GNC—Burying your head in the brand

Even healthy brands can develop a suspicious cough… and before you know it come down with pneumonia.

In the past couple of months Netflix—which seemed to have muscles coming out of its ears—took off its raincoat to reveal the physique of Mohandas Gandhi on a diet of lime juice. Yesterday, Netflix stock lost 35% of its value.

Netflix's problems are well known—and it’s understandable that the CEO tried his damnedest to adapt his DVD-by-mail business to the emerging world of streaming video. “I messed up,” he wrote at one point. Well, he tried.

Now let’s look at another big, muscular brand—GNC, purveyor of nutritional supplements. GNC promises health—and hair and potency and beauty and... the works. Recent studies show that vitamin supplements actually may do nothin' for no-one no way—and that they might even harm some bodies.

What!!!? Supplementary vitamins might do harm? The Wall Street Journal asked on October 25—“Is This the End of Popping Vitamins?” Seems relevant to the GNC business model, no? Yet this is how GNC responds:

"The thing you do with [reports of studies] is just ride them out, and literally we see no impact on our business," said Joseph Fortunato, chief executive of supplement retailer GNC Corp., according to a transcript of the company's third-quarter conference call last week.

"Consumers believe in our products," a spokesman for GNC said.

I would call this burying your head in the brand.

Dear Mr. Fortunato of GNC: Do not ask for whom the bell tolls. It tolls for thee.

Brandsinger

Don't brand your ores

When I pontificate on branding at two of our nation's fairest dens of higher learning, I show a simple slide like this: The appeal of products such as luxury goods lies in the mystique of their brands. For other items—like a half ton of raw sulfur—investment in branding would be a waste. Perhaps sulfur from one region is purer than sulfur from another—but beyond that sort of distinction there can be little value in naming your sulfur "Stinky" and designing a logo for it.

Now enter the brilliant hedge fund manager John Hempton of Bronte Capital. John likes a perfume that his wife happens to have on her body one day, and driven mad by its powerful scent, he lunges insanely for the perfume bottle and begins to analyze its chemical makeup. How much could these ingredients cost by the ton? Perhaps there is an investment play here? (Meanwhile, we can imagine his wife sitting glumly on the bed, legs crossed, a shiny red pump dangling from her foot, wondering if rather than buy perfume that day she should have stayed home and poured herself a scotch.)
Here is John's closeup of the perfume bottle with contents. (Click picture for a close-up.) Apparently officials in Australia, where John and his Chanel-bedaubed wife live, make you print the ingredients on everything, even bags of bait. "Ingredients: Sand worms, beach sand") But please read the brilliant investment analysis from John, who is both a crafty investor and most engaging writer.

Moral: A ton of chemicals can be turned into thousand-dollar-bottles of precious liquid thanks to the wonders of fragrance technology and the invaluable magic of brand professionals like you.

brandsinger