GNC (GNC) is in serious trouble.
Keep that tidbit in mind when that inevitable urge to consider buying the stock due to the company considering strategic alternatives. Buying a stock when a company announces it's pursuing some form of transformational deal or initiative is tempting. After all, it's the management team's way of signaling to the market that it understands the plight of investors and is willing to entertain different ways of doing things in order to extract value.
But, in the case of GNC, I think the announcement is complete smoke in mirrors designed by a management team trying to bide more time amid a deep fundamental upheaval in the business model and operational miscues. And it's also a decision that likely comes as the team tries to cover their butts for blowing more than $218 million in stock repurchases when they knew the first quarter would stink and the stock would absolutely plunge. Shame on those guys for emptying the piggybank. Given GNC's horrible results, cash should be preserved and perhaps plowed into vitamin discounts and associated marketing to facilitate some form of reconnection with lapsed customers.
Having been a loyal customer of GNC in the past, I think the company's continued sales challenges are not a shocker. Here are the realties behind GNC's undoing.
Uncomfortable shopping environment. A worker outside of a GNC in New York City Penn Station Monday actually came up to me while I was at least 10 yards from his store asking if I needed vitamins. Hey, I can appreciate the hustle, but this was yet another example of a very, very poor shopping experience at GNC. It's horrible because of the high-pressure sales tactics employed by GNC salespeople. You are almost attacked by store associates as soon as you enter the small store. Once attacked, the pitch begins to purchase GNC's higher-margin private label vitamins and supplements, especially the VitaPaks. Even when you manage to shake off the initial pitch, another pitch to pay for a GNC Gold Card is applied at the register. And these aren't one-off occurrences, trust me. I think people are generally afraid to shop at GNC (enter "lol") for fear of being bothered or lured into products they don't need. When I saw on the company's latest earnings release it is re-training employees I cringed. I can only imagine what selling tactics the company is now trying to employ to further worsen the shopping environment.
Grossly overpriced products. I haven't done a GNC pricing study since I was an analyst at another job several years ago. What I found at the time on GNC back then seems to hold true today and I don't need to do another study. The company, in so many key categories, remains grossly overpriced relative to the Vitamin Shoppe (VSI) down the road and, of course, Amazon (AMZN). Here is a recent personal experience. I was going to buy a pack of chia seeds at GNC, but something didn't feel right about the price on the packet. So, I left and drove to Whole Foods (WFM) for giggles, a place known for its exorbitant prices to see if it had the product and was priced even higher than GNC. There on the shelf was the identical product I found at GNC for $2 less, I kid you not. But this one example is indicative of the broader issue with GNC that continues to turn off customers: the store is too overpriced even when the company is on discount. Couple that with the high-pressure shopping environment and you better understand why sales are in the toilet.
The growth of other options. Back when GNC was rocking (think '80s and '90s), it was the basically the only place to buy supplements. After Vitamin Shoppe and online came into the mix, GNC did manage to reinvent itself by hawking vitamin packs and improving the number of grab-and-go items (think protein bars). But the company can no longer push back competitors. A local Target (TGT) has devoted one side of an entire aisle of interesting new protein bars, some GNC doesn't carry and others that GNC does carry and are cheaper. Vitamin Shoppe has expanded its grab-and-go sections and, from what I can tell, raised its game to find vitamins (which GNC doesn't have in its stores because it wants to pitch private label junk). Organic grocers have quietly entered the supplement business, selling things like clean protein (no artificial stuff) and vitamins, while also having spaces in stores devoted to healthy bottled drinks (which GNC doesn't have in the stores I visit). Unfortunately for GNC, the competitive environment is only going to heat up and I don't think the company is willing to take a torch to the layout of its stores to better cater to new consumer needs. Hence, sales will continue to suck and the company may not be able to re-franchise its store base as quickly as it has guided Wall Street.