Red Effect Infrared Fitness Franchise
Audited FinancialsRisk Score
Pending analysis
Investment Range
$184,500 - $277,500
Franchise Fee
$15,000
Total US Locations
4
Business Summary
Red Effect International Franchise, LLC offers RE24 Infrared Fitness Studio franchises, which are fitness studios that provide members with 24/7 access to virtual fitness classes. These classes combine infrared therapy inside specialized saunas designed for multiple activities, including cycling, yoga, pilates, and weight training. The studios also offer access to personal training services.
Corporate History
Red Effect International Franchise, LLC was originally organized as ZIFit International Franchise, LLC in Michigan on April 19, 2016. The company changed its name to Red Effect International Franchise, LLC on November 16, 2017. It previously operated and allowed franchisees to operate under the 'ZIFit Infrared Fitness' name but has since converted all existing studios to operate under the 'Red Effect' brand. Red Effect International Franchise, LLC now offers and sells Red Effect Infrared Fitness Studio RE24 franchises. The company also has affiliates that franchise Massage Green Spas, Stretch Smart services, and Lefty's Famous Cheesesteaks, Hoagies & Grill restaurants.
Financial Overview
Investment Range
$184,500 - $277,500
Franchise Fee (Low)
$15,000
Franchise Fee (High)
$20,000
Royalty %
7%
Marketing %
1%
Equipment Costs (Low)
$126,500
Equipment Costs (High)
$198,000
Working Capital
$17,500
Audited Financials
Yes
Offers Financing
Yes
Audit Opinion
Unqualified opinion
Financial Health Notes
Red Effect International Franchise, LLC's financial condition, as shown in its audited financial statements, raises questions about its ability to provide services and support to franchisees. The company had negative members' equity for the years ending December 31, 2023, 2022, and 2021, indicating a challenging financial position.
Financing Details
Red Effect International Franchise, LLC does not offer direct or indirect financing for its franchises, except when a franchisee purchases a Turn-Key Franchise from one of its affiliates. In such cases, the affiliate may finance up to 50% of the purchase price. The interest rate on these notes is expected to range from 7% to 12% APR, with a term of 1 to 5 years. Franchisees are required to grant the affiliate a security interest in all franchise assets, and all principals and their spouses must personally guarantee the note. The affiliate may sell or assign these financing arrangements. For other financing needs, franchisees will need to secure their own funding, though Red Effect International Franchise, LLC may provide information and advice to assist them in seeking third-party financing.
Performance Metrics
Total US Locations
4
Franchised Units
3
Corporate Units
1
Avg Square Footage
2,000
Franchising Since
2016
Legal & Compliance Analysis
Recent Litigation
Yes
Bankruptcy
No
Litigation Count
2
Litigation Summary
Red Effect International Franchise, LLC has disclosed two ongoing or recently resolved litigation matters. In January 2024, the California Department of Financial Protection and Innovation initiated an investigation into Red Effect International Franchise, LLC regarding potential violations of California franchise law; Red Effect International Franchise, LLC has provided the requested information and is awaiting further contact. Additionally, Red Effect International Franchise, LLC was involved in a dispute with Red Fit, LLC and Cali Red, LLC, initially filed in federal court in September 2020 and later refiled in Michigan state court in February 2021. The plaintiffs claimed breach of contract and violations of franchise laws. Many of the plaintiffs' claims were dismissed, and the remaining breach of contract claim was dismissed after trial in October 2022. The plaintiffs appealed, and the Michigan Court of Appeals affirmed the trial court's rulings in May 2024, though it is unknown if further appeals will be sought.
Bankruptcy History
Red Effect International Franchise, LLC has no bankruptcy history that is required to be disclosed in Item 4 of its Franchise Disclosure Document.
Agreement Terms
Initial Term
10 years
Renewal Term
10 years
Renewal Conditions
To renew their franchise, Red Effect International Franchise, LLC franchisees must meet several conditions. They must not be in default of their agreement and must not have accumulated two or more defaults within the 36 months before the option period. Franchisees need to provide written notice of their intent to renew 6 to 12 months before the current term ends. They must also be able to maintain possession of their approved location, or secure a new approved location, and complete any required maintenance, remodeling, or equipment updates to meet Red Effect International Franchise, LLC's current standards. Throughout the previous term, all payment and reporting requirements must have been met. Franchisees also need to satisfy current training and operational standards, sign a general release of claims against Red Effect International Franchise, LLC, and execute a new franchise agreement with the terms in use at the time of renewal, which may differ materially from their original agreement. Finally, they must pay a renewal fee equal to 25% of the initial franchise fee and receive approval from Red Effect International Franchise, LLC.
Training & Support Program
Franchisor Assistance
Red Effect International Franchise, LLC provides extensive support to its franchisees both before and after their studios open. Before opening, Red Effect International Franchise, LLC offers written specifications for the location and build-out, reviews proposed sites for approval, and provides sources of supply for necessary equipment, fixtures, signs, and initial inventory. Franchisees receive an Operations Manual and participate in an initial training program for up to three owners/managers and up to four trainers. Red Effect International Franchise, LLC also sends a representative for five days of on-site training around the opening, designates products and services, and provides guidance for pre-opening and grand opening advertising. Optionally, Red Effect International Franchise, LLC may offer additional construction consultation for a fee. After opening, Red Effect International Franchise, LLC provides updates to the Operations Manual and specifications, offers additional on-site assistance (potentially for a fee), designates products/services and suppliers, and periodically visits studios to evaluate operations and provide advice. Red Effect International Franchise, LLC also manages the advertising fund, reviews local advertising, and indemnifies franchisees against trademark infringement claims under certain conditions.
Initial Training Hours
128
Training Location
A designated Red Effect Fitness Studio, the corporate office, or another location within the U.S., including Michigan.
Ongoing Support
After their studios open, Red Effect International Franchise, LLC provides ongoing support to its franchisees through various channels. This includes updates to the Operations Manual and business specifications. Red Effect International Franchise, LLC representatives periodically visit franchise locations to evaluate operations and offer advice. Franchisees can also receive operational advice and assistance via telephone or email upon request. The franchisor administers an advertising fund and reviews local advertising proposed by franchisees. Franchisees and their management are required to attend additional training, sales programs, and meetings, including an annual convention, which may incur additional fees. Red Effect International Franchise, LLC also supports with training other franchisees and may reimburse out-of-pocket expenses for this assistance.
Franchise Requirements
Industry Experience Required
No
Management Experience Required
No
Sales Experience Required
No
Technical Skills Required
No
Operational Details
Location Type
retail
Owner Participation
supervisory
Territory Type
protected
Territory Size Requirements
Each Red Effect International Franchise, LLC franchise is granted a protected area that is typically defined as a five-mile radius from the front door of the designated franchise location. However, Red Effect International Franchise, LLC may specify a different area based on factors like population density, existing or planned studios, or other business reasons.
Staffing Notes
Red Effect International Franchise, LLC requires that each franchise business always be under the direct supervision of a manager who devotes full-time effort (40 hours per week, five days a week) to day-to-day operations and has successfully completed the franchisor's management training program. While Red Effect International Franchise, LLC recommends that a Designated Owner act as the manager, it is not required; if the owner is not the manager, the manager must be under the direct supervision of a Designated Owner. Franchisees are responsible for maintaining a staff of trained personnel sufficient to operate the business according to Red Effect International Franchise, LLC's specifications, including conducting employee training and background checks, and ensuring employees sign confidentiality and non-competition agreements. Red Effect International Franchise, LLC does not dictate employee policies or compensation, but franchisees are solely responsible for all employment decisions and obligations.