If there's one thing Americans learned during the Great
Recession, it's how to get more bang for the buck.
Budget-minded consumers continued to apply that lesson even as
the economy slowly recovered. Retailers of all stripes have
worked hard to feed that appetite for value.
That includes vitamin and nutritional supplement retailerGNC
), which this month began rolling out a new customer loyalty
program with an everyday variable discount to more than 3,000
U.S. company-owned stores.
Under the new "Member Price" program, customers save 5% to 50%
on every item everyday at any GNC store or on GNC.com.
The program is a simplified version of GNC's Gold Card
program, which has more than 7 million active members. Under the
old program, you paid $15 for a one-year membership and got 20%
off what you bought in the first week of every month. You pay the
same fee under the new program, but you can use it for discounts
The rollout follows a test for up to two years in selected
markets such as Chicago, New York and GNC's home base of
Pittsburgh. GNC found the program produced higher store traffic,
increased revenue and strong margins. It also saw increased
customer retention and found that new card holders made more
shopping trips spread more evenly throughout the month.
The new program is getting good reviews on Wall Street:
"The reason why I like the stock is because GNC is rolling the
member-price program out nationwide," said Brian Sozzi, chief
executive of research firm Belus Capital Advisors. "The program
will boost earnings significantly."
Sozzi says the initial rollout may hurt GNC's margins a little
in the second quarter as the program's everyday discounts are
expanded to all stores. But by the third quarter, he says, GNC
should start to see a "reacceleration" of earnings. By the fourth
quarter, he adds, it could see a significant increase in earnings
as more members join the program and spend more frequently and
more per transaction.
GNC expects the rollout to be "EPS neutral" for the year, said
CEO Joe Fortunato on the April 26 first-quarter conference call.
He expects the company's investment in the program rollout of 5
cents to 6 cents a share in the second quarter to be recovered
throughout the third and fourth quarters combined.
In new Member Price markets, GNC estimates it will see a
mid-single-digit lift in company-owned same-store sales starting
in the third quarter.
Sozzi says GNC is realizing a 1% to 3% same-store sales
benefit in those stores where the program has already
For the first two months, GNC is waiving the $15-a-year
membership fee to customers in new markets who make a purchase of
$10 or more in a store or online. The company expects to add
another 1.5 million to 2 million members after the giveaway.
"The prior program was confusing and not very customer
friendly," said Wells Fargo Securities analyst Kate Wendt. "This
is a more simplified message that we think should improve their
value positioning vs. competitors."
The new program offers GNC a number of benefits vs. the prior
one, adds Wedbush Securities analyst Kurt Frederick. Under the
new program, GNC should be able to recoup sales it may have lost
in weeks two, three and four when it didn't offer the member
discount. And its sales will be more spread out throughout the
month vs. a big sales surge in the first week of the month under
the old program.
Also, with discounts ranging from 5% to 50% under the new
program, GNC can customize the discounts based on demand and
maximize sales, says Frederick. So it may offer only 5% off a hot
seller, while under the old program it was tied to a flat
discount of 20%.
As a result of its Member Pricing initiatives, GNC is
collecting purchasing data on all of its Gold Card customer
transactions, allowing it to use targeted offers and
cross-selling opportunities like "never before," said Fortunato
on the conference call.
Sozzi says GNC is marketing directly to customers via email.
It's a way to stay in front of consumers with the new program's
strong discounts, he says, giving them reason to shop at its
stores more often.
"We anticipate greater contribution from the rollout in 2014
as GNC is able to tweak product pricing to lessen the initial
gross margin percentage drag and utilize more customized and
targeted marketing as it gathers customer purchase behavior,"
wrote Frederick in a report.
Meanwhile, GNC has been flexing its muscle on the financial
front with double-digit profit growth since it went public in
April 2011. In the most recent first quarter, earnings rose 22%
to 73 cents a share.
Revenue rose 6% to $665 million. That followed a string of
double-digit sales gains. But sales were hurt by a few factors,
including an early Easter and a difficult sales comparison with
Retail segment revenue rose 5% to $493.5 million, driven
primarily by a 1.9% increase in domestic company-owned stores vs.
a year ago.
Its manufacturing-wholesale segment revenue, which is
generated mainly by third-party sales at its manufacturing
facility and product sales to Rite Aid and other retailers, grew
19.6% to $63.3 million, which includes an 11.2% increase in
third-party manufacturing contract sales. As of March 31, GNC had
more than 8,200 locations, of which more than 6,200 retail
locations are in the U.S. That includes 958 franchise and
2,190Rite Aid (
) franchise stores-within-a-store and franchisees in 55
Wendt says GNC is gaining share from both multichannel and
online competitors. "The member pricing program should only
improve their competitive positioning, which could further allow
them to gain share," she said. The climate for GNC's business,
she adds, is very strong. "That speaks to the trend toward
healthy living, which includes their vitamins and supplements to
support healthy and active lifestyles," she said.