This week, GNC announced it will buy LuckyVitamin.com. The fast-growing online supplements sector is ringing up a larger share of supplement sales, but what do profit margins look like for these e-tailers?
This week, GNC Holdings Inc. announced it will buy LuckyVitamin.com, an online supplements retailer based in Norristown, Pa., for an undisclosed sum. GNC, headquartered across the state in Pittsburgh, is the largest global specialty retailer of nutritional products with more than 4,800 U.S. retail locations. The acquisition primes GNC to gain more market share in the rapidly-growing discount e-commerce channel.
"The addition of the LuckyVitamin.com platform greatly expands our reach and growth opportunities in the e-commerce channel, while broadening our customer demographics and product offerings online," said Joe Fortunato, president and CEO of GNC. The two businesses will continue to operate separately after the deal closes in 30 days.
LuckyVitamin.com, an online-only retailer with a wide selection of nutritional supplements and wellness-oriented products, racked up $40 million in revenue in the last 12 months. The e-commerce site brings with it some 30,000 national brands, which may pose regulatory issues for GNC, said Scott Steinford, president of ZMC-USA. "In reviewing the product offerings from LuckyVitamin.com, it is clear some categories and products would not pass the more rigorous standards of the GNC organization," he said.
Growth is strong, but what about profit margins?
"This acquisition is a testament to the fact that Internet sales of supplements are increasing both in value and volume," said Steinford. Indeed, Nutrition Business Journal estimated that U.S. consumer sales of supplements via the Internet channel reached $1.3 billion on 15 percent growth for 2010.
The landscape of online supplements retailers shows that growth is strong, despite past challenges in the channel with adulterated supplements and consumer quality concerns. Vitacost.com, a direct competitor to LuckyVitamin.com, has also done well, reporting second quarter 2011 year-over-year earnings with same period sales up 22 percent but profits up only 0.4 percent, reflecting a declining profit margin.
iHerb.com and Swanson Health Products (SwansonVitamins.com), two other online supplement sellers, have also indicated steady growth based upon expansion recent announcements. And supplements giant NBTY, with brands such as GNC (UK) and Vitamin World, among others, reported a 19.7 percent third-quarter growth this year in the response/e-commerce channel.
The market may be expanding online, but as Vitacost.com's recent reporting indicates, profit margins may not be keeping pace. "While sales opportunities continue to appear in the direct sales environment, the financial challenge remains in maintaining profit margins," said Steinford, noting that the consumers who shop online have exhibited a lower loyalty rate compared to other sectors.