Alive, but not well

This is the story of GNC’s declining health — and what I believe has been a failed attempt at resuscitation.

In 1935, David Shakarian opened a health food store in Downtown Pittsburgh called Lackzoom. That store was closed within a year — it was destroyed in a flood. A year later it was reopened, along with one more store. Eighty years after that, there were more than 4,000 additional stores.

Lackzoom was the original name of General Nutrition Center (GNC).

On December 28, 2016 , GNC closed all 4,464 of its stores. The company was preparing to rollout a new marketing and retail initiative in an urgent attempt to cure sputtering sales and a sharply declining stock price.

This is a timeline of the company’s history:

  • 1935: the company’s first two (and only) stores are destroyed in a flood
  • 1940–1980: alongside a health craze that hit its stride in the 1960s, GNC stores started opening across the country
  • 1980: went public (listed on the NYSE)
  • ~1985: Shakarian died; taken private and sold to The Thomas Lee Company (private equity firm) for $330M
  • 1999: sold to Royal Numico (Dutch baby food maker) for $2.5B
  • 2003: sold to Apollo Management (private equity firm) for $750M
  • 2007: sold to Ontario Teachers’ Pension Plan and Ares Management (alternative asset management firm) for $735M
  • 2011: went public (valued at $2.89B, the “darling” of that year’s IPOs)
  • December 28, 2016: all stores closed…for the day

Today, GNC is valued at approximately $1.5B.

What went wrong?

Since the mid-1950’s, GNC has located its stores almost exclusively in shopping malls. For Shakarian, that was by design. He believed that a mall provided a “captive market,’’ as even those people who do not consider themselves health faddists are more easily drawn into the stores.

That might’ve been true at one time. The problem is, malls are dying.

The potential / reach of the Internet was underestimated.

(This isn’t just true for GNC / retail. I think most people underestimate the reach (TAM) that the Internet enables for any person, not just major brands. As an example, consider fitness “influencer” Kayla Itsines, who has almost 7 million Instagram followers and an estimated worth of $46 million.)

  1. Vitamins have long been questioned for how much real health benefit they provide. Before the Internet, it was easier to sell “miracle drugs” that were nothing more than placebo. Now people can easily research everything about a product, which — if they don’t find positive reviews — can delay a purchase or put it off indefinitely. (One of the challenges GNC has faced during their struggles is lawsuits related to false product claims.) GNC doesn’t offer
  2. Ironically, while GNC is experiencing a decline, the global health and wellness sector is rapidly expanding. Companies like Lululemon, SoulCycle, Nike, Sweetgreen and more are flourishing. Working out — and eating healthy — is no longer a want, it’s a lifestyle. GNC sells products that enables this lifestyle, but GNC doesn’t have an inspiring, cult-like brand the way SoulCycle does.
  3. No matter where they’re shopping, what customers want is ease, convenience, and personalization. Shopping online offers all of these things — often at lower prices, because it doesn’t have the same overhead costs as a retail store. So companies need to offer a unique reason for people to visit. GNC doesn’t have a compelling in-store experience. Walk into any store and no matter where you turn it’s the same: shelves, products, and signage. It’s one giant box — the design of a wholesale store with retail pricing.

What they’ve done.

On December 29, 2016, GNC reopened its doors as “One New GNC”, a company where — according to their new slogan — “Now Everyone Wins”.

“The New GNC leaves the old, broken model behind.” 
 — Robert Moran, GNC’s Interim CEO

Before rolling out the refresh and spending ~$5M on an ad during the Super Bowl, GNC tested the concept in 10% of its existing stores and said “it found what customers wanted.”

What they learned during the two-year study is that pricing was a big problem. That’s what they set out to fix. But two years is a lot of time — a lot has changed since then.

“One New GNC” included the following .

  • A new loyalty program, My GNC Rewards
  • One price on all items (previously the prices were different online and off, and there were as many as four prices on each product )
  • New GNC mobile app
  • New POS terminals + sales associates equipped with tablets to provide recommendations

In reality, it’s nothing more than GNC getting up to speed with where retail is in 2017. Much of the program is online shopping ported into the store. GNC got cosmetic surgery when what they needed was reconstruction.

Why it’s not enough.

One New GNC is a good program. It helped GNC make a much-needed fix to its pricing and it brought more data and personalization to customers’ shopping experience. Customer satisfaction is up. But the essence of the company hasn’t changed in any material way.

The company closed for a day and reemerged as a slight derivative of its former self — they made an operational adjustment. Continuing to produce derivative initiatives instead of generative ones (“transformation”) isn’t going to generate long-term results. Or — to quote this HBR article directly:

Focusing on “today better” operational efforts does nothing more than create parity with the best executors of yesterday’s model. It is a recipe for short-term survival, not long-term sustainability.

Where the world is / where it’s going isn’t the same as it always was. Retail stores are no longer the place where people go to discover and purchase a variety products. That’s what Amazon does with far greater variety, lower prices, and more convenience and service (recommendations). So, that‘s one problem — the business model. Other areas GNC shows signs of weakness, where other parts of the market are growing:

  1. People want natural products with transparent pricing and real ingredients. At one time, proprietary products manufactured by GNC accounted for more than half of the company’s revenues. But questionable vitamins and factory manufactured supplements are not what people want.
  2. Because it’s so easy to order online — often with more data and information —retail companies need their store experience to become a product in itself. (It’s why you see companies like Brooks Brothers putting a coffee shop in their stores.)
  3. As much as companies are built online, communities are, too. Some of the most active ones are in the health / fitness space. Everybody wants to feel a sense of belonging, and being part of a visible, engaged “club” online helps do that. Those people become loyal, engaged customers and they tell others.

To quote Ben Thompson: The time to act was at the moment of denial, not the moment of crisis.

Where do they go from here?

First things first, GNC has to define why they must exist in the world.

“Where there is no vision, the people perish.” — Proverbs 29:18

What is the unique purpose they’re serving? What need can they address better than anyone else? What is the mission — the values — that every employee will be inspired by and that customers gravitate towards?

  • Why do we exist?
  • Where is the world going?

We’re moving into a personalized world, where companies aren’t just providers of products, they’re partners-in-crime to a person’s life. The product, service, and community should all reinforce that.

GNC is still just generic box of shelves. No personalization, no care.

A great example of a company that offers personalization in the health space is “Care/of”. Starting with vitamins, you can easily see how once they earn trust with their customers they can expand into other health-related products. And then, if they decide to open a store to for acquisition (marketing) or activation (experience), they’ll have more flexibility to do so. (Textbook DNVB playbook.)

  • What can we do best?
  • Where is there whitespace — and why?

Once they decide that, they have to determine how they live that mission. Do they want to build the best retail experience (how products are delivered), differentiated products (unique value that isn’t matched in the market), or community/brand innovator (a passionate customer base that believes in the mission of the company).

No surprise, Apple does all of these well. They provide world-class consumer products, experiential retail, and marketing that’s about values. Nike, too. And companies like Warby Parker, Rapha, and Everlane are following suit.

GNC shouldn’t think of themselves as just a store for nutritional products. Maybe they’re not a store in the future; maybe they focus on producing their own products. Or maybe they’re not making products; maybe they develop a cafe/gym/studio that also sells products. Maybe they become a platform that facilitates personal training.

That which got the company here isn’t going to get them where they want to go next.

  • What, if any, changes are needed to make today better?
  • What changes are needed to make tomorrow better?
  • By when? How?

A company is (often) started because someone is looking out into the world — they see a problem and want to fix it. When they act on that and start actually building a product/company, focus shifts inward, they start looking at themselves and what they’re doing. The problem is if they stay fixed on themselves for too long they lose sight of where the world is going.

David Shakarian didn’t start his company to deliver a return to shareholders. He wanted to provide better nutrition to people. That opportunity still exists, but the manner in which it’s manifested is not the same — nor will it ever be. GNC can take vitamins to manage their current health. If they want to find a long-term way forward, they have to change their diet.