GNC 2011 Annual Report Download - page 34

Table of Contents
additional franchise locations is limited by the territorial restrictions in our existing franchise agreements as well as our ability to identify additional markets
in the United States and other countries. If we are unable to open additional franchise locations, we will have to sustain additional growth internally by
attracting new and repeat customers to our existing locations.
Franchisee support of our marketing and advertising programs is critical for our success.
The support of our franchisees is critical for the success of our marketing programs and other strategic initiatives we seek to undertake, and the
successful execution of these initiatives will depend on our ability to maintain alignment with our franchisees. While we can mandate certain strategic
initiatives through enforcement of our franchise agreements, we need the active support of our franchisees if the implementation of these initiatives is to be
successful. In addition, our efforts to build alignment with franchisees may result in a delay in the implementation of our marketing and advertising programs
and other key initiatives. Although we believe that our current relationships with our franchisees are generally good, there can be no assurance that our
franchisees will continue to support our marketing programs and strategic initiatives. The failure of our franchisees to support our marketing programs and
strategic initiatives could adversely affect our ability to implement our business strategy and could materially harm our business, results of operations and
financial condition.
Our franchisees are independent operators and we have limited influence over their operations.
Our revenues substantially depend upon our franchisees' sales volumes, profitability and financial viability. However, our franchisees are independent
operators and we cannot control many factors that impact the profitability of their stores. Pursuant to the franchise agreements, we can, among other things,
mandate signage, equipment and hours of operation, establish operating procedures and approve suppliers, distributors and products. However, the quality of
franchise store operations may be diminished by any number of factors beyond our control. Consequently, franchisees may not successfully operate stores in a
manner consistent with our standards and requirements or standards set by federal, state and local governmental laws and regulations. In addition, franchisees
may not hire and train qualified managers and other personnel. While we ultimately can take action to terminate franchisees that do not comply with the
standards contained in our franchise agreements, any delay in identifying and addressing problems could harm our image and reputation, and our franchise
revenues and results of operations could decline.
Franchise regulations could limit our ability to terminate or replace under-performing franchises, which could adversely impact franchise revenues.
Our franchise activities are subject to federal, state and international laws regulating the offer and sale of franchises and the governance of our franchise
relationships. These laws impose registration, extensive disclosure requirements and bonding requirements on the offer and sale of franchises. In some
jurisdictions, the laws relating to the governance of our franchise relationship impose fair dealing standards during the term of the franchise relationship and
limitations on our ability to terminate or refuse to renew a franchise. We may, therefore, be required to retain an under-performing franchise and may be
unable to replace the franchisee, which could adversely impact franchise revenues. In addition, we cannot predict the nature and effect of any future
legislation or regulation on our franchise operations.
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