Et Tu, Vitacost?
In a December 7 press release, online supplement retailer Vitacost.com announced that its financial statements dating as far back as 1994 are not reliable, after an internal review discovered flaws in the company's accounting. Said the release, defects in the organization of "stock splits and stock option and other stock issuance transactions," including grants and awards given to employees both before and as part of Vitacost's September 2009 IPO, made current calculations of the company's equity capitalization inaccurate.
Add to that the recent woes Vitacost has incurred since its fateful IPO, including the resignation of CEO Ira Kerker in August, a subsequent 25% decline in share price and no less than six class action suits filed by shareholders in relation to the IPO prospectus. The Nasdaq Stock Exchange froze trading for the company on December 8, to be in effect until it supplies revised financial information.
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The story's not over for Vitacost, and may spell trouble for other Internet retailers. Though its profits show no signs of slipping, and the Internet, by many accounts, is the future of supplement retail, Vitacost's recent track record fails to foster good standing with the SEC. If the murky world of online retail gets murkier, the Internet will remain a dartboard for the regulatory powers that be, and supplement companies with a stake in online sales will find credibility harder and harder to come by.
A "Brighter" Future for GNC?
A December 7 brief from Bloomberg says that Chinese food and dairy conglomerate BrightFood is looking to acquire supplement retailer GNC in a deal that could be cemented by the end of this year. Estimated at $2.5 billion to $3 billion, the potential acquisition, should it come to fruition, would represent the largest takeover of a U.S. business from a Chinese buyer ever, said Bloomberg.
Earlier this year, GNC inked a deal with Bright Food to start a joint venture, GNCChina, to sell supplement products to Chinese consumers. China ranks third—behind the United States and Japan—in consumer sales of supplements, according to NBJ research, with potential to become the largest in coming years. According to NBJ's 2010 Global Supplement & Nutrition Industry Report, Chinese supplement sales grew 9.3% in 2008, reaching $8.1 billion.
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Setting xenophobia aside, this story still leaves a sour taste. One is reminded of Dutch baby food firm Royal Numico and its purchase of GNC in 1999 for $2.5 billion. Failing to adequately mesh the retailer into its core business, Royal Numico ended up selling GNC to private equity firm ApolloManagement four years later for a dismal $750 million. GNC's owners might be better off focusing on updating the company's retail strategy rather than playing this global game of hot potato, especially when it seems to come down to choosing between the lesser of two evils. Which is better for the U.S. nutrition industry: American private equity or Chinese conglomerates?
Kiss Me Caltius
Natural & organic personal care company KissMyFace received a growth capital investment last week from Los Angeles-based CaltiusEquityPartners, an asset management firm focused on small to mid-sized companies. The amount was undisclosed, but according to its website, Caltius tends to dole out $5 to $20 million in equity capital per investment. Gardiner, New York-based Kiss My Face already boasts a well-established brand presence in natural & specialty retail, and in select mass market players like Walmart and Target. An injection of capital could do wonders in expanding its volume and distribution range.
NBJ Bottom Line
The story of Kiss My Face follows the age-old plotline of many a natural products company: two buddies (Bob MacLeod and Steve Byckiewicz) from pastoral New York build a small company that becomes a mainstay in the natural channel. But as the world changes and natural & organic personal care becomes viable in the mainstream, niche players too can conquer the mass market, if they act quickly. Now is the time for another Burt'sBees, another Aveeno. Kiss My Face already has the advantage of 30 years in the market and brand awareness that surpasses its size. Just a little bit of big thinking can push it to critical mass.
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