The Vitamin Shoppe in search of new CEO

3/5/2018
The Vitamin Shoppe last week named Alex Smith executive chairman and announced the search for a new CEO following the departure of current CEO Colin Watts, who is staying with the company through the end of May to ensure a smooth transition.

Despite a strong market base, the new specialty retail chief executive will be challenged with the continued erosion of customers from in-store to online. Though, current leadership has a plan in place, Smith noted.

"Overall, 2017 yielded disappointing results," Smith said. "Over the past couple quarters, Vitamin Shoppe has begun a turnaround and signs of progress are already visible. We have also reached a mutual agreement with our CEO, Colin Watts to transition the business to new leadership by May. During this time, the entire organization will be committed to implementing the New Base Plan developed by management. In my new role as executive chairman, I will work closely with our leadership team in that effort while we execute our search for a new CEO."

In a conference call with retail analysts, Smith and Watts contended that the underlying wellness market dynamics were strong. "As we built our new plan, we started with a deep analysis of the wellness market and the wellness consumer," Watts said. "The market for wellness continues to have very attractive attributes, including solid underlying growth projected by multiple sources to be high-single digits, driven not only by baby-boomers' obsession with quality of life, but also millennials and Gen Zers who're spending even more than their parents on wellness, fitness and better-for-you products."

"We're facing the same situation we have for most of 2017. The vast majority, over 80% of our decline sits in the sports and weight management business," Watts said. "The VMS side of the business continues to be fairly stable as we move forward."

And, he added, product innovation and convenience offerings across juices, bars and RTDs represent a lot of promise. "We're also seeing new brands with rapid growth profiles bringing new excitement to the market, particularly in the areas of functional foods, sports nutrition and lifestyle categories such as aromatherapy and natural beauty," he said.

The challenge for the incoming CEO will be in capturing the wellness consumer as their shopping patterns continue to evolve. "While the wellness market itself continues to grow, what has changed is the way consumers navigate and shop this market," Watts said. "The wellness customer, while still purchasing the majority of their products at traditional retail stores like ours, are rapidly shifting the way they discover, navigate, decide and ultimately ascribe loyalty based on aggressive adoption of mobile, Internet tools and social media."

Smith and Watts are currently implementing a new strategy dubbed the "New Base Plan" that they expect will establish The Vitamin Shoppe brand as consumers' wellness authority.

Own brands is another area of promise for the supplement retailer. "Our continued focus on private brands is driving increased penetration, up 95 basis points in fourth quarter 2017, and 110 basis points for the full year," Smith told investors last week. "During the quarter, we re-launched our MyTrition line with new packaging and products; and earlier in the year, we introduced new innovation across multiple brands. We are seeing particular success with the plnt brand, up 25% and the ProBioCare brand, up 10% in 2017."

Private label currently accounts for 22% of The Vitamin Shoppe sales. "In 2018, we'll be introducing several unique product lines or exclusive waivers from top vendors to increase the level of innovation and differentiation of our assortment in a heavily competitive market," Watts said. "A couple of good examples include unique flavors of the rapidly growing Bang ready to drink line and the recently launched Jay Cutler line of sports nutrition products, both of which are exclusive to The Vitamin Shoppe."

The Secaucus, N.J.-based specialty retailer posted total net sales in the fourth quarter of $268.8 million, representing a decline of 11.8% compared to $304.9 million in the same period of the prior year. Total comparable sales were down 4.6% in the quarter or down 3.2% adjusting for the timing of the Christmas holiday.

The specialty operator opened three stores in the quarter.

Smith was named to the Vitamin Shoppe board almost one year ago.  Prior to being named to the board, he had served as president and CEO of Pier 1 Imports, a specialty home furnishings retailer. And from 2001 to 2007, Smith served as group president of the TJX Companies where he oversaw the operations of Home Goods, Marshalls and TJ Maxx. He was also instrumental in the development of the TK Maxx stores in the United Kingdom as well as running the company’s international operations.

For the prior 20 years, he held positions of increasing responsibility at other retailers including; Lane Crawford, Owen Owen and Harvey Nichols in the U.K., Hong Kong and Singapore. The Vitamin Shoppe board selected Smith as a director due to his experience in retailing and brand management, including his extensive public company experience as a senior executive and director.

Also serving on the Vitamin Shoppe board is Tim Theriault, former chief information officer, Walgreens Boots Alliance, who was named to the board in 2016.

 
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