China News Service Client, Beijing, June 29th (Zuo Yukun) "With the new Gaizhonggai high calcium tablets, one tablet can cover the past five tablets, which is convenient! Look at me, and go to the fifth floor in one go without any effort." This classic advertising slogan can be said to be well-known, but few people can associate it with the recent news that "the United States' largest health care product company GNC applies for bankruptcy protection."

　　One is the first domestic listed company in the pharmaceutical industry that has been hailed as "the arrogant of the times", and the other is the veteran health care giant that has been selected as the No. 1 nutritional professional retail brand in the United States for 20 consecutive years. What is the relationship between the two? Related?

Image source: Harbin Pharmaceutical Group WeChat public account

Applying for bankruptcy protection, another giant can't hold it

　　The list of famous American companies applying for bankruptcy has been updated again.

　　The parent company of the world-renowned health care product retailer GNC (Jiananxi) recently filed for bankruptcy protection with the court and entered the debt restructuring phase. It plans to sell the company and close all stores.

　　GNC will restructure its assets and liabilities through two options, including an independent reorganization plan and a sale plan. Among them, the sale of GNC's overall business for US$760 million has reached preliminary principled intentions with Harbin Pharmaceutical Group Co., Ltd. (a holding company of Harbin Pharmaceutical Co., Ltd.), and has the support of GNC and most secured creditors.

　　In 1935, a businessman named David Shakarian opened a small health food store in the center of Pittsburgh, the United States. He successfully made $35 on the first day and opened a second store within six months.

　　Since then, with the development of sports, anxiety about smoking and growing shopping malls, his business has grown bigger and bigger. In the 1960s, he began a large-scale expansion, and the company was renamed General Nutrition Centers (GNC). And listed on the New York Stock Exchange in the 1980s.

　　GNC, known as the world's largest health care brand, has been voted the No. 1 nutritional professional retail brand in the United States for 20 consecutive years. Its main products include vitamins, minerals, herbal health care products, sports nutrition products, and weight loss products.

　　However, after the founder's death, GNC suffered from privatization and re-listing in 2011, and had tossed around in the hands of multiple capitals. Until 2018, a pharmaceutical company from China spent nearly $300 million to acquire 40% of its shares.

85-year old store can not escape the loss

　　Such a large and influential company will inevitably have a playbook of declining performance.

　　GNC2020 quarterly report for the first quarter shows that its revenue for the first quarter of this year was US$472 million, a decrease of US$92.2 million from the first quarter of last year, a year-on-year decrease of 16.3%; gross profit was US$137 million, a decrease of US$66.4 million from the first quarter of last year , A year-on-year decrease of 32.7%. The net loss in the first quarter of 2020 reached US$201 million.

　　In terms of stock price, it plunged from $2.76 at the beginning of the year, closing at $0.6638 on June 25, leaving only about $51 million in market value. Looking back at the GNC's peak market value of $48 billion in 2013, it is almost a hundredfold higher than it is now.

GNC Raffles Store in Shanghai, China. Image source: Harbin Pharmaceutical Group WeChat public account

　　Although GNC claimed that the pandemic virus caused a "serious negative impact" on the company's business, before the outbreak, GNC had faced the problem of weak sales growth. In the past three years, in addition to the profit in 2018, its net profit in 2017 and 2019 has lost $149 million and $35 million, respectively.

　　The sharp decline in sales forced GNC to "slim down" quickly. In June 2019, GNC announced plans to close up to 900 stores and significantly reduce stores in shopping centers. From this point of view, the outbreak is undoubtedly the last straw that crushed the camel of GNC.

Behind the "gold master" in China

　　Since the epidemic, there have been a few enterprises that have fallen into the bankruptcy swamp. This time, GNC has attracted more attention from Chinese people, not only because many consumers have purchased their home health products, but also because of the Chinese "golden father" behind it-Harbin Pharmaceutical Co., Ltd., a subsidiary of Harbin Pharmaceutical Group. .

　　Starting in 2018, Harbin Pharmaceutical Co., Ltd. paid GNC $299.5 million in three times to subscribe for the convertible preferred shares it issued. After the subscription, Harbin Pharmaceutical Co., Ltd. held 40.1% of GNC and became its single largest shareholder.

　　According to Harbin Pharmaceutical's share disclosure, after GNC enters the reorganization process, Harbin Pharmaceutical, as the preferred shareholder, ranks as ordinary creditors in the order of repayment, and is unable to receive priority liquidation. According to preliminary estimates from currently released financial data, Harbin said that it will have a significant impact on its net assets and net profit:

　　1. If part or all of GNC’s convertible preferred stock investment totaling 2.049 billion yuan cannot be recovered, the retained earnings will be offset.

　　2. If part or all of the accumulated dividend of RMB 171 million cannot be recovered, it will be included in the current profit and loss.

　　As soon as the news came out, under the situation that the pharmaceutical stocks were in a good situation, the share price of Harbin Pharmaceutical fell continuously. On June 29, the share price of Harbin Pharmaceutical continued to decline, and as of the close, it fell by 7.81% to close at 3.07 yuan.

"It's not hard to go to the fifth floor"

　　In 1993, Harbin Pharmaceutical Group was listed on the Shanghai Stock Exchange. It was the first listed company in the national pharmaceutical industry and was once hailed as the arrogant of the times. The TV commercials of its products "new cap, middle cap" and "blue bottle cap" are the collective memory of a generation and the representative of the "Harbin Medicine Model" with more than 3 billion yuan in advertising costs a year.

Xingaizhonggai calcium lactate calcium gluconate oral solution. Image source: Harbin Pharmaceutical Group's official website

　　The generous advertising investment has made Harbin Pharmaceutical Group unique for a time. The net profit started to increase from 456 million yuan in 2005, and reached a peak of 1.13 billion yuan in 2010, while Harbin Pharmaceutical's revenue reached 12.535 billion yuan this year.

　　However, the "Harbin Medicine Model" of marketing through money-burning has buried the hidden thunder that ignores R&D and product differentiation from the beginning, and is faced with the dilemma that once the marketing expenses are reduced, the company's performance will immediately decline.

　　In recent years, as the effectiveness of the advertising marketing model has become worse, Harbin Pharmaceutical Group has begun to taste the bitter fruit. Since the share price of Harbin Pharmaceutical's shares reached a high of 17.2 yuan per share at the end of June 2015, the overall has fallen for nearly 5 years.

　　The acquisition of GNC undoubtedly reflects the ambition of the Harbin Pharmaceutical Group to restructure the strong wind, and it has not been optimistic at the time. At the beginning of the acquisition, the Shanghai Stock Exchange issued an inquiry letter to Harbin Pharmaceutical Group, asking it to explain the reason for the huge investment in a loss-making overseas company.

　　Industry expert Shi Lichen also said that Harbin Pharmaceutical's investment in GNC is more like investing for investment, which does not fit its own actual situation. Harbin Pharmaceutical has no advantage in the field of health products, and does not have well-known health products in its own operation. There is no experience. It is obviously a strategic mistake to invest a huge amount of money in a project that has been continuously losing money.

　　However, bankruptcy and bankruptcy reorganization are two different concepts. Historically, companies such as General Motors and American Airlines have revived through debt restructuring plans. GNC also hopes to rebuild a healthier financial structure through this debt restructuring, so that it can serve global consumers more efficiently.

GNC Jiananxi official overseas flagship store. Screenshot

　　Especially for the Chinese market, GNC China announced on June 25 that corporate entities outside of GNC North America, including the joint venture between GNC and Harbin Pharmaceutical in China, are not within the scope of Chapter 11 procedures for bankruptcy reorganization, so this debt restructuring Excluding GNC China, Harbin Pharmaceutical still holds a 65% stake in GNC China, which plays a vital role in its operations in China.

　　The board of directors of the joint venture company also affirmed the performance of GNC China and will strongly support the long-term development of GNC China's business.

　　Perhaps it is out of the confidence that Chinese consumers like health care products. In recent years, Chinese companies have been deeply obsessed with health care products. In addition to the overseas acquisition of Harbin Pharmaceutical, Australia SWISS has been 100% owned by China Synbiotics, Muscle Technology was acquired by Xiwang of China, and Mereks was acquired by Tangcheng Bianjian of China...

　　Are you willing to pay for this wave of "health fever"? (Finish)