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Case Study Analysis Introduction NEW WORLD FITNESS Elizabeth…
Case Study Analysis
Introduction
NEW WORLD FITNESS
Elizabeth Coleman had been interested in fitness since childhood. She had a vision at one
time of becoming a physical education teacher but decided that although she was interested in
fitness, a career as a teacher did not offer what she wanted. Business ultimately became her
chosen profession. She had never been self-employed but had an eagerness to be in control
and be in charge. Her work experience had not given her the opportunity to implement
her expertise and ideas.
In June of 1992, she heard that New World Fitness, in the West end of St John’s,
Newfoundland was having financial difficulties. Elizabeth considered trying to obtain
ownership as a way of combining her interest in fitness with her entrepreneurial spirit. The
major problem Elizabeth Coleman had to consider was whether or not she could turn the
failed business, New World Fitness, into a successful one. This business had not only failed
but had also become disreputable through previous owners’ mismanagement The question to
be answered was whether or not the stigma attached to the fitness centre could be
overcome and how it could be made into a respectable venture, as well as a profitable one.
The Potential Entrepreneur
Elizabeth Coleman came to the business world academically prepared and with varied work
experience. After graduating with a Bachelor of Commerce degree from the Memorial
University of Newfoundland in 1981 and a Master of Business Administration in 1982, she
secured employment with Newfoundland and Labrador Hydro. Her next step was to
Eastern Provincial Airways and, with it, a transfer to Halifax. The airline was purchased by
CP Air and Elizabeth worked for them in Toronto and then Vancouver. After four years in
Vancouver, she returned to Newfoundland to work for Fishery Products International
(FPI). Seven months after beginning work with FPI, an opportunity presented itself – a New
World Fitness, which had been closed by the creditors due to outstanding debts.
Company Background
New World Fitness offered residents of St. John’s, Newfoundland, an attractive centre in
which to work out at its location on Topsail Road. The original owner, Gary MacDonald,
sold the business when it started to encounter problems. Under the new owner’s
administration, the business soon began to fail. It appears the new owner lacked
managerial skills, kept inadequate records, and generally gave the company poor
direction. Many of the memberships which existed at that time were non-paying,
delinquent ones or ones which had been given in exchange for goods received. The
owner’s priority was to maintain an overly luxurious fitness centre through such purchases as
brass railing, leather couches, an excess of expensive company vehicles and executive
washrooms. Though New World Fitness was popular with its clientele, the extravagant
practices of the administration, coupled with the lack of managerial skills, soon resulted in
financial embarrassment and ruin. At the time it closed, it had outstanding bank loans from
Enterprise Newfoundland and Labrador, Bank of Nova Scotia, and the Royal Bank. As
well, money was owed to Chester Dawe Limited for rent.
The Situation
The assets, such as the fitness and office equipment, belonged to the creditors. There was a case Study Analysis of little that they could do with the remaining equipment. If it were to be sold in
Newfoundland, an estimate of only ten per cent of the value would be recovered. Shipping it
to the mainland would result in an approximate twenty-five per cent recovery rate, but the
cost of shipping would be several thousand dollars. There were few options available to the
creditors. As a result, Ms Coleman believed that they would be open to any reasonable
proposal.
The yearly advance membership fees had been received from many of the clients in
amounts up to $800 just days before the doors closed. In the final months, an American
promotional company was used to draw members in. Their hard-sell tactics resulted in a
misleading radio campaign which gave away “free” memberships. Upon winning these
memberships, people were told of a monthly maintenance fee which was expected, and the
membership ultimately cost about $160. These people, as well as all other members,
received no advance notice of the closure and no refund for their paid membership.
Eighteen employees were standing on the doorstep, many of whom were owed back wages
from the previous month.
Some issues that Elizabeth knew she would have to contend with if she took over
ownership was: whether to honour previous memberships, the method of fee payment for
new memberships, the demand for this service, the promotion of the new facility, and whether
or not to keep the name “New World Fitness”, and whether to continue to employ previous
staff.
The Decision
Elizabeth had already determined that even without any revenue generated from new
memberships, she had enough available capital to allow the centre to continue operating for
up to six months. There was also sufficient equipment in the building to operate and provide
the services needed to meet members’ requirements. As well, there were some capable,
experienced staff to assist in management decisions.
Although Elizabeth was not solely motivated by profit, she realized that if she were
successful, she would be able to make more money by owning New World Fitness than
what she was making at her current job at FPI.
