Stricter Supplement Scrutiny Leads Vitamin World to File Chapter 11
Long Island-based Vitamin World, the well-known nutritional supplement provider, has announced its plans to file for Chapter 11 bankruptcy. Chief Executive Officer Michael Madden said the bankruptcy plans are primarily to relieve debt from some of the company’s expensive lease agreements. Chapter 11 will allow Vitamin World to back out of leases negotiated by its previous owner, NBTY. The retail chain has approximately 345 stores.
Madden has been trying to resolve leasing issues since 2016. “Since I took over one of my main priorities is to restructure our real estate portfolio,” said Madden, a corporate turnaround expert. “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.”
Chapter 11 allows for businesses to reorganize their operations, which includes breaking long-term leases without hefty fees and penalties. Many mall-based retailers have used the Chapter 11 strategy to reduce their footprint, including Rue 21, True Religion, and Perfumania. Starbucks also recently announced its plans to do away with mall-based Teavana, much to the dismay of Simon Properties. Decreasing the number of mall-based stores and those with larger footprints will help the company to remain profitable.
Centre Lane Partners, a private equity firm, acquired Vitamin World for $25 million last year. Previous owner, NBTY sold the supplement provider to focus investments on its well-known core brands, including Nature’s Bounty and Sundown Naturals.
“While a handful of landlords cooperated, the vast majority have not,” he said. “At this time we have no other option than to restructure the company’s real estate portfolio by filing for Chapter 11 protection.” Vitamin World is also working with RCS Real Estate Advisors to renegotiate leases. It has hired Katten Muchin Rosenman LLP to handle the bankruptcy filing.
Shares of GNC Holdings Inc. and Vitamin Shoppe Inc., Vitamin World’s largest supplement competitors, have both fallen by more than 60 percent within the past 12 months. The drastic reduction has to do with federal and state investigators keeping a tighter watch on the industry than ever before following consumer concerns regarding health benefits promised from vitamins and other supplements. Stricter quality control measures were put into place by NBTY last year after the company, along with GNC and Nature’s Way, reached a settlement with the New York State Attorney General’s Office.
GNC briefly closed all of its stores in an attempt to rebrand, its CEO stating the company had “a badly broken business model in need of change.” After the rebranding, a new CEO came on board after the abrupt resignation of the Michael Archbold, and was hopeful that the changes would keep the business from going under amid the government’s new regulatory efforts. In late April, GNC announced it would sell and refranchise 84 of its stores to Sun Holdings for $17 million. It will continue to sell off many of its locations in order to stay afloat.