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GNC: A Vitamin Stock IPO I Just Can't Swallow

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March 25, 2011 – Comments (2)

"Third Time's the Charm" is apparently a phrase General Nutrition Centers (GNC) lives by. After two failed attempts at taking the company public, the management of GNC is hoping to finally bring the company public. However, I do not believe that the stock of this vitamin and supplement company will make your portfolio stronger.

THE HARD NUMBERS

GNC [Proposed ticker (GNC)] is a chain of stores that specializes in the sale of health and specialty nutrition products. The company originally filed for an Initial Public Offering (IPO) twice while owned by Apollo Management, first in 2004 and again in 2006. Each time, GNC withdrew the IPO after weak investor demand.

The company's new owners, the Ontario Teachers' Pension Plan (OTPP), is again attempting to take the company public, this time to the tune of 22.5 million shares priced at between $15 and $17, on March 31, 2011. Could the third attempt finally mean success?

Full article

2 Comments – Post Your Own

#1) On March 26, 2011 at 3:28 PM, kdakota630 (29.56) wrote:

I'm going to be watching this ticker with some interest as I'm a competitor with GNC, just on a much, much smaller scale (I'm the sole proprietor of a single sport nutrition store).  My perspective may be slightly biased for that reason so take my opinion with a grain of salt if you like, plus I'm not too sure how GNC measures up against its brick and mortar competitors in the U.S. like it does here in Canada.

I see a few problems with GNC though.  First, typically they are over-priced and are usually the most expensive store that you'll find, and people have gotten used to that fact.  A few years ago they tried to remedy that situation and lowered their prices, particularly in cities where they had stonger competition.  They don't appear to be doing that on a regular basis anymore and haven't for years on most items.

Currently they seem to be trying to appear to be competitively priced, at least through their e-mails, which go out with the subject line reading "GNC = Largest Selection and Best Prices!"  Looking at their prices in their e-mail though and they're nothing special.  In the most recent e-mail, 4 items are GNC brand, 1 items is an older version of a product that is "improved" and another is an EAS protein which they're clearing out because EAS has stopped shipping outside of the U.S.  Of these two "Hot Buys", their price on the EAS protein is the same as I cleared mine out for, and their other is more expensive than when I cleared mine out.

Of the remaining 6 "Hot Buys", I don't carry two (although have similar products that are competitively priced), I'm cheaper on 1, similar price on 1, and they're cheaper on 2.  However, keep in mind that we're comparing their "Hot Buy" items with my regular prices.

That's their biggest problem: carrying the stigma of being "the expensive store."  People might do their first purchase or two there simply because of their visibility, but come to resent the store when they find out how badly they've been overpaying, even with their $20 Gold Card.

As mentioned in the article, they face some pretty stiff online competition particularly in the U.S.  Also, their brick and mortar stores are going to suffer when people see what pricing they can get for the same item from the same store online.  This will particularly effect the franchised stores, as at least the online sales can subsidize the corporate stores.  Perhaps getting a portion of website sales gets kicked back to franchised stores, but I haven't looked into that yet.  It appears to me that the corporate end, if they're going to be competitive are going to start cannibolizing their franchises.

The strange thing about GNC is they should be able to dominate the industry with their buying power, but don't.  They're like a big, lumbering behemoth unable to change directions despite the changes in the industry around them.

Has anyone here ever gone into a GNC to buy anything and had the sales associate know what they're talking about?  It happens, but I'm pretty sure it's more the exception than the rule.  Plus, it's almost guaranteed that they first thing they recommend will be the GNC brand.

I don't think GNC is going out of business any time soon, but I see them eventually going the way of Blockbuster video, with the only difference being that at least most of the employees of Blockbuster probably actually watch movies.

(Case in point:  while proof-reading this, a group of three customers walked in, checked my prices and said, "I guess there's no need to go to GNC anymore.  Admittedly I need to do some more proof-reading but I'm running short of time.)

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#2) On March 26, 2011 at 4:07 PM, SN3165 (< 20) wrote:

Vitamin Shoppe > GNC.  And the fact that you can buy most of the stuff they sell online at various websites, for cheaper... no thanks!

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