WeFit’s loss-making business model ends in bankruptcy

Onaclover Jsc, the developer of WeFit, which connects users with fitness centers and beauty services, announced Monday it had filed for bankruptcy.

The announcement came as a surprise to many customers and partners because the app was well-known in Vietnam’s startup world as the brainchild of Nguyen Khoi, who was in the Forbes 30 Under 30 list in 2018.

The app, official name WeWow, was launched in 2016 as an intermediary that allowed users to get an unlimited number of gymnasium sessions at a place of their choice.

WeFit would collect a fixed sum of money from its users, often monthly or quarterly, and pays its gym partners for each session a customer uses.

Some likened this business model to an all-you-can-eat buffet which benefits the restaurant more if people eat less. In this case, it meant the lazier its customers, the greater the profits for WeFit.

But this is where the problem lay: many customers, instead of skipping sessions, made the effort to use as many sessions as they could to make the most of their subscription.

The company’s CEO, Nguyen Hai Dang, who before taking over from Khoi earlier this year was the deputy CEO, said multiple users shared a single account to pay less.

"There were accounts that had 100 or 200 sessions each month."

The business model was not original but was based on that of ClassPass, an American startup launched in 2013. As costs surged due to increasing use by members, ClassPass ended the unlimited clause in 2016.

"WeFit could have seen the mistakes ClassPass had made but the founders did not learn from them or maybe they thought they could avoid them in Vietnam," Tuan Ha, a marketing consultant for startups, said.

Phuong Thuy, owner of a yoga and dance studio in Hanoi that partners with WeFit, said the company’s feeble management policies allowed users to cheat. WeFit still owes her VND100 million ($4,300).

The app achieved quick success with 5,000 monthly users and 600 studio partners in Hanoi and Ho Chi Minh City within a year and revenues of $700,000 in 2017.

The same year it received an investment of $155,000 from HCMC-based venture fund ESP Capital, and in 2019 it got $1 million from Japan’s CyberAgent Capital and other investors.

But observers said WeFit had to spend too much money to attract users. It offered over 30 different options like gym, yoga, aerobics, kick-boxing, and swimming, and Ha said this caused costs to balloon.

"Users could be too lazy to go to a gym, but might go swimming instead, costing the company more."

Some customers were not in it for the long run. Minh Anh, one such, said he only paid a three-month subscription to look for a suitable gym. After that he began to pay directly to his favorite gym and stopped the WeFit subscription.

"I don’t need to go to different locations. I want to stick to a place with a group of friends."

WeFit started showing signs of financial distress in the second half of last year. It cut free spa sessions, and partners started reporting late payments.

In February this year new CEO Dang scrapped the unlimited clause. The move made sense financially for the company, but caused customers to protest since they were familiar with the unlimited model. Some even called WeFit a fraud.

The change was too little too late. As gym and yoga studios had to shut down in March and April to combat the spread of the coronavirus, WeFit was forced to cease operations.

When the social distancing campaign was eased in recent weeks and gyms started reopening, WeFit came back to announce its bankruptcy.