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HEALTHY GROWTH

The Vitamin Shoppe plans a fivefold national expansion

By Kimberly Pfaff

Read before you buy: The chain invites customers to check out books from its ‘lending library.’

After 25 years The Vitamin Shoppe is bulking up, with plans for a coast-to-coast expansion.

Since opening its first store in New York City in 1977, the North Bergen, N.J.-based chain has stayed small and remained close to its roots. Even as recently as 1998 the company had just 18 stores in the New York area, but it has undergone a growth spurt of late. Today there are 110 Vitamin Shoppes along the East Coast from Massachusetts to Miami, and the retailer has announced a target of 500 stores over the next five years.

Customers, who are spending more than ever on vitamin supplements, love the stores, and so do landlords, said Corey Bialow, Vitamin Shoppe’s director of real estate and construction.

“In 25 years,” Bialow said, “we’ve never closed a store for underperformance.” Though the privately held firm would not cite figures, comparable-store sales have increased every quarter, Bialow said, calling fourth-quarter 2001 sales “our best ever.”

This year 25 new stores will open in the Midwest, including Chicago, Cleveland and Detroit. After that, the chain will focus on California and other areas on the West Coast.

The company’s two main competitors are General Nutrition Cos. (GNC) and Vitamin World, both national, mall-based chains (often located in the same malls). Vitamin World has about 550 stores and does approximately $200 million in sales, while GNC has 5,300 stores and brings in $1.5 billion in sales.

That might sound like a lot of ginkgo biloba, but vitamin supplements are a $16 billion business in the United States, accounting for roughly half of the overall natural and health food market.

Vitamin Shoppe executives say there’s room for another national supplement chain and have set out to differentiate themselves. GNC and Vitamin World stores, for example, average about 1,500 square feet, but Vitamin Shoppe is focusing on larger suburban superstores of about 4,000 square feet. And while these competitors focus mainly on private-label products, Vitamin Shoppe stocks more than 400 national brands of vitamins, herbs, minerals and supplements. The company enhances its broad product mix with an aggressive pricing strategy. “Our typical discount is 25 percent to 40 percent off — every day, all day,” said Bialow.

Vitamin Shoppe also places a premium on service, with knowledgeable salespeople on hand to assist customers. The company offers in-store learning centers, too. Customers can access information on a product or an ailment by using the store’s computer information terminal, and there’s even a lending library, stocked with books that customers can take out or read in a seating area within the store.

A big bonus of vitamins and supplements is that their appeal cuts across all demographic groups. Walk into any Vitamin Shoppe store, for instance, and you’re likely to find a mix of shoppers: 18-year-old body builders, young mothers with small children, baby boomers, seniors. And income isn’t necessarily a factor.

“We do better with middle-to-upper-income customers, but we don’t need to be in an area with extremely affluent customers to be successful,” noted Bialow.

That kind of broad appeal makes Vitamin Shoppe particularly attractive to developers.

“People are living longer, and vitamins have become a daily part of everyone’s life,” said Ken Stern, director of peripheral development at Developers Diversified Realty Corp., a Beachwood, Ohio-based firm with 220 shopping centers totaling 56 million square feet of leasing space. The firm began working with the retailer last year and has one Vitamin Shoppe store open, with another slated for January 2003.

“The Vitamin Shoppe has become a destination,” Stern said, “because the people looking for supplements will go out of their way to find their store location, and it’s a venue that’s not found at every shopping center.”

Stern says he also likes the concept’s easy synergy with other retailers.

“The same person who’s going to the Gap and T.J. Maxx will go to The Vitamin Shoppe,” he said. “They’ll cross-shop.”

“Other retailers might bring people into the center infrequently,” said Eric Sheppard, principal at Miami Beach-based WSG Development Co., “but The Vitamin Shoppe brings people in on a regular basis, with everyone coming in to pick up their multivitamins.” WSG, which has 45 freestanding and strip-center locations across the United States totaling over 1 million square feet, currently has three locations with Vitamin Shoppe stores and is working on future deals with the company.

Vitamin Shoppe executives say there’s room for another national supplement chain and have set out to differentiate themselves. GNC and Vitamin World stores, for example, average about 1,500 square feet, but Vitamin Shoppe is focusing on larger suburban superstores of about 4,000 square feet. And while these competitors focus mainly on private-label products, Vitamin Shoppe stocks more than 400 national brands of vitamins, herbs, minerals and supplements. The company enhances its broad product mix with an aggressive pricing strategy. “Our typical discount is 25 percent to 40 percent off — every day, all day,” said Bialow.

As Vitamin Shoppe moves westward, it is concentrating on freestanding stores, end-cap positions in suburban shopping centers, and smaller, 1,000-square-foot corner stores in urban areas. Regional malls are not part of Vitamin Shoppe’s expansion plan.

The chain considers itself to be the category killer of vitamin stores.

“We like to be in close proximity to a regional mall and other big-box category killers,” explained Bialow. “We’re basically the category killer of the vitamin market — our format is more than twice as large [as our competitors]. It’s a different approach.”

The chain, he added, also avoids neighborhood supermarket-anchored shopping centers, which often draw customers from just a two- or three-mile radius. “It’s not unusual for customers to come 10 to 15 miles to shop us,” he said.

To accommodate this growth, Vitamin Shoppe is building a fully automated, state-of-the-art distribution center in northern New Jersey. At 250,000 square feet, the new facility will be more than double the size of the current one. “That will enable us to take on probably 50 to 100 new stores a year,” said Bialow.

“It’s a pretty aggressive plan,” commented Ed Aaron, research associate at Minneapolis-based RBC Capital Markets, of the chain’s expansion. “There could be a market for what they’re trying to do. There really isn’t a national player with the retail concept they’re talking about. But the offset to that is that it’s probably an expensive proposition when you consider that these stores will be about three to four times the size of many of the [competition’s] mall-based stores.”

But Vitamin Shoppe executives emphasize that they’re cautious about not overextending their growth. “A lot of chains grow for the sake of showing growth,” said Bialow. “We’re about profits and earnings. We’ve spent the last four years positioning ourselves for this extensive growth. The only thing holding us back was building the infrastructure.”

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