Holbrook-based retail chain Vitamin World Inc. plans to file for bankruptcy protection to restructure the business and renegotiate its store leases, the company’s chief executive said Tuesday.
Vitamin World, a retailer of vitamins, nutritional supplements, sports nutrition and beauty products in the United States, will file next week for Chapter 11 reorganization in order to restructure the company’s 334-store real estate portfolio and have the ability to renegotiate “problematic lease agreements” with store landlords, president and chief executive Michael Madden told Newsday.
“Since I took over one of my main priorities is to restructure our real estate portfolio,” said Madden, a corporate turnaround expert who was hired to run the company in May 2016. “We have been working with the landlords, and a small handful of them have worked with us to get out of leases and restructure them,” but some have not, he said.
Under Chapter 11, companies can reorganize their operations, break long-term leases without major penalties, and renegotiate their debt with lenders.
“Now, it is being used more and more as a strategic tool by retail vendors who have over expanded, and have long term leases and unprofitable locations,” said bankruptcy expert Chuck Tatelbaum, a senior attorney at Fort Lauderdale-based law firm Tripp Scott. “One of the benefits of Chapter 11 is to reject any lease… Lots of times the landlords would rather get reduced rent than to get no rent.”
Like the other major players in the $41 billion vitamins, supplements and sports-nutrition industry, such as GNC and Vitamin Shoppe, Vitamin World has been under pressure due to declining mall traffic, discount and online retail competitors, and from studies critical of supplements’ contents and effectiveness.
“Just because they are filing for Chapter 11, it doesn’t mean it is not a healthy company, but with lease negotiations, it can be turned into a healthier company,” Tatelbaum said. “This gives them the opportunity to shrink, but not go out of business. It is a very valuable tool.”
The Chapter 11 filing “actually makes us a stronger business going forward and that is the reason we chose this route,” Madden said. “We have been in business for 40 years and we plan to be in business for at least 40 more.”
Vitamin World, which began in 1976 with a kiosk in upstate Williamsville, now sells its products, such as its popular Joint Soother supplement and store brand multivitamins, through a nationwide network of retail stores and online.
The company had been owned by Ronkonkoma-based vitamin and dietary supplement company NBTY Inc., since renamed Nature’s Bounty, since 1977. It was spun off as a separate company in February 2016 when it was sold to Manhattan-based private equity firm Centre Lane Partners LLC for about $25 million.
After the separation from Nature’s Bounty, Vitamin World closed 50 underperforming stores and laid off 140 people. The company now has about 1,500 employees, including 91 at its Holbrook headquarters.
To raise funds for reinvesting in the business, Vitamin World sold its 10.92-acre property at 4320 Veterans Memorial Hwy. in Holbrook in December 2016 for $16.55 million to Fairfield, New Jersey-based real estate firm Accordia Realty Ventures, according to the company and property records. In return, Vitamin World signed a lease for the building that expires in February 2018. The company will relocate its headquarters within a 5-mile radius, Madden has said.
Vitamin World’s sales decreased nearly 11 percent to $208.1 million in fiscal year 2015 from its recent peak of $233.5 million in fiscal 2013, largely due to store closures and lower same-store sales. Six years ago, Vitamin World operated 443 stores.
Until last year, Vitamin World’s financial results were public because Nature’s Bounty had debt that was publicly traded. It stopped reporting its financial results when Nature’s Bounty refinanced its debt.