Explanation

While the franchisor, Retrofitness, LLC, has been operating since 2008, some of its executive team members have joined in recent years. For example, the Chief Development Officer joined in 2023 and the Chief Brand Officer in 2024. While they have prior industry experience, their recent arrival to this specific system means their long-term impact on the brand's strategy and support systems is still developing.

Potential Mitigations

• A business advisor can help you research the track record and reputation of the newer members of the executive team.
• During discussions with current franchisees, specifically ask about their experiences with the management team and any recent changes in support or strategy.
• Your attorney can help formulate questions for the franchisor regarding the new leadership's vision and plans for the franchise system.

Explanation

This risk was not identified in the FDD package. A 'fad' business is one tied to a short-lived trend, which can create significant risk when tied to a long-term franchise contract. Evaluating whether a concept has enduring consumer demand versus being a temporary craze is a crucial part of due diligence. The fitness industry can have trends, so assessing the core model's longevity is important.

Potential Mitigations

• Your business advisor can help you research the long-term market trends for high-value, low-cost gym models.
• Ask the franchisor about their strategies for innovation and adapting to changes in fitness trends and consumer preferences.
• Discuss the business model's resilience and long-term appeal with current franchisees.

Explanation

The executive team disclosed in Item 2 appears to have considerable experience in the franchise and fitness industries. For example, the CEO, CFO, and COO have held senior roles at Retrofitness or other relevant companies like Planet Fitness for many years. This suggests a stable leadership core with knowledge of the business model and franchising, which can be a positive factor for franchisee support.

Potential Mitigations

• Even with an experienced team, it is wise to speak with current franchisees about the quality and effectiveness of the support they receive from management.
• A business advisor can help you research the public reputation and past performance of the key executives at their prior companies.
• Your attorney can help you understand how the management team's experience translates into the specific obligations outlined in the Franchise Agreement.

Explanation

This risk was not identified in the FDD package. The franchisor's parent is Fierce Brands, LLC, which does not appear to be a private equity firm. The risk with PE ownership is that the firm's focus on short-term returns can sometimes conflict with the long-term health of the franchise system. This may lead to cuts in franchisee support, increases in fees, or a quick sale of the brand.

Potential Mitigations

• Your attorney should always confirm the ownership structure detailed in Item 1 and investigate the parent company.
• A business advisor can help research the ownership entity to determine if it has characteristics or investment strategies similar to private equity.
• In any franchise, discussing the franchisor's long-term vision with management can provide insight into their commitment to the brand.

Explanation

The FDD discloses the parent company, Fierce Brands, LLC, and provides its audited financial statements in Item 21. Furthermore, the parent company provides an unconditional Guarantee of Performance, attached as Exhibit J. This level of disclosure appears to meet regulatory requirements and provides financial transparency into the ultimate parent entity, which is a positive factor for risk assessment.

Potential Mitigations

• Your accountant should review the parent company's financials to assess the overall health of the entire organization.
• It is important for your attorney to review the specific terms of the parent company guarantee to understand its scope and enforceability.
• A business advisor can help you understand the relationship and flow of funds between the parent and the franchisor entity.

Explanation

Item 1 discloses predecessors, Retrofitness Corp. and Retrofitness Enterprises, LLC, and explains that the current franchisor acquired the assets of Retrofitness Corp. in 2008. The disclosure appears to provide a clear lineage of the brand. There is no indication of hidden or problematic history being obscured, which allows for a more transparent evaluation of the franchise system's background.

Potential Mitigations

• Your attorney should still review the information about predecessors in Items 1, 3, and 4 for any potential liabilities or historical issues.
• When speaking with long-term franchisees, asking about their experience under any previous ownership can provide valuable historical context.
• A business advisor can assist in searching public records or news archives for information related to the predecessor companies.