Vitacost.com aims to capitalize on consumer preoccupation with health and wellness. The online retailer offers some 34,000 items, including dietary supplements from algae to zinc, health food, and personal and pet care products at discount prices. In addition to 1,600-plus name brands, such as Atkins and JÃSÖN, the company sells Vitacost-label nutritional products, supplied by contract manufacturers. Customers shop by in large online. The company has a contact center, a third-party center for late-night calls, and two distribution hubs in the US. Founded in 1994, Vitacost is almost 20% controlled by Great Hill Equity; Vitacost chairman Michael Kumin and Christopher Gaffney, a director, are the firm's partners.
Vitacost's performance since going public in 2009 has been marked by losses, delays in filing financial reports, a shareholder lawsuit, a temporary halt in the trading of its shares, and the departure of directors and top level executives, including its CFO and CEO. Jeffrey Horowitz, founder and former CEO of rival Vitamin Shoppe, joined the company as a director and interim CEO and was named to the position permanently in early 2011.
Under Horowitz, the company's losses in fiscal 2010 (ends December) narrowed slightly in 2011 atop an 18% bump in sales over the prior year. Sales were fueled by demand for third-party products, which account for more than 70% of all sales, coupled with an increase in customers. Results have benefited particularly from Vitacost's expanded shipping and promotional offers and from distributing its products on Amazon.com. Nonetheless, Vitacost's costs jumped more than 20% due to the higher cost of third-party lines over its proprietary products, along increased expenses for fulfillment and sales and marketing.
The online retailer looks to rebound and grow as consumers (especially aging baby boomers) increasingly shift their spending from healthcare treatment to prevention through online purchases of dietary supplements, vitamins, and other wellness products. Vitacost cites success in attracting and retaining customers; its roster has grown more than five-fold during the last five years, and some 72% of orders are now placed by repeat customers. It also aims to develop an international presence in order to reach a wider audience. International customers accounted for 4% of total orders in 2011, up from 3% in 2010.
As part of its strategy, Vitacost plans to broaden the range of nutritional items sold under its own and other brands. However, in August 2012 Vitacost announced that it would no longer self-manufacture its proprietary products; at the time, approximately 40% of the lineup was made by contract manufacturers. An undisclosed third-party provider agreed to lease its manufacturing facility. Earlier in the year, Vitacost made a private placement of stock simultaneous with purchasing additional shares from Great Hill Equity. Proceeds were earmarked primarily to upgrade Vitacost's distribution centers and invest in a third. Minority shareholders, including Wynnefield Capital, raised concerns that the transaction was not in the best interest of the company and all outside shareholders. – less