Add GNC to the list of retailers too fragile to withstand the stress on their business from the COVID-19 pandemic.
GNC’s parent company, GNC Holdings Inc., filed for Chapter 11 bankruptcy protection late Tuesday, and the health and wellness retailer said it plans to close “at least 800 to 1,200 stores,” or approximately a quarter of its North American fleet. GNC was slammed by yearslong sales declines that made it impossible to meet enormous debt obligations coming due this year.
The company joins the ranks of J.C. Penney, Neiman Marcus, J.Crew, Stage Stores, and Tuesday Morning—debt-laden retailers filing for bankruptcy protection after being pushed over the edge by weeks of closed stores during the pandemic.
While GNC stores are small in size, typically between 1,000 and 2,000 square feet, there are too many of them in relation to the company’s declining revenues. In 2019, GNC net sales were $2.1 billion, down from $2.7 billion four years earlier. Much of that sales decrease has come as consumers have increasingly turned to purchasing vitamins and other nutritional products online. The bankruptcy gives GNC the opportunity to quickly shed stores, many of which are in malls where shopper visits have long been in decline.
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“This acceleration will allow GNC to invest in the appropriate areas to evolve for the future, better positioning the company to meet current and future consumer demand around the world,” the company said in a statement.
The chain sells health and nutrition products such as vitamins, supplements, minerals, herbs, sports nutrition, and diet and energy supplements and earns 88% of its revenue in North America. In addition to its own stores and those run by franchisees, GNC has mini-shops at 1,600 Rite Aid drugstores, a chain with its own sales problems.
At the close of its most recent quarter ended in March, GNC had $895 million in long-term debt coming due this year and reported a net loss of $200 million, creating an untenable situation. And that was before the full impact of COVID-19, which closed 30% of its stores.
GNC’s case is the classic tale of a brick-and-mortar retailer getting its e-commerce business going too late. Online sales rose 25% last quarter but were too small of a business to make up for the huge declines in-store.
The company is starting its sale process in bankruptcy court with a potential bidder—an affiliate of its largest shareholder, China-based Harbin Pharmaceutical Group Holding—making a starting offer worth $760 million, as GNC looks to reemerge from Chapter 11 as a viable company.