GNC & The Vitamin Shoppe: What is the Future of Physical Retail?
The two biggest brick and mortar specialty retailers, within the nutritional supplements space, have been having a few tough years. GNC and The Vitamin Shoppe (VSI) have both seen about a 10% decline since FY2016.
Though they share a similar downward trajectory, both businesses have their own set of challenges and opportunities. Regardless, at the core, they are both trying to answer the same question…
What is the future of physical retail? More importantly, how do we fit in that future?
As foot traffic into physical retailers has naturally decreased (for most), resulting in negative same store comps and revenue, much of the retail world is trying to shift their focus to a “new metric”…
This new metric is called “First Product Search”
Today, around 50% of “first product searches” start on Amazon. To be honest, that is a major problem for specialty retailers like GNC and VSI, that are shifting to a stronger digital focus. Amazon is becoming the default consumer goods search engine. In many consumer categories (like health), Amazon is becoming the ONLY retailer that customers are choosing…
As the retail industry looks forward to digital, maybe GNC and VSI should be looking at enhancing the assets they have first before joining another “Rat Race” they can’t win against the likes of Amazon without a strong focused customer experience strategy.
What are these assets that I speak about? They are the double-edged sword that we call Physical Stores Locations.
Digital can’t fully replicate the experience physical store locations “could” provide to customers, especially in the intent driven world of nutritional supplement and functional CPG.
That being said, lets get this point straight, GNC and VSI both have too many store locations. GNC has announced it is addressing this fact and I believe VSI will address this in 2019. Reality is, the store counts ballooned past what is needed in the current omni-channel retail environment.
After these store optimization plans are fully implemented, the remaining stores ALL need to be improved drastically…
How? That still seems to be the question that both are trying to answer (and honestly all retail is trying to answer right now).
What are both retailers doing right now to improve their physical retail locations? They are focusing on “experiential” retail…
- Smoothie Bars
- On-Site Nutritionists
- Body Composition Tests
Experiential, like many buzzwords in the future of retailing, is still being defined fully and will need to be applied differently to each individual situation. How will customers value on-site dietitians? Will it be above the cost to staff them? This is honestly unknown at this early stage and will take extensive testing and these retailers individually looking at those feedback loops for the answers. These added costs will only be justified if they can change the wave of buyer behavior that is happening with the “digital shift”.
Similarly (and more importantly in my opinion), GNC and VSI are both focusing on technology and creating ecosystems that use customer information to better enhance the buying experience.
The Vitamin Shoppe is focused on Spark Auto Delivery (their subscription program) and the Healthy Rewards program.
GNC is focused on getting more customers into their now free Gold Card rewards program and trying to upgrade them to the Pro Access rewards program that is showing strong sales growth per customer. On top of that, GNC also launched a personalized nutrition platform called GNC4U that uses an at-home DNA test to customize supplement and nutrition programs.
This area of improvement is more valuable long-term for retailers, as it can be also used in the shift to digital. As you can see, strides are being made at GNC and VSI, but it’s going to need to be continuously improved at a breakneck pace to show material improvement to a dire situation.
So, what can these retailers do with the physical store footprints now and not add extra risk layers like in the “experiential” retail tests?
Improve usability of the stores from a fulfillment perspective…
Instant gratification has always been a major reason that physical retail wins against digital. Physical retail has had a stronghold on this powerful human desire but things have changed recently as acceptable digital shipping windows have went from 3–5 days, to 2 days, to same-day, and now two-hours or less.
With physical retailers losing that key advantage, where do they look next?
Take inspiration from one of the hardest hit but fastest adapting physical retail channels to digital adoption…grocery!
Grocers are using the power of instant gratification and pairing it with digital. This hasn’t been without heartburn and headaches but changing long-established business models never is easy.
To be honest, the challenges facing grocers and specialty nutritional supplement physical retailers are not all that unlike and from the same competitor. One key area that most experts will point to is that grocery is all about fast-moving consumer goods (FMCG). Supplements are traditionally not a FMCG that needs quick replenishment. But, recent product trends point to them converging…
GNC and VSI are now selling a great deal of functional foods (RTE) and functional beverages (RTD). As the product trends push the sales mix toward these low-priced, high volume goods, looking at the grocery channel’s recent moves would be paramount…
- On-Demand Shipping — these retailers shouldn’t build there own final-mile solution but instead partner with Postmates, Shipt, or Instacart. The goal here is to provide options for the Millennial shopper that demands convenience and shopping on their terms.
- Click and Collect (or BOPIS)— this is the key strategy for grocers and many other physical retailers in the current digital shift. It helps give the best of both worlds that defines omni-channel. The Vitamin Shoppe recently launched this and word on the street is GNC is finalizing their strategy.
- Micro-Shipping Points — both retailers need to re-imagine the square footage of the physical retail locations. The store layouts can be looked at differently to provide picking and packing stations to fulfill website orders that are routed to closest store locations. This cuts down on shipping times and extra costs that come from only having a small distribution center network.
(Note — these improvements will need to be accompanied by store layout changes that allow for quick in/out of on-demand services or click-and-collect customers. In the same regard, micro-shipping and click-and-collect will create additional needs for picking, packing and scanning stations.)
