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Kids’ gym biz isn’t playing around

Aaron Kremer November 12, 2009 2

rompnrollNot everybody is taking a wait-and-see approach to planning budgets for 2010.

Romp n’ Roll, a Richmond-based chain of kids’ gyms, wants to raise $1 million to $5 million as soon as possible to add more stores and recruit more franchisees for markets around the country.

And time is of the essence, say the two owners – a husband-and-wife team of Mike and Babz Barnett – because the declining commercial real estate market is a golden opportunity to lock in lower operating costs.

Rent typically costs about a third of a given store’s operating expenses, Mike said. “What we’re seeing now in the Richmond market, we could stay in class A or certainly class B and get it down by 20 percent or 25 percent.”

The stores are usually around 3,500 square feet in shopping centers, and rent generally ranges from $3,000 to $8,000 per month, Mike said, depending on the location.

The company, which is profitable but cannot support that sort of growth from its income, would use the capital for building out new locations and improving corporate support, including marketing.

It can also be costly to recruit new franchisees, Mike said, adding that new franchisees are harder to find these days because banks are lending less and SBA loan volume is down.

Romp n’ Roll, which was started in 2003 with a loan through the SBA, operates two gyms in the Richmond area and has eight franchise locations. The Barnetts are considering adding a fourth Richmond location on Hull Street in Chesterfield.

The company has two full-time employees and eight part-timers.

The Barnetts said they’d like to add corporate stores in markets within two hours of Richmond, which includes Northern Virginia, Charlottesville and Hampton Roads.

They’ve also identified more than 200 locations around the county that would be suitable to the concept, which caters to kids 5 and younger who come into the brightly colored stores once a week for 12-week sessions.

The younger kids are accompanied by their parents, and the lessons include gymnastics, arts and music.

The couple are unequivocal that now is the time for rapid growth. “Our business is up this year. We are in a discretionary category, and for our business to increase, that means we’re on an upswing,” Mike said, adding that revenue is up 30 percent this year compared to 2008.

“Regardless of what’s happening in the economy, there is demand for our business,” Mike said.

Indeed, the recession has not spared similar concepts, such as Gymboree, Little Gym and My Gym, Mike said.

That’s another reason to expand, Mike said, noting that there is less competition right now.

Matt Carr, a vice president with the investment banking division of Anderson & Strudwick who is helping Romp n’ Roll raise money, said that some of the funds will go toward smoothing out any kinks in the process for new franchisees.

“There is good growth on the corporate stores, but the franchise stores are even more profitable, and you want to make them as consistent and leave as little up to chance as possible,” he said, referring to building a fool-proof, how-to manual for franchisees.

Carr said that Romp n’ Roll is finishing up its financials and will be taking the package to investors in a few weeks.

Those investors could be wealthy individuals, smaller venture capital funds or private equity groups that specialize in buying early education businesses, he said.

And indeed some private equity groups have bought similar concepts. Primrose, an early childhood nursery with a location in Richmond, was bought by the private equity group Roark Capital Group in 2008.

Potential investors will likely want to see some characteristics that separate Romp n’ Roll from the competition.

Babz Barnett said that one of the biggest differences is that Romp n’ Roll is designed for kids only 5 years old and younger. Competitors can cater to kids 13 and under, which is too broad a demographic, she said. The company also has more substantive classes, she said.

“We have a wider variety of gym, music and art, and more curriculums. We are more than just a gym,” she said.

The company also has several other small profit generators, including apparel (anything with the mascot “Rompy” sells well, the Barnetts said) and a mobile program that the company brings to 10 schools around Richmond.

Aaron Kremer is the BizSense editor. Please send news tips to [email protected]

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