GNC to expand overseas, close as many as 900 domestic mall stores amid restructuring

By Hank Schultz contact

- Last updated on GMT

Getty Images
Getty Images
Legacy supplement retailer GNC recorded slightly higher profits amid a continued erosion of sales as the company struggles to resize itself to match new market realities.

In its second quarter earnings statement released yesterday, the company reported that same store sales fell 4.6% in the United States during the quarter. Same-store sales were down 1.3% in the international segment.

GNC, which now has Chinese state-controlled drug maker Harbin Pharmaceutical Group Holding Co. as a major shareholder, has been on a strict cost cutting regimen for several years. The company at one time had as many as 7,500 locations in the US and overseas, counting both company owned and franchise outlets.  

Shedding the shopping mall skin

Many of the company owned stores were located in dedicated malls (according to information from yesterday’s earnings call with analysts, none of the mall locations are operated by franchisees).  Traffic in dedicated shopping malls has declined in recent years, especially those that cater to mid market price points, where many GNC outlets have tended to be located (by some accounts, malls featuring the highest end shops continue to do well).

This shift in the retail landscape is one of the things that has hit GNC hard.  To compensate, the company has launched cost cutting and ‘store optimization’ initiatives.  CEO Ken Martindale noted that many of the leases at mall locations are short term giving the company flexibility to quickly reshape its store footprint.  The company now says it may close as many as 900 mall stores in the coming quarters.

In addition to shedding mall locations, GNC is developing new retail partnerships in an effort to offer its products to customers in new locations.  The new partnerships include sales of GNC products in Dick Sports Goods stores and Hudson News outlets, which sells newspapers, magazines and sundries in many airport concourses.  Hudson News has more than 1,000 locations, and GNC products are now sold in as many as 250 of them.

“Our work with new channel partners like Dick's and Hudson News, as well as long term partners like Rite Aid and Sam's Club help ensure that GNC products are available when and where consumers want to shop,”​ GNC CEO Ken Martindale said in an earnings call with stock analysts. The call was posted as a transcript on the site seekingalpha.com​.

Gains in Asia, expansion into Brazil

GNC continues to look for international expansion opportunities even as its domestic brick and mortar footprint shrinks, Martindale said. The Harbin investment includes formation of a joint venture for the Chinese market, and

“We continue to gain traction in India, have delivered our initial product shipments to our Japanese and Australian partners, and just signed a new partnership agreement that will give us a presence in the $3 billion Brazilian market,” ​Martindale said.

Getting better at online

GNC is also trying to be more nimble in its online sales. Martindale said the company has hired Ryan Ostrom as Chief Brand Officer, primarily to drive online sales.  Ostrom was previously in similar roles at KFC and Sears.

“His broad e-commerce, digital, and brand experience will be critical in developing a sharper focus on these rapidly changing customers so that we can meet their needs, serve their aspirations, and give them consistently exceptional experiences,”​ Martindale said.

Stock analysts have been mostly cool to GNC’s rebuilding efforts. Despite the hoopla surrounding the Harbin investment, which includes the JV, the stock price continues to languish at less than $2 a share, off from an all time high of almost $60 a share in late 2013.

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