The development is not unexpected, as the firm was reported earlier this month to be in negotiations for a debtor in possession loan to carry it into bankruptcy. That loan helped the company push back a June 15 liquidity deadline. But other debt deadlines loomed for GNC which has been hamstrung by coronavirus-related store closures.
According to Bloomberg News GNC is entering the bankruptcy process, which was filed in Delaware, with a twofold plan which would allow it to restructure its debt and close hundreds of underperforming stores as well as to negotiate with its buyer.
Harbin submits $760 million ‘stalking horse’ bid
The potential buyer also comes as little surprise. GNC is reportedly negotiating with a subsidiary of Harbin Pharmaceutical Group Holding Co., its largest shareholder. The company had already invested $300 million into GNC. Harbin will serve as the so-called stalking horse bidder.
According to Bloomberg the initial agreement puts a value of $760 million on GNC. That valuation is subject to a bankruptcy court judge’s approval. A higher bid could potentially be submitted and approved.
As many as 1,200 stores could close
GNC reportedly has support from its largest vendor, IVC, and other lenders. The company’s standalone plan calls for the closure of 800 to 1,200 stores. The company had been trying to close stores in underperforming locations before the pandemic crisis hit. The potential finish for the restructuring process and/or sale has been set for sometime this fall.
GNC has struggled with falling revenue for a number of years. The changing patterns of the retail landscape caught the company flat footed, with hundreds of stores located in underperforming shopping malls, most of which have been shuttered anyway during the pandemic lockdowns. The bankruptcy filing will presumably make the process of shedding those locations easier, as leases will be easier and less costly to abrogate.
Changes in sports consumer base
GNC also was out of step with changes in its core market. For many years the company’s stores were thought as the place to go to purchase the latest, cutting edge sports nutrition products. But as industry strategy consultant Josh Schall has noted, those consumers were among the first in the dietary supplement realm to start to look for and buy a lot of their supplements online.
GNC has made progress with its online retail presence. Online sales reportedly were up by 25% in the most recent quarter. But in the past the company has used its online presence mostly as a way to try to drive additional traffic to its brick and mortar locations.