Vitamin Shoppe Turnaround Tools Include Auto-Delivery, Price-Matching
This article was originally published in The Rose Sheet
Executive Summary
The firm has looked to boost sales through a retail re-invention strategy for improving customers' shopping experience with better store layouts, product assortment and website improvements. Now it’s using tools “directly focused on customer acquisition, price/value and customer retention,” CEO Colin Watts says.
[Vitamin Shoppe Inc.] is opening a kit of sales-boosting tools, including auto-delivery and price-matching, to stem an 8.4% drop in net sales in its latest quarter and a nearly 60% drop in its share price this year.
The nutritional and health and wellness product manufacturer and retailer on Aug. 9 reported 70% of its sales decline in its fiscal 2017 second quarter was in sports supplement sales, where CEO Colin Watts says there is an “historically high level of competitive activity.”
“It became increasingly clear our level of marketing spend and promotion are not enough,” Watts said during Vitamin Shoppe’s same-day earnings briefing.
While the Secaucus, N.J.-based firm since late 2015 has looked to boost sales through a retail re-invention strategy for improving customers' shopping experience with a better store layout, product assortment and website improvements, it now is making changes that give customer more options. (Also see "VSI, MP Q1 Results: Health And Wellness Industry News" - HBW Insight, 15 May, 2017.)
Watts said the tools are “directly focused on customer acquisition, price, value and customer retention.”
Vitamin Shoppe’s Spark subscription auto-delivery program, accessible online and in-store, drove 60% average sales increases in test stores during the first quarter and spending by customers using the program since the beginning of the year grew 90%, the firm said. It is being extended across its stores during the current quarter.
Auto-delivery subscription users sign on for regular deliveries, usually monthly, of products and are billed automatically with each shipment. The programs are an effective tool some manufacturers are using to take customers from generally larger competitors that sell predominantly through stores with some e-commerce, but with few auto-delivery offers. (Also see "OTC Drug Firms' Online Subscription Sales Would Jeopardize Retail Partnerships" - Pink Sheet, 8 Sep, 2016.)
Vendor Tools, Too
In addition to rolling out sales-driving tools, Vitamin Shoppe announced its "platinum vendor relationship" program, launching with bringing Healthy Natural Solutions LLC’s Nu Life Therapeutics brand supplements to the US.
Vitamin Shoppe on July 26 said it offers its PVR program as an incubation partnership to a limited number of vendors to provide their brands with enhanced visibility in stores and online, greater access to the firm’s in-store representatives and additional opportunities to participate in its marketing programs. In the Healthy Natural Solutions partnership, Vitamin Shoppe receives increased financial commitment from the Canadian firm and brand launch exclusivity.
Nu Life, available for more than 50 years in Canada, includes 18 products across categories including multivitamins, bone and joint and heart health, digestive health aids, and women's and men's health.
Vitamin Shoppe market research shows “particularly with our younger customers … a strong uptick in interest in subscription-based fulfillment in our category offering better convenience and savings to our loyal customers,” Watts said.
Spark will include a 10% discount on some products and a quarterly box of free samples, award twice as much in loyalty points to customers’ accounts and allow users to rapidly change their orders.
The firm is targeting sports nutrition sales specifically with another sale-driving tool, its KVI – key value item – strategy of reducing prices across the most competitive categories. KVI is increasing store traffic and customers’ overall purchase amounts.
Additionally, its “Shop with Confidence” tool allows store clerks to meet lower prices that customers find competitors are offering for products; a four-month pilot program increased unit sales 5%, the firm said.
Share Price Drop Continues
Watts says the firm and its retail managers have high expectations for results from its new tools, which were announced at Vitamin Shoppe’s national conference in July.
“Our front-line leaders recognized that this new program empowers them with more tools to deal with the new competitive landscape and build and maintain their relationships with their customers,” the CEO said.
COO Leaves After A Year
Vitamin Shoppe’s turnaround attempt won’t have Jason Reiser as chief operating officer.
Reiser was hired in July 2016 as the firm’s first COO and as an executive vice president and had overall day-to-day responsibility for store operations, merchandising, supply chain and information technology and for leading those teams through implementing its retail re-invention strategy. (Also see "Executive Decisions Roundup: CHPA And AHPA Boards, Vitamin Shoppe COO" - HBW Insight, 20 Jun, 2016.)
However, according to a June 22 filing Vitamin Shoppe made to the Securities and Exchange Commission, Reiser resigned from his posts Jun 17 in a decision that “was not the result of any dispute or disagreement” with the firm.
Vitamin Shoppe was due to point new tools at spurring sales growth as more vitamin and supplement sales are going to drug, grocery and mass-merchandise retail chains and [GNC Holdings Inc.] is generating growth with the streamlined pricing and free myGNC loyalty program it launched in January. (Also see "'New' GNC Tag Sticks With Turnaround Results Still In 'Early Days'" - HBW Insight, 28 Jul, 2017.)
Deutsch Bank Market Research analyst Shane Higgins, in an Aug. 8 note previewing Vitamin Shoppe’s earnings statement, pointed out its share price is down 58.5% through year-to-date and there’s little evidence pointing to an end to the ride.
“Despite a depressed valuation, we continue to have concerns around [Vitamin Shoppe’s] ability to stabilize its business as it undergoes its re-invention strategy,” Higgins said.
The firm’s second-quarter results sent the share price down 36.5% to end the day at a record low, $6.10
It reported $304.8m in net sales on a 7.6% slip in in-store sales and 20.2% drop in sales from its website. After generating $10.4m in net income in the year-ago period, Vitamin Shopped reported a net loss of $156.6m; the earnings loss per share was $6.73, compared to a 44-cent EPS gain a year ago.
It revised its 2017 same-store sales outlook to negative mid-single digits from previous guidance of negative low- to mid-single digits.
Vitamin also announced it will close its North Bergen, M.J., distribution center, its longest operating center, when the lease expires in a year. The firm expects that transitioning supply chain operations from to other centers to be substantially completed by the end of 2017. It expects to incur charges of around $4m, with $3m incurred in 2017, from the facility closing, and to gain savings of $4m to $5m starting by the second half of 2018.