Deep Dive: Hong Kong Gym Chain Shutdown Leads to Arrests, Sparks Consumer Rights Discussions – YP

Hong Kong authorities have arrested two directors of the Physical Health Centre. As of September 15, the city police had received almost 4,000 complaints worth about HK$133.5 million (US$17.1 million) against the gym for failing to provide prepaid services.

According to the city’s Consumer Council, the largest individual claim was for a contract that was not due to come into effect until 2037. The deal covered payment for more than 1,900 private fitness classes and a 10-year membership worth HK$1.86 million.

Luk Ngai-keung was arrested after surrendering to customs officers, and his wife, Ho Yuk-wah, was detained after officers searched her home Wednesday morning. A citywide manhunt has also been launched for others involved.

The directors were arrested for allegedly violating the Trade Descriptions Ordinance because they had no intention of providing services after accepting payment from customers. The offence is punishable by up to five years in prison and a fine of HK$500,000.

The government said earlier this month that a cross-departmental team would investigate alleged offences under the Trade Descriptions Ordinance and whether there were other suspected offences. Several network coaches have made claims for unpaid wages, while rent at some branches has not been paid.

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Politicians and experts have said Hong Kong should better regulate the sale of prepaid services to protect consumers. Lawmaker Doreen Kong Yuk-foon cited data released by the council, which received about 7,700 complaints about prepaid services in the past three years, representing about HK$200 million.

She argued that the protections offered by the Trade Descriptions Ordinance do not protect consumers’ rights to prepaid services, noting that the city is far behind other jurisdictions. “We are very backward. If we do not take action, it will affect the service industry and consumers will lose confidence in the sector,” Kong said.

Kelvin Kwok Hiu-fai, an assistant professor at the University of Hong Kong’s Faculty of Law, said the city needs to introduce a grace period, as the government proposed in 2019.

The proposal applied to certain fitness centres and beauty salons and provided for a cooling-off period of up to seven business days, giving customers time to withdraw from the contract.
Authors of articles

Question prompts

1. What was the main reason for the arrest of the two gym directors?

(1) Violation of labor law by underpaying employees

(2) Violation of occupational health and safety regulations in the gym area

(3) Allegedly accepting payments without the intention of providing services

(4) Engaging in Deceptive Advertising Practices

2. Name ONE key case uncovered by the Consumer Council relating to prepaid services offered by a gym chain and ONE action taken by the authorities in response to these cases.

3. Should Hong Kong change its consumer protection laws regarding prepaid services? If so, how? Explain using News and your own knowledge.

Photo

Chui Kee-lap, a customer at Physical Fitness, shows off his contract, which expires in 2031. Photo: Sam Tsang

Question prompts

1. What is shown in this image? What is unusual about it and how is it relevant to the News?

2. How can Hong Kong better protect consumers from falling victim to long-term prepaid contracts and unfair business practices? Explain using News, Photo and your own knowledge.

Table

Source: Physical Fitness website (as of early September)

Question prompts

1. Using the table, list TWO things that seem suspicious about the latest service plans offered by Physical.

2. What would you look for if you were buying a gym membership and why? Explain your answer using News, Issue, and Table.

Problem: Aggressive sales tactics and rent pressure hurting Hong Kong’s big gym chains

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  Customers prefer 24-hour gyms and private facilities offering flexible payments, industry guide finds

  
  




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  Many gym goers have been put off by pressure from trainers to buy training packages

  
  

Industry insiders say aggressive sales tactics by Hong Kong fitness chains and pressure to rent contributed to their demise, as newer gyms offered monthly payments and more flexibility.

Rex Wong Hiu-shan, chairman of the Association of Fitness Professionals, said gym-goers dislike the traditional sales methods used by personal trainers, which often interrupt their workouts.

“They’ve hated it for ages, but they didn’t have a choice then. Now there are more 24-hour gyms and private gyms. Some consumers have moved to these companies, and the public has become more averse to sales tactics,” Wong said.

According to a survey by Hong Kong Fitness Guide last October, there were 963 fitness and yoga centers in the city, including 214 operating 24 hours a day. The number of such gyms was almost 24 times higher than the number recorded in 2018.

Wong said gym-goers find 24-hour fitness centers convenient and accessible, while self-service studios allow people to exercise in privacy.

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Wong said established fitness centers, typically 5,000 to 10,000 square feet, were facing competition from new studios and rent pressures, while the personal training business they relied on couldn’t cover their expenses.

“During the economic crisis, people’s consumption was low and brought few sales. Lack of cash flow could lead to closures,” Wong said.

Wong said traditional chains still have an advantage in attracting gym-goers with a variety of equipment and workout programs. But that could be jeopardized if they engage in aggressive sales tactics or struggle financially.

Gordon Yau Yick-chung, president of Hong Kong Fitness Guide, said more and more people are turning to 24-hour gyms due to their busy work schedules.

Yau noticed a rise in boutique gyms—studios of about 500 to 2,000 square feet—that ran as sole trainers or small teams of two or three trainers. These operators eschewed aggressive sales tactics and often didn’t mind a smaller customer base as long as their revenue covered costs.

He noted that trainers at these gyms can focus on leading classes and give users a degree of flexibility and “privacy.”

Since Physical announced its closure, many members have shared their experiences of trainers willingly sharing packages at the fitness chain.

“I was listening to music, working out and trying to reach my goal, and then someone came in to sell me packages,” a gymgoer surnamed Lam said on a radio show Monday.

“I felt stressed when I walked past the reception desk. I felt uncomfortable and couldn’t enjoy the exercise,” she said.
Authors of articles

Question prompts

1. Name TWO reasons why large fitness club chains in Hong Kong are struggling financially.

2. What benefits does Rex Wong say smaller fitness centers offer their customers?

3. Do you think boutique gyms could replace traditional gym chains? Explain using Issue and your own knowledge.

Glossary

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  Consumer Council: an organization established by the Hong Kong government to protect consumer rights and warn people against unfair and unjust business practices.

  
  




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  withdrawal period: a period of time after making a purchase during which a person can cancel the transaction, return the delivered goods, and obtain a full refund.

  
  




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  alleged: accusations or things said without hard evidence. In law and journalism, you must use the word “allegedly” or “allegedly” when discussing a crime if the case has not yet gone to court and the person has not yet been found guilty of the crime.

  
  




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  aggressive selling: An aggressive and forceful sales technique designed to persuade a potential customer to make an immediate decision.

  
  




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  boutique gyms: Smaller, specialized fitness centers that offer a more unique training experience and personalized services than traditional gyms.

  
  

Many people have filed lawsuits against the closed gym chain, hoping to get their money back. Photo: Sam Tsang

Sample answers

News
1.C
2. The largest case involved a contract that was not due to take effect until 2037. The contract covered more than 1,900 fitness classes and a 10-year membership worth HK$1.86 million. In response to the claims, the government set up an inter-ministerial panel to investigate alleged offences under the Trade Descriptions Ordinance and whether there were other allegations of offences.
3. Yes, I think Hong Kong should change its consumer protection laws regarding prepaid services. Many people lost a lot of money with Physical. The company knowingly defrauded customers before it closed down because the network continued to sell prepaid services even though it knew it would not be able to provide them. (accept all reasonable answers)

Photo
1. A former Physical gym customer shows his contract, which lists prepaid services that will not start until 2027 and will expire in 2031. This is significant in the context of recent reports that Physical sold prepaid services to customers knowing it was unable to provide them.
2. Hong Kong authorities could increase consumer protection by enforcing stricter regulations on the terms and duration of prepaid contracts, conducting regular audits of companies offering such services, and providing clearer guidelines and information to educate consumers about their rights and the potential risks of long-term contracts. (accept all reasonable answers)

Table
1. The new customer plan is for 10 years, while the “Supreme Black Diamond Flash Sale” is for almost 84 years. There are also comments that the listed fees – which require a large amount to be paid upfront – do not include additional registration and processing fees, which are not listed. (accept all reasonable answers)
2. I would avoid buying a prepaid plan with a long contract because it would be risky if the company went bankrupt. It is very likely that I would not get my money back. I would also make sure that all fees are explained to me so that I am not surprised. (accept all reasonable answers)

Issue
1. Large gyms struggle due to aggressive sales techniques that put customers off, and rental pressures because they often occupy large spaces and pay higher rent.
2. Smaller gyms have smaller groups, do not use aggressive sales techniques, focus on offering classes, and give members a degree of flexibility and privacy while exercising.
3. There is a strong possibility that small boutique gyms could replace traditional gyms because they are more flexible in terms of payment and opening hours. People may also be more nervous about expensive prepaid plans after the closure of Physical. They may also appreciate the personalized service and lack of pushy sales tactics. (accept all reasonable answers)