Every year towards the holiday season, millions of women (and men) around the world tune in to their televisions and laptops to watch “Angels” strut down a runway in elaborate and expensive lingerie side by side celebrities.
Yes, it’s the annual and extremely famous Victoria’s Secret Fashion Show.
Started in 1995 as a way to market Victoria’s Secret as a highly coveted label, the show has become a spectacle that boasts: “the world’s best bras, the sexiest panties & lingerie, and the most beautiful Supermodels.”
The brand has come a long way since its first store opening by Roy Raymond in 1977 in Palo Alto, adapting a boudoir style with dark wood, oriental rugs, and silk drapery – a foreign style concept in the age of bell-bottoms, maxi-dresses and bold monochrome colors.
And while in five years time, the company earned annual sales of more than $4 million in the US, something wasn’t working. Growth was stalling and bankruptcy was on the horizon.
It was only until Leslie Wexner, founder of The Limited (now L Brands), stumbled upon the VS store and quickly saw what was wrong.
Victoria’s Secret didn’t appeal to women.
In Raymond’s quest to build a lingerie store where men felt comfortable, he had alienated his market demographic and so in 1982, Raymond sold Victoria’s Secret to Wexner for $1 million.
Under new leadership, Wexner immediately introduced floral patterns and colors to soften the once racy VS image to a more subtle and affordable look. It was envisioned as the “La Perla for the mass market”.
In the early 90s, Victoria’s Secret had become the largest American lingerie retailer with sales topping $1 billion a year.
“What I have thought about, and continue to think about, is that we are specialty merchants and our primary skill is knowing about women,” Wexner said.
The company had succeeded in popularizing and, more importantly, normalizing the idea of sensual lingerie as part of everyday wear, whereas before it was reserved for only special occasions such as honeymoons.
In 2013, the company recorded annual sales of $6.6 billion and was valued at $1.9 billion.
Now in the present day and 40 years after its birth, Victoria’s Secret is running into trouble with coming-of-age females that are choosing comfort over flash.
Analyst from Guggenheim Securities shared that despite the brand’s continued domination in the US lingerie market, the biggest challenge for the business is its ability to continue generating fashion that resonates with new shoppers.
In the past, VS tried to grab more market share by expanding into categories like swimwear, athleisure, and apparel and although the categories generating some profits — they were not growing.
The brand was also getting backlash for not being inclusive to other body types in an age when championing plus-size models is applauded in the traditional fashion industry.
As Cora Harrington from Lingerie Addict said;
The sexy image it [Victoria’s Secret] cultivated for so long has grown stale because of the brand’s unwillingness to broaden how it defines beauty.
Victoria’s Secret has also been slow in international expansion and missing out on the opportunity to capitalize on the brand’s recognition on a global scale.
Stores outside of the US are operated by franchise partners and offer only an assortment of perfumes and lotions – very few offer Victoria’s Secret famous lingerie.
In its financial report released by L Brands earlier this year, Victoria’s Secret same-store sales have fallen 20% compared to a year ago. The number of stores is also down from 1,177 to 1,174 (including six openings and nine closures).
The report caused shares of parent company L Brands to plunge 16%, making it the worst performer in the S&P 500 Index. And in the last 12 months alone, shares have gone down by more than 40%.
“I wasn’t happy with the performance the last several years of Victoria’s Secret. I thought the brand had stalled out — in beauty, in lingerie and in the [online and catalog] channel. We had to make changes,” admitted Wexner.
With so much work to be done, could the Angels fly higher?
In 2016, Victoria’s Secret shut down its swimsuit business and scaled down unrelated apparel items to cut costs and focus on its core products, lingerie and body fragrances. It also revamped its product line by launching a bralette collection last year to appeal to the younger generation.
“Why were we selling Uggs? Anybody can sell Uggs. No disrespect to Uggs. Nice product. But why are we selling Uggs? Does that really tie to the Victoria’s Secret brand?” said Stuart Burgdoerfer, CFO at L Brands.
The company also stopped producing the famous printed catalogue — saving them $150 million per year.
“We don’t think a catalog is a particularly compelling idea in the world of cellphones,” said Burgdoerfer.
No more catalogs meant Victoria’s Secret direct consumer channel is solely reliant on its ecommerce website that ships worldwide. In the recent years, online channel has become the driver of growth for the brand — 24% increase in sales in its October sales report.
Last year, the online channel contributed to over 21% of the company’s revenue.
The brand has also picked up the pace of its international expansion.
“We’ve been a patient second or slow third because we thought we would learn more,” said the founder, chairman, and CEO of L Brands, Leslie Wexner. “We always asked ourselves: are you really building a sustainable international business?”
Like many other Western companies, Victoria’s Secret named China as the top destination for expansion, calling the country its most important market and predicted to bring in $1 billion in annual sales by 2021.
How is the company attempting to capture China?
For starters, the company has moved away from a franchise model in China in favor of company-owned stores by acquiring the stores from its franchise partner.
“It seems to me that we’re going to be doing most of the heavy-lifting anyway. It makes sense we should be in it completely,” says International President of L Brands Martin Waters.
Earlier this year, the company opened two flagship stores in Shanghai and Chengdu. The stores carry the full VS assortment including lingerie, Victoria’s Secret Sport, and Victoria’s Secret Pink.
The brand’s biggest show of commitment has been recording its annual fashion show to China — making Shanghai the first Asian city to host the famous Victoria’s Secret Fashion Show typically held in the US.
And while China has become Victoria’s Secret’s most recent muse, it hasn’t overlooked emerging markets and opened a full flagship store in Singapore November 2016.
“Singapore is seen as an ideal test bed for brands looking to break into Southeast Asian markets, and is viewed as an important place to build brand awareness,” said Sarah Lim, Singapore Polytechnic’s senior retail lecturer. “They don’t just sell products, but strengthen their brand with fashion shows and experiential shopping.”
Despite the lackluster sales performance in 2017, there are early signs that the worst may be over for Victoria’s Secret.
L Brands stock has already seen a jump in the recent weeks as analysts report on the company’s turnaround efforts and despite competitors clamoring to grab the top spot, Victoria’s Secret still has commanding market share in the US.
If the company continues to play its cards right, Victoria’s Secret may have regained its wings to fly high again.