MEET THE FATHER OF 24 HOUR FITNESS.
LEONARD SCHLEMM CONTINUES TO SHAPE THE INDUSTRY BY INVESTING IN THE LATEST HEALTH AND TECHNOLOGY TRENDS
MONTREAL • A man walked into the Nautilus gym in Hayward, Calif., to speak with owner Leonard Schlemm and his business partner, Mark Mastrov, about buying the club. To show he was serious, the man opened up a briefcase packed with diamonds.
Although they had no plans to sell the business, having only invested in it a few years earlier, it was tempting enough that Schlemm told the potential buyer to come back while he evaluated the offer. “(Schlemm) went out, bought lots of books and spent a couple weeks asking questions and became fairly knowledgeable on how to value diamonds,” Mastrov recalls.
The potential buyer was then invited back with his diamonds.
“Leonard took one look and said, ‘ These diamonds aren’ t worth anything,’ ” Mastrov said. “The fun thing about Leonard is that he likes a challenge.”
It’s this willingness to consider new offers and ideas that has made Schlemm the powerful, yet often behindthe-scenes, force who created and then sold the world’s largest chain of health clubs and someone who continues to shape the global fitness industry by investing in the latest health and technology trends, often in conjunction with partners who have long overlapped business, fitness, friendship and romance.
“His business savvy and innovation to expand his knowledge from the accounting world to the fitness world has been enlightening,” said David Hardy, president of Franvest Capital Partners, a private-investment firm that specializes in the health and fitness industry.
Before heading south to first make his fortune, Schlemm was born and raised in Montreal to a family that helped literally shape the city.
His grandfather was the urban planner who designed Atwater Avenue for the Society of the Priests of SaintSulpice, while his father was the former president of the Atwater Racquet Club, where Leonard played badminton five days a week as a teenager.
In 1983, with a Harvard MBA and a job as a strategy consultant at McKinsey & Co., Schlemm decided it was time to apply what he had learned. It wasn’t long in coming. Just 30 years old, he was presented with an opportunity to make a US$45,000 investment in the San Francisco Bay Area Nautilus club — a typical 5,000- square- foot- gym with five employees.
“To be honest, it was somewhat of a random investment and while I’d been involved in sports activities when I was younger, it was more of a lucky coincidence,” said Schlemm, 63, in his office overlooking the expansive weight- room floor of downtown Montreal’s Mansfield Athletic Club, which was once the 3,000-seat Loews Theatre.
Part of this lucky coincidence was that one of the five employees Schlemm inherited was Mastrov, who also invested in the club and has become an influential figure in the fitness world in his own right.
“When we first started working together, he was very helpful on strategic issues, legal issues, finance issues — areas that I probably didn’t have lot of strength in,” Mastrov said.
“I was very good on the operations and people skills and getting out front with the members, which he didn’t enjoy as much. So we didn’t overlap too much.”
Schlemm and Mastrov made two simple changes to the club that would end up changing the face of the entire fitness industry.
At the time, members paid up front for a three-year contract — a big limitation for people on a budget.
Instead, the partners decided to make Nautilus the first club to chop its memberships into monthly dues, something that has since become standard practice in the industry.
They also realized that the cost of paying an employee to run the front desk overnight, while cleaning staff were there, was relatively small, meaning the gym never had to close. The 24-hour gym was born.
The club was rebranded as 24 Hour Fitness and began opening other locations in the area.
“In the fitness industry, there are very major economies of scale on a regional basis,” Schlemm said. “In a given market, the key to financial success was being the dominant player.”
First, 24 Hour Fitness took over the San Francisco Bay area, then Southern California, Texas and so on until it become the world’s largest health-club chain, with more than 420 clubs, 20,000 employees and revenues estimated at more than US$1 billion.
Over the years, Schlemm has worked with celebrity athletes including Andre Agassi, Magic Johnson, Shaquille O’Neal, Lance Armstrong and Steffi Graf as investors.
“Some are very down to earth, some you deal with a group of business reps, lawyers and accountants, and some are directly involved,” he said.
Wanting to expand beyond the U. S. in the early 1990s, Schlemm and Mastrov looked to Russia. Since 1997, he has been chief executive of Sila Holdings, which runs the largest chain of fitness centres in that country.
“He used to have to travel out there every month and back then it was sort of the Wild West where you couldn’t find a taxi and just had to pay regular citizens,” Mastrov said. “Leonard would navigate that with ease where most people would be very scared. He was very humble and nobody would even bother him.”
He and Schlemm say they are close friends who continue to work together on various initiatives to this day.
“We think a lot alike. He can finish my sentences, I can finish his,” said Mastrov.
After 20 years in the U. S., where three of his four children still live, Schlemm gradually left Mastrov to run 24 Hour Fitness and moved his home base back to Montreal.
There, he started the Mansfield Athletic Club chain, and bought he 89- year- old Atwater Racquet Club, where his father had been president.
In 2008, he met AnnickIsabelle Marcoux, who was working as vice-president of BMO Harris’ Private Wealth Group in Quebec and also leading a weekly spinning class at one of the Mansfield clubs.
“I had asked to meet the owner of the business only to sadly realize that he had been sitting ahead of me for three years straight in my spinning class and never noticed,” Marcoux said.
Schlemm hired Marcoux, 46, as his investment adviser and the relationship grew as the two realized they had many common interests.
A former national champion mountain and road biker and Ironman competitor, Marcoux joined Schlemm in raising money for charities through events such as the Enbridge Ride to Conquer Cancer.
“We started a relationship based on using fitness and business in order to do some good,” she said. “It’s quite amazing how he can use the same stamina he does in marathon running ... in businesses.”
A romantic relationship developed and they were married in 2013.
Schlemm said he and Marcoux were so compatible in business that he asked if she would leave her career in finance to run the Mansfield Athletic Clubs. “I wanted to create a legacy,” Marcoux said. “I participated in creating and building something and I wanted to leave something behind and I knew it wasn’t going to be in the financial industry or in a big corporation.”
Before they were married, Schlemm said he spent a year and a half trying to convince Marcoux to join his enterprises. She finally decided to take the opportunity when he was looking for a fitness brand to associate with a 42,000-square-foot space he had leased in Toronto.
In that space, Marcoux decided to open Canada’s first Hard Candy Fitness, a joint venture with Madonna that opened its doors in 2014.
“Having grown up (listening to) Madonna, (I said), ‘If you get a Hard Candy, I think I might consider joining in,’” Marcoux said. “She’s vibrant, she has an energy that actually I don’t even find in 25-yearolds. She’s quite a role model.”
Today, Marcoux is president of the three Mansfield clubs, the Atwater Racquet Club and Hard Candy Fitness Toronto, while Schlemm is a partner in the 21 Steve Nash Fitness Clubs in B.C. alongside Mastrov.
Schlemm sold his interest in 24 Hour Fitness last year to investors in a US$1.85-billion deal that included the Ontario Teachers’ Pension Fund and the New York-based privateequity group AEA Investors LP. Marcoux said that while her husband excels at strategic planning, her strengths, like Mastrov before her, lie more in the day-to-day operations.
“It’s absolutely a 10-on-10 partnership, and the beauty of it is that we have the same interests and the same passions, but we’re fundamentally totally different individuals,” she said. “We absolutely complete each other.”
Marcoux and Schlemm also have investments in about 600 clubs in Europe, as well as interests in a number of non-fitness-related ventures such as medical and software companies.
Together, they are managing partners of the LangLeven Group, Canada’s first and only private- equity firm exclusively focused on growth opportunities in the North American wellness sector.
Through this, they are investing in evolving fitness technology, such as LIFT Sessions, an online platform that gives access to customized fitness training on demand from any location.
They are also looking to investments in wearable technology — including companies in Quebec — though they decline to name any specific brands, citing the fierce competition.
“There’s an amazing movement and energy right now, something in Quebec is really going to blossom in 2016,” Marcoux said. “One of them is going to get ahead of the pack and the question is who’s going to buy them.”
It’s through this combination of fitness and finance that they hope to continue making an impact.
“Our legacy together is that we want to really help people take care of themselves,” Marcoux said. “It’s not about living long; it’s about how you are going to live long.”