More than 50 The Little Gym franchises take legal action contesting damaging changes to franchise relationship under private equity
JACKSONVILLE, N.C., Oct. 5, 2023 /PRNewswire/ — Owners of more than 50 children’s gyms across the United States have taken individual legal action against Unleashed Brands, contending the private-equity backed parent company that assumed ownership in 2021 is imposing “damaging changes” on the franchise businesses in violation of existing franchise agreements.
According to the lawsuit, after Unleashed Brand’s acquisition of The Little Gym brand, their focus shifted to exerting full control over the revenue stream and maximizing their own profits, without regard to the interests and profitability of the independently owned and operated franchised locations, franchisees say. One notable change was the introduction of a centralized banking system, where customers were required to pay Unleashed Brands directly rather than their local gyms, leaving franchisees to wait days and sometimes even weeks before receiving their portion of customer payments.
“It is unacceptable for Unleased Brands to take my revenue and choose when to disperse it to me,” says Adam Stone, who has been a franchisee with The Little Gym for 22 years. “That is not the business I bought into, and it is a blatant overreach of our franchise agreements.”
Franchisees who are part of the legal action against Unleashed Brands say they have been compelled to unite in order to protect their small businesses and preserve the cultural legacy of The Little Gym.
“These demands for arbitration have been filed by more than 50 gyms, and we anticipate that many more owners will file in the coming weeks,” says Bill Walenda, a 20-year franchise owner and president of the SFFA, a franchise association formed by The Little Gym owners in response to the damaging changes made since Unleashed Brands assumed ownership. The name SFFA is a nod to The Little Gym’s company tagline, Serious Fun.
“So many of us have run successful, profitable small businesses for decades, built on hard work and dedication,” says Alan Ruthazer, who opened his first location in 2003. “Coming together was not a choice but a necessity to safeguard what we’ve worked tirelessly to achieve.”
The arbitration filings and other lawsuits against Unleashed Brands underscore the challenges that arise when private equity firms enter the franchise world, often implementing changes that may not align with the best interests of the franchisees.
“Our fight is not just for ourselves but for the future of small businesses everywhere,” says Bonnie Nasr, a 30-year franchise owner and SFFA vice president. “Unleashed Brands’ actions remind us that integrity and ethics must never be sacrificed for profit margins.”
In July 2021, Unleashed Brands acquired franchisor The Little Gym International as part of a strategy set forth by Unleashed Brands founder Michael Browning to transform his company into a diverse portfolio of youth-focused active brands. Billionaire Peter Seidler took a majority stake in Unleashed Brands in December through his buyout firm Seidler Equity Partners.
According to the lawsuit, franchisees say that soon after the ownership change, Unleashed Brands began to implement changes that significantly – and negatively – impacted their businesses. When owners expressed their concerns, they encountered aggressive responses and adverse actions from the company.
“Establishing a franchise owners’ association was a necessity in the face of this adversarial behavior,” says Walenda. “Unity empowers us to stand strong. We won’t be silenced or intimidated by corporate bullying. Our businesses and customers deserve better than this.”
Franchisees have voiced concerns about Unleashed Brands significantly reducing resources allocated for crucial aspects like curriculum support, operations assistance, technology advancements, and marketing initiatives. This reduction in support has not only affected the efficiency of operations but has also burdened franchisees with additional responsibilities.
“Unleashed Brands has drastically scaled down essential resources, leaving franchisees to bear the brunt,” says Jamie Mainvielle, a 17-year franchise owner. “The burden of double-checking everything we receive from the franchisor has increased substantially. We find ourselves meticulously inspecting for spelling errors and grammatical mistakes. This level of ‘support’ is far from what we should expect from our franchisor.”
When Unleashed Brands pushed out a new POS system called Command Center, early adopters experienced significant functionality issues.
“Some early adopters discovered an issue with Command Center where customers set up on auto-pay were not actually being charged for the classes they attended,” says Walenda. “The limited functionality of the new POS system made it almost impossible to track and correct the error.
“With tickets to Unleashed Brand’s help desk often going unanswered for one to two weeks, these owners are understandably extremely frustrated.”
Ruthazer agrees, “Early adopters were really misled. They thought they were getting something that was ready to go, and they got something that cost them money.”
Unleashed Brands rolled out a mandated call center at its headquarters location in Bedford, Texas, a move many franchisees say does not make sense for The Little Gym because of the personalized service each location provides its customers.
“We are working with children as young as 4 months old. Questions from our customers are very individualized and cannot be answered by an operator in a central location working from a script,” says Stone.
“For years, we’ve strived to provide exceptional customer care, building trust and loyalty,” says Stone. “Unleashed Brands’ actions jeopardize not only our livelihoods but the well-being of our customers who rely on us.”
In the United States, a significant portion of the franchisor-franchisee relationship lacks regulation. But state legislators and federal regulators are acknowledging overreach by franchisors, leading to a surge in proposals limiting the authority of franchisors.
SFFA is a unified organization of dedicated franchise owners within The Little Gym community. Focused on collaboration with our franchisor, SFFA strives to enhance The Little Gym’s brand while preserving its unique values and heritage. Advocating for each other and providing a strong support system, SFFA ensures franchise owners have the protection and resources they need for success within this cherished franchise network.
Originally published at https://www.prnewswire.com/news-releases/childs-play-turned-legal-battle-us-childrens-gym-owners-take-on-unleashed-brands-301948436.html
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