GNC 2011 Annual Report Download - page 35

Table of Contents
We have limited influence over the decision of franchisees to invest in other businesses or incur excessive indebtedness.
Our franchisees are independent operators and, therefore, we have limited influence over their ability to invest in other businesses or incur excessive
indebtedness. In some cases, these franchisees have used the cash generated by their stores to expand their other businesses or to subsidize losses incurred by
such businesses. Additionally, as independent operators, franchisees do not require our consent to incur indebtedness. Consequently, our franchisees have in
the past, and may in the future, experience financial distress as a result of over leveraging. To the extent that our franchisees use the cash from their stores to
subsidize their other businesses or experience financial distress, due to over-leverage or otherwise, it could negatively affect (1) our operating results as a
result of delayed or reduced payments of royalties, advertising fund contributions and rents for properties we lease to them, (2) our future revenue, earnings
and cash flow growth and (3) our financial condition. In addition, lenders that are adversely affected by franchisees who default on their indebtedness may be
less likely to provide current or prospective franchisees necessary financing on favorable terms or at all.
If we cannot open new company owned stores on schedule and profitably, or if our new store formats are not successful, our planned future growth will
be impeded, which would adversely affect sales.
Our growth is dependent on both increases in sales in existing stores and the ability to open profitable new stores. Increases in sales in existing stores
are dependent on factors such as competition, store operations and other factors discussed in these Risk Factors. Our ability to timely open new stores and to
expand into additional market areas depends in part on the following factors: the availability of attractive store locations; the absence of occupancy delays; the
ability to negotiate acceptable lease terms; the ability to identify customer demand in different geographic areas; the hiring, training and retention of
competent sales personnel; the effective management of inventory to meet the needs of new and existing stores on a timely basis; general economic
conditions; and the availability of sufficient funds for expansion. Many of these factors are beyond our control. In addition, the costs associated with opening
and operating our new store formats are higher than the costs associated with opening and operating our standard modern-design stores. Delays or failures in
opening new stores, including our new store formats, or achieving lower than expected sales in new stores and new store formats, or drawing a greater than
expected proportion of sales in new stores or new store formats from our existing stores, could materially adversely affect our growth and profitability. In
addition, we may not anticipate all of the challenges imposed by the expansion of our operations and, as a result, may not meet our targets for opening new
stores, remodeling or relocating stores or expanding profitably.
Some of our new stores may be located in areas where we have little or no meaningful experience or brand recognition. Those markets may have
different competitive conditions, market conditions, consumer tastes and discretionary spending patterns than our existing markets, which may cause our new
stores to be less successful than stores in our existing markets. Alternatively, many of our new stores will be located in areas where we have existing stores.
Although we have experience in these markets, increasing the number of locations in these markets may result in inadvertent over-saturation of markets and
temporarily or permanently divert customers and sales from our existing stores, thereby adversely affecting our overall financial performance.
Our operating results and financial condition could be adversely affected by the financial and operational performance of Rite Aid.
As of December 31, 2010, Rite Aid operated 2,003 GNC franchise "store-within-a-store" locations and has committed to open additional franchise
"store-within-a-store" locations. Revenue
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