A $5 million cut to the marketing budget has made things worse for struggling supplement retailer GNC, something CEO Mike Archbold Thursday called a “self-inflicted wound.”
Q1 same-store sales unexpectedly dropped 4.1% at company stores and 1.5% at franchises; Archbold had said in January that sales were rising and looking good for the year.
In early February New York Attorney General Eric Schneiderman sent cease-and-desist letters to GNC and other retailers over what he said was inaccurate labeling and quality issues. GNC worked out a settlement with his office in March.
It may be true that GNC has stretched its marketing resources much too thin, but hopefully it is taking into account somewhat the effects of its regulatory tussle with New York Attorney General Eric Schneiderman.
With little heavy science behind the effects or benefits of many supplements, indeed with some research saying that, for already healthy people they do little, much of their appeal is based on largely untested claims. Belief in their benefits is easily shaken if people think they’re buying inert, allergenic, or potentially harmful substances, as Schneiderman's office claims.
Perhaps that’s why GNC’s marketing cuts hurt so deeply.
“We intentionally did not deploy a full slate of marketing. ... This caused us to talk to our customers less, a lot less,” Archbold told analysts Thursday. “To be clear, this was a mistake.”