The Alexander story
Alexander Health Club, founded 26 years ago, was first known as Arts Aerobic World, specializing in women's dance instruction. Eventually it became a unisex gym. Importing many health-club concepts from overseas, Tang was a pioneer in style, adding various leisure services likes spas and aromatherapy to relieve the stress of urbanites, while touting the club as suitable for family members of all ages. Tang was one of the movers and shakers of Taiwan's fitness culture.
Alexander grew fast, spreading all over Taiwan over the last decade with the rise of the urban fitness trend, and becoming Taiwan's largest health club chain-the pride of Taiwan's homegrown fitness industry. Aegius Club, launched in 2000 and targeted at upper-class businesspeople, was also very popular for a time. Tang soon began expanding boldly into the Chinese market, opening luxury health clubs in the best areas of Shanghai and Beijing.
According to media reports, the classes offered by Alexander were fully booked throughout Taiwan. The company seemed to be thriving, with popular classes taught by top-notch instructors. The company's meltdown was attributable to overly quick expansion and a lack of awareness of changes in the overall business climate, such as the closure of JiaZi two years ago, the rise of privately owned health clubs, and the entry of overseas companies into the market. A serious incident involving a carbon monoxide leak at Alexander's branch on Taipei's Tunhua South Road during the 2006 Chinese New Year holiday, leading to one death and 11 injuries, was taken as a sign that management competence and service quality had waned after Tang turned the focus of her business to China.
The fitness-center business is one with large capital outlays and slow returns. The advance payment system is one of its major weaknesses, because once the rate of new memberships slows, cash-flow problems can easily result.
Victim of its own success
In truth, the rapid expansion of Alexander's domain depended on this advance payment system. That is, they received advance fee payments from members and continually invested in expansion, then in turn received fees from the newly opened branches. As the right hand received money, the left hand spent it, driving a constant cycle of expansion.
But the "fixed-term contract" requirement of August 2007 compounded the problem.
The CPC and Sports Affairs Council drew up standard fixed-term contracts for fitness centers with the aim of addressing past abuses of the advance payment system. Among the new rules is a performance bond requirement, mandating that advance payments exceeding NT$50,000 and covering a period of more than a year must be paid into a special bank account in compliance with the Trust Act. Management is then restricted to drawing designated amounts from the account, effectively freezing most of the advance fees and inhibiting the short-term expansion cycle. Even though Alexander had not signed fixed-term contracts with its customers, this regulation nevertheless affected Alexander's financial operations.
Facing wave after wave of closures in the service industry and the proliferation of advance payment schemes used in the market, such as gift certificates and vacation centers, the CPC warned the public that if they are thinking of buying high-priced, long-term products or services, they should first understand their rights and responsibilities, and check whether the fixed-term contract has a performance bond system, to safeguard their rights.
Most people are not pessimistic about the future of the fitness and leisure industry. But the government should take this opportunity to strengthen the relevant legislation and seek to improve the soundness of businesses, so that the fledgling industry can continue to thrive in Taiwan.