GNC bets on ‘experiential’ prototype store as Hayao investment starts to take hold

By Hank Schultz

- Last updated on GMT

GNC image of new store concept.
GNC image of new store concept.
Embattled supplement retailer GNC enters 2019 with a new prototype ‘experiential’ store that is part of an ongoing effort to revamp its huge brick and mortar network.

GNC has been struggling with falling revenue and profitability for several years. The last quarter of revenue growth the chain reported was in the fall of 2015; earnings have been on slide every quarter since. Earnings declined more than 5% in the most recent quarter and the company's share price took a 21% hit the next day. GNC’s shares have now declined from a high of more than $60 a share in late 2013 to about $2.55 today.

Paring back the store footprint

A key point of weakness for the company has been a misfit on its footprint of stores. GNC has been seeking to close stores in underperforming shopping malls. Earlier in 2018 CEO Ken Martindale announced a plan to close 200 stores throughout the year​. As of March of last year, the company had more than 7,800 locations in the US, Canada and other global markets. At the same time closure plan was announced, Martindale said that a ‘limited number’ of new stores would be opened in the remainder of 2018.

One of those is the prototype store, which debuted in a Pittsburgh shopping mall in early December. The store appears to be focused on capitalizing on the personalized nutrition trend within the dietary supplement industry.

According to GNC, the store features a ‘Smoothie Lab’ in which customers can buy made to order healthy drinks and purchase grab-and-go snacks and other prepared foods. It also offers body composition analysis via a smart scale and the services of an in-store registered dietitian for free diet plan consultations.

“This experiential store represents the continuous innovation and consumer-focused mindset that is the foundation of GNC,”​ said Joe Gorman, GNC’s executive VP of operations. “We are focused on providing a personalized approach to wellness and now GNC consumers have the opportunity to experience this firsthand and connect with us in a truly customized way.”

New modes of engagement

Martindale said the Pittsburgh concept store could lay the groundwork for the transformation of the company’s other locations. GNC has been seeking better modes of customer engagement ever since stepping away from a heavy reliance on the loyalty card pricing strategy it had pursued up to about mid 2014 under the leadership of former CEO Joe Fornuato, who was abruptly ousted in August of that year. The strategy had driven rapid growth in the years after GNC went public in 2010. But it proved to have high hidden costs and resulted in a confusing mishmash of prices on the shelf.

“This store gives us an opportunity to learn from our consumers and get a better understanding of their engagement with specific concepts,”​ Martindale said “We hope to leverage these insights to inform our retail strategy in other locations.”

Hayao investment details hammered out

GNC also enters the new year with a huge investment secured from Harbin Pharmaceutical Group, also known as Hayao. The $300 million investment had been announced in early 2018, but negotiations dragged on, and the intial $100 million tranche was only agreed upon in November. A subsequent $50 million tranche was set for Dec. 28, and a $150 million tranche is planned for Feb. 13, 2019.

With the completion of the negotiations, which included five seats on GNC’s board for Hayao representatives, GNC has now embarked on the formation of a joint venture with Hayao with the purpose of marketing GNC products in Hong Kong and in mainland China.

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