GNC aims for turnaround after worst year since IPO
Vitamin retailer’s shares plunge on slumping sales, falling foot traffic
GNC Holdings limped to the finish of its worst year since it went public in 2011, and the vitamin retailer is leaving shareholders with little to get excited about in the next 12 months.
The company’s shares have plunged by more than 64 per cent in 2016 as foot traffic fell at its more than 4,400 U.S. stores and customers cut down on buying vitamins and nutritional supplements.
Once a Wall Street darling, GNC’s market value has dropped by about US$5 billion since its peak in 2013 as it battled slumping sales and aggressive competition from online sellers and Wal-Mart Stores. Even after the decline, only one of the 10 analysts who follow the stock recommend buying it.
Interim chief executive officer Bob Moran, a board member who took the helm in July, is trying to turn around the operation. He’s unifying GNC’s pricing system to make it less confusing, rolling out promotions and boosting loyalty programs in an attempt to relaunch the brand. The chain will also run its first-ever commercial during the Super Bowl in February, a bold but costly gambit.
“I’m very skeptical about what they are trying to do right now,” said Seema Shah, an analyst at Bloomberg Intelligence. “There are no new innovative products, and there’s more competitive pricing across the board. None of what they are doing changes that.”
In October, Moran said the company’s third-quarter financial results “continued to be unacceptable” and that it has a “badly broken business model in need of a change.” GNC revenue has dropped for three straight quarters.
The retailer has also held discussions with several Chinese suitors about a possible sale, but those talks have stalled following disagreements over the structure of a deal, people with knowledge of the matter said this month.
GNC’s troubles come as other retailers are also suffering from declining mall traffic and heavy discounting. Macy’s Inc. is closing 100 stores, and J.C. Penney cut its sales forecast. Weak tourism traffic prompted fashion houses Michael Kors Holdings and Kate Spade & Co. to lower their full-year earnings forecasts and reduce inventory at department stores to rein in promotions.
GNC has been battered by WalMart and Costco Wholesale Corp., which lured away customers by offering cheaper prices and devoting more space to vitamins and supplements, said Ivan Feinseth, an analyst at Tigress Financial Partners.
“There’s stiff competition out there, and lower prices are always better if you’re spending a lot on vitamins, especially because some of the niche supplements can be pricey,” Feinseth said.
GNC was a much different company when it went public in 2011, and shares more than doubled in the first year of trading. Several innovative products brought in new consumers, including diet pill Garcinia Cambogia, which was developed by TV personality Dr. Oz. GNC hasn’t introduced products that have caught fire with shoppers in the past few years, said Shah.
With annual sales of about US$2.6 billion and 9,000 locations across the globe, Pittsburgh-based GNC is the largest specialty retailer of health, wellness and performance products. Yet its size doesn’t translate into market dominance: GNC controls less than eight per cent of the US$35-billion supplement business, said Shah.
“They have to figure out a way to get people interested in going to them,” she said. “If you sell a commodity product, you would have to be the lowest price or you have to have some amazing experience.”
To that end, GNC is spending US$8 million to US$10 million on employee training and other marketing strategies to help in-store customers shop with tablets. It’s also introduced a new loyalty program to entice shoppers with incentives and a new mobile app to draw online consumers. Earlier this week, the company closed its U.S. stores for a day to overhaul its pricing.
“The New GNC leaves the old, broken model behind,” Moran said in a statement this month. “We’re confident it will have a positive impact on the business, but it will take time for the changes to take hold and translate to improved financial results.”
GNC’s next major campaign will be the Super Bowl commercial, which it hopes will raise awareness and drive interest in the brand, Moran said. CBS Corp. last year charged a reported US$5 million for a 30-second spot. That would represent eight per cent of GNC’s ad budget last year, said Sean Naughton, an analyst at Piper Jaffray Cos. He called the buy a “risky marketing decision.”