Analysts mostly applauded media reports last week that L Brands is considering selling its struggling Victoria’s Secret brand. Overhauling the lingerie chain will be no easy task. Victoria’s Secret has been hit with slowing sales in an era of change among customer attitudes.
With sales and profit dropping and complaints mounting about the brand’s relevance among today’s shoppers, overhauling Victoria’s Secret will be no easy task, regardless of who owns it.
L Brands, the parent of Victoria’s Secret and Bath & Body Works, is considering selling the lingerie chain, sources told The Dispatch last week.
That news was accompanied by an even bigger bombshell: L Brands founder and CEO Leslie H. Wexner, who turned a single store that he started in 1963 into a global retail powerhouse, is considering stepping down, according to reports.
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The company is one of central Ohio’s largest employers with about 7,600 employees, according to One Columbus, the region’s economic-development arm.
L Brands shares jumped on the speculation, climbing 13% Wednesday, the day the reports came out, before edging lower in Friday’s stock market selloff. The shares have tumbled since hitting $100 in 2015.
“While we applaud Wexner’s decades of dynamic brand building, we see a meaningful management shakeup at core VS (Victoria’s Secret) as just what the brand needs to finally take steps forward in reconnecting with consumers,” wrote Jen Redding, an analyst with Wedbush Securities in California who follows L Brands.
David Tawil, president of Maglan Capital, a New York hedge fund that specializes in turnaround companies, said the 82-year-old Wexner has become “toxic,” especially given his association with Jeffrey Epstein.
Epstein, who died in prison in August while being held on charges of sex trafficking, was Wexner’s former business manager. Wexner has said their relationship ended more than a decade ago.
“He needs to leave,” Tawil said of Wexner. “He needs to get off the public stage.”
Wexner, who bought Victoria’s Secret in 1982 and turned it into a global brand that epitomized over-the-top sex appeal, is seen as having lost his connection with today’s female shoppers during the #MeToo era.
Perhaps nothing illustrates the disconnect more than the Victoria’s Secret Fashion Show, for years a boldly risque emblem of the brand’s glamour, with its barely covered “angels” decked out in wings. L Brands kept the show long after it was being parodied as much as praised until finally, last year, it was dropped.
Sales, profit and market share have been falling.
In 2018, Victoria’s Secret had 24% of the U.S. women’s underwear market, according to Coresight Research. That’s down from 31.7% in 2013.
Sales through the first three quarters of its 2019 fiscal year, which excludes the holiday season, were running about 6% below a year ago. They have been trending lower since hitting $7.8 billion in 2016.
Despite such well-publicized problems, Victoria’s Secret remains the top women’s intimates brand, Coresight said, and continues to have a strong base of fans.
“”It’s one of my favorites. You can always find something you like,” Jan Beck, 42, of Pickerington, said last week while shopping at Easton Town Center.
The weak numbers, though, have led to pressure from investors, notably from Barrington Capital Group. In a blistering letter last March to Wexner, which accused Wexner of being “tone deaf” to today’ consumers, Barrington called on L Brands to split Victoria’s Secret from fast-growing Bath & Body Works, which now produces the bulk of the company’s profit.
“We believe that the declining performance of Victoria’s Secret is primarily due to merchandising missteps and the failure to maintain a compelling brand image that resonates with its target consumers,” wrote Barrington CEO James Mitarotonda, while suggesting the brand — and its teen sister, PINK — have a future.
So far, Wexner’s efforts to turn around the company have proved futile despite changing up executives and merchandise.
At the company’s annual meeting in May, he told investors that progress was being made.
“As we look at the back half of the year, I’m very optimistic that we’ve laid the foundations. We’re focused. We’re closer to the customer, closer than we’ve ever been,” Wexner said at the time. “We expect to see improved performance.”
For Barrington and others, Victoria’s Secret’s problems start with the merchandise, and especially a failure to move beyond lace, thongs and push-up bras to more athletic wear that fits more bodies.
“Victoria’s Secret was slow to adjust to the shift in market demand from padded and push-up bras toward bralettes and sports bras,” wrote Barrington, noting the success of competitors including Aerie and ThirdLove.
Barrington praised Wexner’s decision to expand Victoria’s Secret merchandise by adding swimsuits back to the lineup after they had been dropped as part of a move to focus on its core merchandise.
More moves like that are needed to move the brand forward, Tawil said.
“The swimsuit is certainly a logical step, and someone with creativity can go well beyond that,” he said.
Tawil says that a partnership with a clothing company might be the best route for Victoria’s Secret, whose sales are still largely centered on brick-and-mortar sales. Online sales made up nearly a quarter of Victoria’s Secret sales in 2018, according to regulatory filings.
Closing stores that aren’t doing well might be a crucial step forward.
“Victoria’s Secret and Bath & Body Works are highly exposed to the structural decline in mall traffic,” wrote the investment firm Jefferies.
“As such, we believe Victoria’s Secret and Bath & Body Works are challenged in an increasingly e-commerce world. We see hundreds of store closures in the future as the company seeks to stem losses, which are unlikely to be offset by gains online.”
Lee Peterson, an executive vice president at WD Partners, a Dublin retail-consulting company, said Victoria’s Secret remains a powerful brand that needs a strong dose of non-traditional thinking.
That includes a focus on identifying today’s customer and what’s important to that customer, how the stores look, brand image and marketing.
“It this is a lot? Oh, yeah,” he said in an email. “And the key to doing this is trying to keep their market share and current customer while transitioning in the new, ‘human sexiness’ vs. sexy and glamorous idea.”
Dispatch Reporters Mark Williams and Maeve Walsh contributed to this report.