In a press release issued Thursday, supplement retailer GNC announced that its CEO, Mike Archbold, has left the company. It’s been just two short years since Archbold took the reins from former CEO, Joe Fortunato, after poor earnings and a negative outlook prompted his ousting.
Well, it appears as though Archbold was unable to right the course of the ship to the satisfaction of GNC shareholders and the board has decided to take action. What happened to cause this? Wall St…
Archbold’s abrupt departure was prompted by an earnings miss which sent GNC’s share price down by about 20% in just a couple of days to just above $20/share, the lowest it’s been in years.
This comes after a long, painful year of missed earnings, lowerered guidance, and the subsequent share price drops that those types of announcements generally cause.
But is two years on the job really long enough for somebody new to come in and change things around completely? Probably not, but any publically traded company is controlled by the shareholders—not the executives—and most shareholders are short-term thinkers who don’t want to wait more than two quarters to make money, let alone two years.
Since the board of directors is responsible to the shareholders, their short-term thinking leads to a phenomenon whereby CEOs of publically traded companies make irrational short-term decisions that place the next quarters earnings above the long-term health of the company. In the case of GNC, this took the form of an absurd pricing strategy and a horribly executed loyalty program.
Are You Really Surprised?
If you’re an industry insider, you may have seen this coming. Trouble has been brewing at GNC for many years and while Archbold certainly didn’t create the massive problems that now seek to destroy the company, he didn’t do much in the way of preventing them or even slowing them down.
Revenue for the past year came in at $673.2 million, representing a slight (2%) decline from the year earlier. You don’t have to know much about finance to understand that declining revenue is just about the worst indication a publically traded company can give shareholders. Even stagnant revenues will spook investors, but GNC has clearly demonstrated it has no idea what it’s doing.
Robert F Moran, who has taken on the role of Interim CEO while the company sorts out it’s priorities, made some statements which indicate he’s at least aware that the company’s pricing strategy needs to change, but will he be able to fix the real issues?
Understanding The Bigger Picture
GNC reported revenue of around $670 million and saw same store sales declines of over 3% in company owned locations and nearly 7% in franchised locations. When it comes to franchising, momentum is key. When a company is on fire, everyone wants to open a franchise location and capitalize on the brand, but as soon as the brand is no longer perceived as dominant, the franchisees get discouraged.
Any company that relies on franchising as a primary means of expansion needs to focus on maintaining (or building) the brand image. Needless to say, GNC hasn’t done this well.
But maybe the problem is bigger than brand image…
Wake Up GNC! Embrace The Internet!
GNC’s biggest issue isn’t its aggressive pricing model or poorly executed loyalty program. There are plenty of successful companies out there that have stumbled in these areas as well.
No, the real issue is the company’s refusal to embrace the low cost efficiency that the internet offers to all businesses. Meanwhile, companies like Amazon continue to steal their customers out from under them due to the simple fact that they don’t need to leave their houses anymore to get the items GNC sells AND they’re probably cheaper online.
A basic look at GNC’s website indicates that they have a very low budget for anything related to web development but the company continues to believe (for some reason) that brick and mortar retail locations are worth investing in.
It’s crystal clear that ALL RETAIL STORES are taking a beating. It’s not just GNC. Anyone who owns a brick and mortar store, and is depending on customers walking in on their own two feet, is feeling the pain. The smart supplement retailers just use their retail locations as a warehouse and have developed robust online platforms upon which they can sell their products to anyone in the country.
Will the company get it together this time around? Or will the “retail veteran” executives who run it simply keep refusing to acknowledge fundamental shifts in consumer behavior, ultimately resulting in the collapse of this once iconic brand? Only time will tell.
GNC will collapse. It will be a slow collapse which will occur over the course of the next few years, but there is no hope for a supplement retailer that genuinely believes brick and mortar is the future of retail. The reality is that supplements can be too easily purchased online for any brick and mortar retailer to continue to dominate unless they also embrace technology and utilize their brick and mortar locations in different ways.
GNC might argue that its employees are an asset because customers turn to them for information, but we all know 9 out of 10 GNC employees know very little about supplements. It’s just a sales job to them and it appears as though the general public is tired of being ripped off and left disappointed.
Even Bodybuilding.com is showing signs of trouble and this is a company which was built 100% on the internet, by a true entrepreneur, and has done so many things right in such as a short period of time. Truth is, Amazon is just too powerful at this point and all traditional retailers will collapse unless they seriously change their business models.