GNC to overhaul in-store experience in bid to halt sales slide
The company is calling the rebranding effort One New GNC, as is calling the effort a “dramatically improved experience.” It’s part of the company’s ongoing effort to correct a disturbing trend in the business that has seen flat or declining revenues for a number of quarters, results that have led the company to fire two CEOs in relatively quick succession. The company’s current chief executive officer, Robert F. Moran, is working under an “interim” label. The company will close all of its corporate-owned stores on Dec. 28 and reopen them on Dec. 29 with new the new hardware and prices in place.
Correcting a track record of failure
The new terminals combined with the simplified pricing structure is the final step in unwinding the heavily promotional atmosphere that was instituted under former CEO Joe Fortunato, who left the company in August, 2014. Fortunato instituted GNC’s Gold Card loyalty program, in which card holders could get discounts based on how much they had purchased in prior months. But at first the cards could only be used on select days of the month, which limited the program’s appeal. As the program was expanded to better meet with customers’ desires it had a negative effect on the company’s pricing structure, with a number of different prices quoted on the same item depending on whether it was purchased with Gold Card points or if it was bought online at GNC.com. The confusion that created among consumers had a negative effect on the in-store experience, which was complicated by a cumbersome check-out procedure.
Those multiple prices also made it difficult for the company to keep track of exactly how much it was costing to buy that business. And it made inventory tracking a challenge, too; a huge overstock of certain items approaching their expiration date that had to be heavily discounted was one of the things that led to the ouster of CEO Mike Archbold, who succeeded Fortunato. Archbold left on July 28, 2016. Both his and Fortunato’s departures were characterized by financial news sources as “abrupt.”
Interim CEO Moran said the relaunch of GNC marks a new day in the business, when it can finally shed the mantle of failed policies of previous administrations.
“The New GNC leaves the old, broken model behind. 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,” Moran said in a statement.
The changes will also extend to franchise locations. GNC operates 4,464 stores of both types.
The new program also aims to reinvigorate GNC’s new product pipeline, Moran said. In addition, the company says it is addressing its inventory shortcomings to make sure that there are fewer out-of-stocks on popular items.
“Our stores have too many out-of-stocks and that is unacceptable. The fastest way to lose a customer is to be out-of-stock on a product when they want it. And as a company that manufactures a significant percentage of our products and ships from our own DCs (distribution centers), this simply has to change,” Moran said in an earnings call with analysts in late October at which the relaunch was presaged. Moran said appointing Jay Kent to the newly created position of chief supply chain officer will help clean up this issue.
Time is running short
The company’s management is under severe pressure to resuscitate the staggering retail giant. That last reported quarterly earnings statement in late October was a deep disappointment to analysts, who had anticipated that the company’s restructuring and turnaround efforts would be showing more momentum by that time. The company is still profitable, but the market reacted violently to the negative trend lines, with the company’s stock price plunging by about 20% within the first few minutes of trading on Oct. 28th. After a brief and modest rebound, the slide continued, with the stock trading at $15.13 at the closing bell on the New York Stock Exchange, for a one day loss of almost 25%. GNC's stock was trading at more than $60 a share in late 2013, and is languishing at around $13 a share at the moment.
GNC’s revenue plunged 8.1% to $628 million, compared to the prior-year quarter. Analysts had projected the revenue number would come in at about $651 million. Revenue decreased by 7% in the US and Canada, and 18.7% in stores elsewhere in the globe. Earnings were also disappointing, coming in at 59 cents a share, with analysts hoping for 71 cents.
Same store sales, including GNC.com sales, decreased 8.5% in domestic company-owned stores, or 6.4% if the online sales are excluded. The company chose to halt bulk sales in the quarter, which affected online sales. GNC said it halted the bulk sales because bulk buyers were reselling the products on other websites, undercutting the prices at its brick-and-mortar locations. Franchise sales were off even more steeply, declining 8.9% in the quarter.