Dive Brief:
- Vitamin World, a retailer of vitamins and health supplements, filed for Chapter 11 protection on Tuesday. In a federal court filing, the company said it has identified 51 stores it wants to close during the bankruptcy process. As of the filing, the retailer operated 334 stores in all, mostly in malls and outlet centers, and employed nearly 1,500 people.
- Vitamin World has already closed 45 underperforming stores since early 2016, when it tapped RCS Real Estate Advisers to review its "above market rents." That saved the company $2 million in profit, according to court documents. But it wasn’t enough to stave off bankruptcy and, as the retailer’s CEO previously told media, not all landlords would play ball as Vitamin World tried to negotiate rents and leases.
- Vitamin World Chief Financial Officer Frank Conley said in a court filing Tuesday that the retailer also suffered "significant supply chain and ingredient availability issues" that hurt sales and crimped liquidity during the transition away from its previous owner, NBTY Inc., a supplement manufacturer. The company owes a total of $14.4 million in accrued interest on secured debt and another $9.5 million on a seller note originating from the company’s 2016 buyout by a private equity company. The retailer’s inventory is valued at around $30 million.
Dive Insight:
Vitamin World's filing comes not even a week after CEO Michael Madden told Reuters and other news outlets that his company was preparing for bankruptcy as a last resort to shed expensive leases that were hurting the company’s balance sheet in a world of declining mall traffic.
"While a handful of landlords cooperated, the vast majority have not," he told Reuters in a statement, referring to his company’s efforts to review and rationalize its real estate portfolio. "At this time we have no other option than to restructure the company’s real estate portfolio by filing for Chapter 11 protection."
He added, "This action will empower us to move forward as a stronger organization that can and will continue to service our millions of loyal customers with premium offerings via retail and online channels."
Founded in 1977, Vitamin World previously operated under the umbrella of NBTY, until last year when it was sold to private equity firm Centre Lane Partners and became a stand-alone retail business. That transaction was worth $25 million, according to Reuters. Today, the company depends heavily on its loyalty program. Vitamin World’s "Savings Passport Club," which gives customers discounts and access to special events, has more than one million members and accounts for 96% Vitamin World’s sales, Conley said in the Tuesday filing.
Costly leases and overextended store footprints, combined with a sales slump, have created a crisis for numerous retailers this year. Mall-based niche retailers like Payless, rue 21, Gymboree, True Religion, Papaya Clothing and Perfumania have all used the Chapter 11 process to shrink their store footprint and rid themselves of unprofitable stores and leases.
Should Vitamin World indeed emerge from bankruptcy smaller and nimbler, it will still face a tough environment for selling health supplements. Late last year, rival GNC briefly shuttered all its stores in an ambitious rebranding that came after the new CEO Robert Moran found "a badly broken business model in need of change" in the retailer he'd taken over. (The arrival of Moran, followed the abrupt resignation of previous CEO Michael Archbold last summer.)
Supplements in general are under scrutiny from public health officials and state attorneys general. Faced with mounting concerns over the effectiveness of its signature dietary supplements — which culminated in a damning New York State attorney general’s office probe — Archbold had shifted GNC’s emphasis to its vitamin business.
But his efforts were undermined by cuts to the company’s marketing budget, and in late April, GNC announced plans to sell and refranchise 84 of its stores to franchisee Sun Holdings for $17 million. At the time, GNC said it was looking to sell a total of 200 company-owned stores this year and another 1,000 in total over the next several years
