A prospective GNC franchise owner hired UnhappyFranchisee.com to take a look at the GNC franchise opportunity and share our concerns. Among our major concerns is decreasing same-store sales and increasing competition from online, big box and overseas retailers.
(UnhappyFranchisee.com) General Nutrition Centers, Inc. is in the middle of a strategic initiative to sell off 1,000 company-owned GNC retail locations as franchises.
This intentional effort to increase the ratio of GNC franchises to company-owned stores comes at a time when year-to-year same-store sales of franchise stores are in the decline.
GNC Holdings, Inc. claims in its tax filings that the drop in GNC franchise store sales is due to franchisees’ unwillingness to participate in system-wide promotions.
However, analysts believe that the market is saturated and brick and mortar retailers like GNC will continue to suffer lost sales to online retailers and big box discount retailers.
Of deep concern for prospective and current franchisees is the fact that the GNC franchisor is, in fact, in a position to unfairly competing with franchisees by selling the same products online with a lower price and with a much greater degree of convenience for the customer.
In the U.S., FTC regulations prohibit franchisors from providing sales or profitability representations to prospective franchisees unless it is documented in the Item 19 Financial Performance Representation section of the FDD, and they have a reasonable basis for making the claims they do. Providing an Item 19 Financial Performance Representation (formerly called an Earnings Claim) is strictly voluntary and franchisors have wide discretion in what representations they make.
In its Item 19 Financial Performance Representation section of the 2016 GNC Franchise Disclosure Document, the company reports that the average gross retail sales of the 1,020 franchised GNC stores for the period from January 1, 2015 through December 31, 2015 is $506,728.19.
The GNC FDD provides only a snapshot of top-line revenue for franchised stores in 2015 – and no indication of whether sales are rising or in decline.
However, The GNC Holdings Inc. 2015 annual report and subsequent 2 quarterly reports indicate that revenues for franchise stores has been declining for some time.
- In 2015, same-store retail sales for GNC franchises declined 2.1% from the previous year.
- Same-store retail sales for GNC franchises declined 5.6% in the first quarter of 2016.
- Same-store retail sales for GNC franchises declined 6.1% in the second quarter of 2016.
Why Are GNC Franchise Store Sales Declining?
According to a Motley Fool story in July 2016, “The health and wellness retailer’s streak of declines in same-store sales continued as comps fell 3.7% in the second quarter…”
The author pointed out that declining brick and mortar store sales are shared by GNC competitors and are likely an indication that more and more purchases are being lost to online retailers, stating
…the company’s challenges may be outside its control. With over 9,000 locations worldwide and 6,700 in the U.S., GNC seems to have saturated a market that has become ripe for disruption by e-commerce.
Rival Vitamin Shoppe (NYSE:VSI) has also seen comparable sales drop recently, indicating an industrywide trend…
GNC franchisees are prohibited from engaging in online commerce, as the franchisor has reserved that right for itself.
The franchisor has also reserved the right to compete with its own franchisees – so GNC may face increased competition from its own franchisor as the public company markets directly into its franchise owners’ local markets.
Other concerns in this series:
- GNC Franchise Cost and Concerns
- Stability of Parent General Nutrition Corporation
- GNC Lawsuits & Regulatory Actions
- Declining Same-Store Sales, Rising Competition
- Direct Competition from General Nutrition Center Parent
Click on each of the above links to read – and share your thoughts on – our concerns.
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