A rebuilding GNC outlines 5 strategies to outlift the competition in 2017

PITTSBURGH - Following another disappointing quarterly performance, GNC interim CEO Robert Moran on Thursday promised to deadlift a "broken" go-to-market strategy and launch a new business model that better represents the fit, nimble and feisty specialty-channel competitor GNC needs to be.



By the end of the year, Moran pledged to deconstruct a complicated pricing strategy, streamline a supply chain pockmarked by out-of-stocks and digitize its marketing outreach with a new loyalty program, a new mobile app and associates armed with Wi-Fi-connected tablets in the aisles.



The focus will be on new customer acquisition, Moran said. "You will see a more integrated marketing strategy and storyline around the new GNC," he told analysts. "We have much work to do in order to continue this turnaround but we believe we are laying the foundational elements of it."



Moran outlined five areas of focus to improve GNC's business and launch the company into the digital age of retailing. "GNC is on a journey and will not be turned around overnight. It starts first with fixing the customer in-store experience, which has been subpar for some time," he said. "To do that, we were making investments in technology, training and management. [And] once the store experience is fixed, we need to improve our omnichannel strategy."



1. Customer experience

GNC hopes to improve the overall retail customer experience in part by improving the checkout experience. "The point-of-sale system in our stores were out of date and timed out, causing long transaction times and lost transactions, ultimately frustrating customers and associates," Moran said. "While we had previously planned for a three-year rollout of the new point-of-sale system, we have now committed to pulling it forward and will have new terminals in each corporate store by the end of January."



2. Pricing and loyalty

Moran acknowledged that GNC's tiered pricing strategy has negatively impacted the company's value proposition. "We realize that we have made our pricing strategy in the Gold Card Program very confusing to the customer. Our multi-tier pricing program often included the following cascade of prices, list, Gold Card member, non-member, promotional and different prices at company-owned stores versus online," he said. "Obviously, this is overly complicated and doesn't drive the desired consumer behaviors. More importantly, our pricing communications strategy led consumers to believe we were not competitively priced even in instances where we were," Moran said. "Our new loyalty pilot collects more customer data and better leverages the existing customer data we have to drive customer behaviors."

To improve upon its pricing and loyalty strategy, in the third quarter GNC launched a seven market pilot program that included a lower single-tier pricing model and a free loyalty card called myGNC Rewards. "We are supporting the pilot markets with the substantial radio campaign, targeted circular and an email program," Moran said. "It's early, but so far we are encouraged by the improvements that we are seeing in those markets."

GNC expects to have a full national launch of its free loyalty program in the late 2016.

GNC also stopped selling product in bulk, a practice that resulted in diverted product being sold online that undercutted GNC's value proposition. "Tbe bulk purchases were actually creating a conflict, because many of those were deeply discounted and then the bulk items were being taken to online channels that were not sanctioned by GNC," Tricia Tolivar, GNC CFO, explained. "Consumers were getting the opportunity to buy products at prices that were not appropriate and not coming into our brick-and-mortar stores, so we wanted to eliminate that opportunity for consumers and drive them into our locations."



3. GNC-branded product innovation

This is a key area for GNC, executives noted. Private label penetration is down slightliy but it's still hovering around 50%, Tolivar said. "Private brand is certainly an area that we will be exploring from an innovation perspective. We will be launching some new products in 2017 under our private label brands, late in 2016 and early 2017 to attract track new customers and drive that private label penetration and increase it going forward."



4. Digitized marketing

GNC plans to exchange a shotgun mass-outlet marketing plan for a laser-focused digital approach focused on traffic-driving initiatives, better targeting profitable customer segments and improved ROI metrics.

GNC also plans to bring a digitized shopping experience to life in its stores. "Our associates need to be storytellers and we need to equip them with the information and stories to tell, so they can become trusted advisors to our customers and further differentiate us from the competition," Moran said. "We are in the process of arming them with tablets and Wi-Fi to better service customers on purchases and provide value added services."



5. Supply chain

Moran also outlined plans to overhaul GNC's entire supply chain, naming GNC-veteran Jay Kent to the newly created position of chief supply chain officer. "Our stores have too many out-of-stocks and that is unacceptable," Moran said. "The fastest way to lose a customer is to be out-of-stock on a product when they want it. And as a company that manufactures a significant percentage of our products and ships from our own DCs, this simply has to change. We are working to improve the restocking, reordering process and systems for our stores."

In addition to promoting Kent, GNC has moved its supply-chain organization under its chief merchandising officer Tim Mantel to better align merchandising efforts with appropriate inventory levels, Moran said.

GNC reported consolidated revenue of $628 million, a decrease of 8.1% as compared with consolidated revenue of $683.4 million for the third quarter of 2015.  Revenue in the U.S. & Canada segment decreased by 7%, revenue in the International segment decreased 18.7% and revenue in the Manufacturing/Wholesale segment, excluding intersegment sales decreased 0.5%.

Same-store sales decreased 8.5% in domestic company-owned stores (including GNC.com sales) in the third quarter of 2016.  In domestic franchise locations, same-store sales decreased 8.9% in the third quarter of 2016.

As of Sept. 30, GNC had 3,512 corporate stores in the U.S. and Canada, 1,169 domestic franchise locations, 2,347 Rite Aid franchise store-within-a-store locations and 1,991 international stores.