Gym memberships are the quintessential luxury item; when times are good many people have them, and many that do rarely use them. When the economy turns and money grows tight, they are then among the first things cancelled. This makes gyms exceptionally vulnerable to economic downturns. The great recession of 2009 left many gyms closed in its wake, and the 2020 Covid-19 pandemic will likely do the same. If you’re the owner of a gym that has recently closed, and are now trying to decide what to do next, this video segment is for you.
I’m Larry Morgan with RL Liquidators, and we have been liquidating business assets, including gyms, for over ten years. Liquidating gym equipment poses very unique challenges. In this video, I’ll be sharing some tips with you on how to achieve the best possible results from a difficult situation. The first challenge to be overcome is the gym owner’s expectations. The cost of commercial gym equipment is many times higher than home fitness. To outfit a moderately sized gym can cost hundreds of thousands of dollars in gym equipment alone. We’ve heard more than one gym owner ask, “Do you know how much this stuff is worth?” Well, having liquidated a great deal of it, we do know how much it’s worth. We also know that what they really mean by that question is, “Do you know how much I spent to buy it all?” While we know the answer to that question as well, we also understand that, to the gym owner, both questions have the same answer.
Unfortunately, we also know that in reality, those questions have two very different answers, and therein lies the first great challenge. When the economy is strong and unemployment is low, two of the most common luxury items are; going out to eat, and getting a membership at a local gym. As a result, during a strong economy, the commercial fitness market grows aggressively. In the years leading up to the Covid-19 pandemic of 2020, we witnessed some of the most explosive growth in commercial fitness we have ever seen. Much of the retail inventory on the market over 40,000 square feet that was previously leased by national retail chains, was being gobbled up by gyms. Local gyms grew into regional gyms and then national ones. As a result, demand for commercial fitness equipment was high.
When demand rises for any category of retail product, the price for that product rises as well, meaning many of the new gyms were paying premium prices for their commercial equipment. When the economy turns suddenly, as it did in both 2009 and 2020, and people begin cancelling their gym memberships by the millions, all that growth stops, demand falls and so do prices. When no one is opening new gyms and buying equipment, what the equipment is now worth is very different than what the gym owner paid for it. That is often a difficult truth for the recently closed gym owner to accept. This drastic reduction in value often leads to the second challenge that can cost the recently closed gym owner even more; delaying liquidation.
When the gym owner learns how much value their equipment has lost, they are almost always tempted to simply put it all in storage and wait for the economy to improve. Their thought is that it’s commercial equipment, it lasts a long time. We understand that temptation, but to do that only makes a bad situation much worse. Here’s why. First, in our experience, when equipment for any business is placed into storage without a clear plan, outlining when it will be coming out, it rarely sees use again. In an overwhelming majority of cases, the equipment sits in storage, slowly but steadily diminishing in value until the owner finally accepts that it’s time to sell it and move on. By then, so much of the value has been lost that it’s almost like suffering the business failure all over again, when the owner discovers how little the equipment is then worth. Second, commercial fitness equipment, even during a good economy, depreciates quickly; it doesn’t hold its value. So, while it may have cost a great deal to purchase, and if properly maintained it should last a long time, by the time it’s been in storage for even a year, the value will have dropped even more significantly. Add to that the monthly storage fees you’ll be paying the entire time it’s in storage, and after just a few years of storage, the depreciated value plus the amount spent on storage, can consume any remaining value the equipment has. At that point, your best hope is often to simply recover your storage fees. And speaking of proper maintenance, while it’s in storage it’s likely not receiving any, and none of that equipment is designed to just sit unused in storage. After a few years of that, everything will need to be serviced in order to be put into use again. Now, you may have noticed that I keep saying “years”. When a strong economy turns, it takes years for it to regain its strength, and we rarely see any equipment that’s in storage that hasn’t been there for years.
One final argument against storing your used equipment has to do with branding if you do open another gym. Like everything else, commercial fitness equipment is constantly evolving. To open a gym filled entirely with equipment that is all several years old and several generations removed from the newest models, does not present a very good brand image to your potential members. In the end, you’ll wind up with old equipment that you really no longer want. When using your equipment to reopen a gym within a reasonable time frame is not possible, the best course of action is to not delay liquidation. Knowing how much you paid for it all, we understand that it is very difficult to accept the reduced value your equipment now has. It may be easier to look at it this way, whatever its value now, your equipment will never be worth more than it is today. The equipment is at its highest value right after you’ve closed. It will never be worth that much again. Like the old adage says, you need to strike while the iron is hot. The longer you wait to liquidate, the less your equipment will be worth. Now, you may think that with gyms closing there is no one looking to buy used gym equipment, but that’s not true. There are always individuals and businesses looking for deals on used equipment, and during a down economy, those people are very active. That is your buyer, your equipment is what they are looking for, and they’re willing to pay more for equipment in good working order from a recently closed gym, than they are for equipment that was in good working order when it was put in storage a few years ago. Finding those buyers can be the hard part, and this is just one way a good liquidation company, like RL Liquidators, can be a huge asset. We can put your equipment in front of those buyers and get you the best recovery possible. We completely understand how hard it is for any owner of a recently closed gym to come to grips with the depreciated value of their equipment. We get it. We work with these gym owners to help them understand that, even at that reduced value, their equipment is worth more now than it will be at any time in the future. Liquidating won’t recapture all of the money you have invested in your equipment, but if you do it now, you will recapture far more than if you wait. Hopefully this was helpful. If you have any questions, click the “Liquidation Now” button below or email us at info@rlliquidators.com.
