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Growth plans on track despite foreign closures

Straits Times , 31 JULY 2017


 

The closures of True Group's fitness clubs in Malaysia and Thailand last month, shocking members with their abruptness, "could have been handled better", said its founder.

Mr Patrick Wee, 53, who set up the home-grown fitness firm in 2004, said it was a "perfect storm" of circumstances that led to the closures. Even so, the chain's expansion plans are on track, he added.

On June 9, True's two gyms in Thailand shut without warning, leaving 7,000 members in the lurch. A day later, its three spas and gyms in Malaysia followed suit, affecting 10,000 members.

Members and observers were taken aback as these came just a month after True entered a US$36.7 million (S$50 million) partnership with a Chinese investor, the Hong Kong-listed Tongfang Kontafarma, with plans to establish 20 new clubs in China over the next three years.

The closures also caused jitters in an industry still reeling from the sudden demise of major gym chain California Fitness last year.

"Both markets went through challenging times in the last few years," said Mr Wee. The business operations in Malaysia and Thailand were under separate companies, and handled by local management teams.

In Malaysia, the spending power of the man in the street was hurt by the 6 per cent goods and service tax introduced in April 2015 and the devaluation of the ringgit caused by the 1MDB scandal, he said.

True lost RM9 million (S$2.9 million) there in 2015 and RM7 million last year. It reduced its number of outlets from five to three, with the intent to restructure.

But creditors, having lost confidence in the firm, applied for provisional liquidators to take over the business, forcing the outlets to shut.

Meanwhile, in Thailand, it was one crisis after another, starting from a fire ignited by rioters in Bangkok's CentralWorld mall in 2010. True's club in the mall "was burnt to the ground", said Mr Wee.

Subsequent floods in 2012 and racial riots in 2014 made it difficult to get the business off the ground. In 2015, True lost about 80 million baht (S$3.3 million) there and another 30 million baht last year.

Then last month, its Thai team heard that liquidators were taking over the Malaysian operations, "knew things weren't going well and basically told one another not to come in to work", said Mr Wee. There was no point trying to revive the business by then.

"Once the doors were closed, even if we tried to reopen them, nobody would trust us," he said. "It was the final nail in the coffin."

In Malaysia, True bought memberships from rival chain Chi Fitness so its members could redeem their unused sessions there. It has yet to find a similar partner in Thailand. Its staff have all been paid their owed salaries.

"We didn't go out to intentionally cheat people," Mr Wee said, adding that the gyms in both countries had stopped selling packages one to two weeks before the closures.

"I think (the closures) could have been handled better. I should have cut the businesses two years ago. I would have saved myself millions of dollars and the grief."

Mr Wee had used the profits from the Singapore operations to subsidise the losses. He said he received "serious criticism from a lot of business people who said I should not have done that".

"I should not have risked the business in Singapore, and let the two companies (in Malaysia and Thailand) fold," he added. "But we wanted to try and keep things going. We thought we would be able to turn things around."

Four members here asked for refunds and new member sign-ups fell by 20 to 30 per cent in the subsequent weeks. It has begun to pick up again, he said.

Mr Wee, a trained lawyer, made his first foray into the fitness industry in 1997 as the Singapore partner of American fitness guru Ray Wilson's California Fitness.

He opened his first True Yoga outlet at Pacific Plaza in Scotts Road in November 2004. His company has since grown to 26 clubs, with more than 110,000 members, across China, Taiwan and Singapore.

He plans to launch a new chain of boutique fitness clubs in Singapore (see sidebar).

"We want to reassure members that it's business as usual," said Mr Wee. "As a matter of fact, we are going bigger, better and stronger."