GNC to shutter up to 900 stores

Dive Brief:

GNC on Monday announced plans to close 700-900 stores, part of its "2019 and 2020 cost savings targets," CEO Ken Martindale told analysts on a conference call, according to a Seeking Alpha transcript.
Most of the closures will be in malls, he also said, noting that at strip centers, where 61% of its U.S. footprint is found, stores "are relatively stable from a comparable sales perspective." More than a quarter (28%) are in malls, he said.
The news came as the supplements retailer reported that second quarter revenues in the U.S. and Canada fell 8% to $476.1 million, mostly due to a 4.6% same-store sales decline that spurred a $17.5 million revenue cut. The closure of company-owned stores led to a $14.9 million revenue decrease, the company said in a press release. In domestic franchises, same-store sales in the period fell 1.8% year over year. Operating income margin expanded by 150 bps to 10.3% from 8.8% in the year-ago quarter.

Dive Insight:

Malls in the U.S., reeling from store closures that early this year already surpassed last year's total, got more bad news from GNC this week.

Coresight Research in May said that as many as 12,000 stores could shutter doors by the end of the year. Moody's Investors Service last month said that the situation will likely smooth out in the second half of the year, noting in comments emailed to Retail Dive that department stores, which tend to anchor malls, would significantly slow their closures, projecting a 4% decline compared to last year's 13%.

Even better, certain segments of retail, notably off-pricers and discounters, are opening stores. However, those also tend to be in shopping centers rather than malls. Overall this year so far, U.S. retailers have announced 7,426 store closures and 3,039 openings, compared to 5,864 closures and 3,258 openings for all of 2018, according to Coresight's most recent tally, emailed to Retail Dive last week.

"[T]he negative trends in traffic that we've seen in mall stores over the past several years has accelerated during the past few quarters, putting additional pressure on comps," Martindale told analysts on Monday. "As part of our work to optimize our store footprint, we're increasing our focus on mall locations. And as you know, we have a great deal of flexibility to take further action here due to the short lease terms we have across our store portfolio."

The retailer will "likely ... reduce our mall count by a nearly half," CFO Tricia Tolivar said on Monday's call, noting that GNC is in "a little over 800 malls today and over the long-term, we could bring that closer to 400 to 500."

That scenario "means that GNC is facing up to the reality of the marketplace as the final chapter unfolds in the death of the American everyday mall and we transition through the 'Post-Department Store Era,'" retail analyst Nick Egelanian, president of retail development consultants Siteworks, told Retail Dive in an email. "It is no coincidence that JC Penney announced last week that it has retained a debt restructuring consultant to help it deal with flagging sales and an enormous and maturing debt load — which is of course a thinly veiled hint that a bankruptcy filing is coming (despite their protestations to the contrary)."

The situation appears to be a toxic cycle: Store closures hurt mall traffic, and declining traffic hurts stores. A J.C. Penney bankruptcy would be devastating to malls, as it could lead to another 500 mall closures, he also said. "GNC is acting prudently — if not a little late."