wilson laments. Though there was no damage to the Tribeca location structurally, the damage to the business was dramatic. "We put in an application to the Downtown Alliance and we did get a grant from them for $25,000. They also gave us a $25,000 loan."

NEW BEGINNINGS

Tribeca would finally become more accessible in December, and 24/7-Tribeca would open its doors on January 2, 2002, one year after it was purchased, six months behind schedule, and $150,000 over projected costs. Like the city around them, Washington and Wilson had to assess their damages and begin rebuilding. "We were ecstatic [to finally open]," says Wilson, noting that the delay had been so long some thought the duo had abandoned the venture altogether. "Just the fact that we opened gave us an incredible feeling of accomplishment."

But their victory came at a high cost. "We lost 20% of our presales at 24/7-Tribeca after Sept. 11," says Washington, "so, I put my past blueprint to work, printing flyers to spread the word that the gym was open. In less than one month we signed 373 new members. Tribeca was signing about 15 new members per day at one point, exceeding even our expectations."

With all three gyms finally up and running--the partners can finally take a deep breath. Washington smiles, thinking back to the disappointments, sorrows, and tragedies he and Wilson had to endure in 2001. Four months behind on rent, to the tune of about $60,000, a payment plan was arranged with the Tribeca landlord. For additional revenue, space is being rented out to a beauty salon and in-house massage specialists for about $2,500 and $1,500 a month each.

"When someone says `growing pains'--that's exactly what 2001 was," Wilson asserts. "From having to keep up with creditors and having [revenue from] 24/7-Gramercy Park basically fund [24/7-Tribeca], it became a money pit after a while--it was just a nightmare. And when you [add] Sept. 11, it became even worse. I would never have guessed that it would have been that difficult."

But the worst is likely over for the enterprising partners. "We expect Tribeca to do about $1 million [in 2002]," says Washington. "About $250,000 of that will be profit," he says. With all three gyms, which have an average annual membership fee of $449, and about 10,000 current members, Washington and Wilson expect to bring in $2.3 million by the end of 2002 and project revenues to reach $3 million by 2003.

It's 8:00 p.m. during the summer of 2002. Washington smiles as he watches the activity at 24/7-Tribeca. "It's been quite a year," he says smiling, as his business and the city in which it operates are on the road to full recovery.

RELATED ARTICLE: Helpful advice.

We asked two experts, Sean Toomer, a Life Fitness Academy trainer with a master's degree in education, and Les Powell, an advisor to the Minority Business Development Agency, to review Washington and Wilson's performance, recommend strategies, and identify and land mines that may lay ahead in the entrepreneurs' most challenging year.

PRICING YOURSELF OUT

Both experts agree that pricing is important and that the two must be competitive without pricing themselves out

"I do not think that when they dropped the [membership) price [at 24/7-Union Square] from $599 to $299, it was too much--maybe [even] $150 at the least," says Toomer, "You don't want to devalue the club and have people thinking it's cheap. As far as competition, if you jump prices to match your competitors, make sure you can offer what they have and more. If they are established, it will be very hard to pull their customers if you don't offer a significant amount more. Most people will not switch clubs just because it's a couple at dollars cheaper," he says. Adds Powell, "Hopefully they researched the market before dropping the price, especially if there's a larger franchise nearby. In a price war, the larger franchise can always undercut them but probably won't want to if it's doing welt at a higher price."

EXPANDING THE BUSINESS

"[Washington and Wilson] must totally watch out for the different clientele in the new gyms, Often a business wants to appeal to the same core that made them successful. At [24/7-Gramercy Park], they cater to [people] who are loyal to body building. At the new gyms, they may be attracting fad followers who just want to have a body beautiful now and will move on to another fad later," says Powell, who notes that the physical training/medical tie-ins are excellent. "Sometimes medical insurance pays for therapeutic or preventive activities. This helps stabilize part of their bottom line. In general, they must continue to survey and research their customers, find out who they are, what they like, and what will make them stay."

Toomer also notes that the success rate for new businesses is greatest with franchises. "This expansion is huge and needs to be gauged. Let the number of paying members determine what your expansion will be. Feasibility studies are very helpful, but sometimes things that look good on paper don't jibe. If your facility is busting at the seams with members and more are wishing to join, you have a problem but it is a good one. This is normally when you begin your expansion plans."

TERRORIST ATTACK

After the events of Sept. 11. Powell suggests that the two re-examine their clientele at 24/7-Tribeca. "They need to took at the client base there and see if there are changes that have to be made. The character at that area will be different [now], especially since so many of their presigned clients worked at the world trade center. [This is something that may] conspire against their success."

OVERALL OPINIONS

"Overall, with the things they can control, they seem to be doing tree." says Toomer. "I think the one thing to keep in mind is that as clubs focus on sales, many lose sight of service. This is even more important as cam petition grows, People want to belong to a club with a well-trained staff. It is not only important that they are polite, they must also know about the equipment to help customers avoid injury."