GNC, along with The Vitamin Shoppe, were the two huge publicly traded supplement retailers with massive store footprints that dominated the market from the 1990s through to about 2014. The goal for both companies was to get as big as possible in order to acquire as many customers as possible. Each bought out competitors’ chains and/or opened new stores at a rapid pace to capture additional market share.
In GNC’s case the company was still in acquisition mode as recently as 2013 when it acquired UK brand Discount Supplements. But cracks started to show in how the company was using its discount card program to acquire new customers and how much that program cost the company.
Falling sales, underperforming stores
GNC recorded $690 quarterly revenue in mid 2016, but it has been downhill since then. GNC’s most recent quarterly statement showed about $500 million in top line revenue.
Many of GNC’s stores were located in shopping malls, which is a type of commercial development that seems to be waning in the United States. Decreased foot traffic equates to decreased sales, and the company announced in late 2018 it planned to close as many as 900 stores by the end of 2020 while still planning an overseas expansion and seeking to restructure its debt.
Joshua Schall, an accomplished management strategy consultant, said GNC's primary difficulty in trying to manage its restructuring has to do with being a public company.
“Public markets do best with growing companies,” Schall told NutraIngredients-USA. “When you don’t have that growth outlook a public market is not where you want to be. You have this need to meet certain metrics quarterly, and do things which are sometimes counter to what you need to do to make sweeping changes.”
Schall said some of the things a company like GNC might have to do to restructure its business operations might cause short term financial hurt. That’s difficult to do when there are traders out there eager to short stocks and spread negative information about a company in the process.
“That might sway vendors away from doing business with your company. And for consumers it might make them start to think, I should buy my supplements somewhere else,” he said.
Back half of the store driving the whole
One thing GNC historically brought to the table is comprehensiveness. The store featured a wide variety of supplements which were hard to find elsewhere, especially in the sports nutrition sphere. While that was one of the company’s strengths, it was also a built-in weakness, Schall said.
“The back half of the stores were traditionally where the sports nutrition products were stocked at GNC. But that back half started to drive the bus, and it created a perception that GNC was a store geared toward males and muscle heads,” Schall said.
“Ironically, those customers are the ones that moved away from GNC the fastest and moved toward self directed purchases on Amazon or wherever,” he added.
Betting on energy drink sales
Schall notes that GNC has recently embarked on a ‘Dollar Days’ promotions in which it is selling cans of the performance energy drink brands Bang Energy and Cellucor C4 Carbonated for $1 each. Schall said he believes that GNC would be able to drive concessions from the manufactures to come close to breaking even on the sales.
The real reason for the promotions, Schall said, is to reacquaint a new cadre of consumers with the stores and get them to sign up for the company’s new discount card program. The old GNC gold card program was hard to understand and hard to use, but Schall said the new version is much more streamlined.
And to succeed in the future, any discount program will need to be tailored to individual customers’ needs, Schall said. The days when a retailer could dictate the terms of the deal—including charging for the privilege of saving money on purchases—are for the most part over, he said.
“The expectation is that these programs are free and that they are also easy to understand. And consumers want them to be personalized to them, to give them a specific benefit to shop at a particular retailer,” he said.
GNC, for its part said it's not about energy drinks or discount programs per se.
“GNC is a health and wellness destination. We cater to everything from supporting daily nutrition needs to everything for an active athlete lifestyle. Our strategy for growth is clear. It’s not about any one product. It’s about our tailored customer-first approach – exemplified by our GNC Coaches. We’re helping consumers make informed choices for a healthier lifestyle in whatever way they choose to live well,” the company said in a statement released to NutraIngredients-USA.
Changes in weight management category
Another thing GNC is dealing with, including the shifts in the sport nutrition realm and the general move of retail sales to online platforms, is the changes in the weight management category, which was another stalwart lineup of SKUs for the company in the past.
“I think the whole category is changing. People are not wanting to label themselves as fat. People are starting to think about weight management, self care and wellness in a more holistic manner, and moving away from the notion that bing skinny is the only way to be sexy. There are different images out there now about what it means to be healthy and happy,” Schall said.
Part of that idea could be seen in the recent backlash against the Peloton stationary bike ad that was widely aired on national TV just before Christmas. The ad showed an already very slender model as being grateful to her significant other for getting her the exercise machine so that she can get into even better shape. The marketing campaign became something of a black eye for the company.
“In the past everyone was looking for this magic pill that was going to make them loose weight and GNC was a big beneficiary of that. You had to buy those kinds of things at GNC, and weight management products are traditionally one of the highest margin products out there,” he said.
Schall said many of these products were overhyped in their marketing, which created a perception in some quarters that they don’t work. But Schall added that many of these ingredients are in fact backed by clinical data, but the moderate effects found in clinical trials could match up to what the ads claimed.
“We are in the age of information and anyone can figure out what works and what doesn’t. It’s not that these fat burners didn’t work. It’s that the ads had sensationalized these effects,” he said.
Schall said the energy drink promotion capitalizes on a popular category. He said he expects it to succeed in bringing new customers through the door. Schall said that RTE foods and RTD beverages are becoming an ever more important part of the product mix, as GNC stores start to resemble convenience stores but with healthier offerings.
But will those efforts help stem the bleeding quickly enough at GNC? Schall said he believes it will be an effective strategy that can yield short-term benefits, but is unlikely to be the sole reason to stop the bleeding. He said the most likely scenario is GNC eventually exiting the public markets altogether.
“GNC has already sold off their manufacturing arm, and sold their future business in China (via a deal with Harbin Pharmaceutical Group). They don’t have much left to sell. I think where this ends up is with GNC going private,” he said.