Gyms across the UK have been required to close several times during the COVID-19 pandemic, as authorities were concerned about these venues risking becoming a means for the disease to spread easily. As a result, the viability of a number of Virgin Active gyms has been called into question.
This uncertainty has required the brand to propose a bold restructuring of affairs, but there is a risk that creditors might refuse to back the plan. Such a move could push Virgin Active into insolvency, and one of the UK’s most prominent indoor fitness service providers could vanish.
Stop and start fitness
The industry that caters to maintaining good health and fitness is, for want of a better world, thriving. The UK is home to roughly 6,700 health and fitness clubs, with 9.7 million people having some form of membership to them. In 2018, these clubs had a total annual turnover of £2 billion, equivalent to £100,000-£250,000 per club.
As life expectancy has risen to levels never seen before in recent years, more Brits are making the decision to invest in their long-term health and well-being, ensuring they can live more active lives for longer. However, due to the COVID-19 pandemic, more of us have had to make do with a run around our local park or hop on our exercise bike at home.
Gyms and clubs such as those owned by Virgin Active have borne the brunt of this behaviour, experiencing stop and start relationship with customers over the course of the pandemic. One minute, cases were low enough for people to be allowed to access club facilities again over the summer last year, before government guidelines forced them to close their doors, as cases rose again.
Returning clubs back to rude health
Virgin Active has reportedly been forced to close 40 of its UK-based sites over the last year, losing over 100,000 members and a halving of revenues to £42 million. Desperate to salvage itself from complete and total collapse, the company is now warning of insolvency by June, unless landlords and lenders agree to the terms of an ambitious £70 million restructuring plan.
Shareholders would be requested to offer a cash injection worth £42 million, plus £17 million in royalty fee deferrals. At the same time, the lending syndicate for Virgin Active UK may be asked to increase the size of the debt package it can provide. Not only that, but the landlords for the remaining UK-based sites will be requested for a full-blown write-off or a deferral of rent arrears.
These measures are intended to keep the fitness brand afloat until better times return, but landlords for a handful of sites are understood to be receiving advice on seeking alternative tenants, in order to find more agreeable terms. In the end, the survival of one of the UK’s leading fitness service providers is likely to come down to the judgements made after a series of courtroom battles, and will be a test of its stamina and financial health.