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Published
Nov 21, 2018
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Victoria's Secret to relaunch swimwear

Published
Nov 21, 2018

Is it finally time for a turnaround at the Victoria’s Secret HQ?



It’s been a tough month for the ailing lingerie brand, for whom disappointing third-quarter sales capped a month in which its CEO Jan Singer departed and incendiary comments made by CMO Ed Razek drew immediate public backlash.

But optimistic observers might hope that the change at the top will provide a new impetus for the brand’s attempts to save its embattled apparel divisions, as L Brands’ chief financial officer signalled the start of a drastic overhaul underway at the brand on Tuesday.

“Everything is on the table, including our brand positioning, marketing and real estate,” revealed CFO and EVP Stuart Burgdoerfer in an analyst call.

Victoria’s Secret, whose merchandise has fallen out of sync with changing consumer tastes, had been embracing a fast-fashion approach to retail under Singer and had taken some steps towards improving profitability for its Lingerie and Pink divisions. However, efforts were not deemed enough to halt the brand's decline: “One of the biggest higher-level issues we have noted at L Brands over the past few years is management’s reluctance to making real change across the business – leaving many investors with a lack of confidence that L Brands will be able to keep up in today’s rapidly evolving retail market,” said analysts at Wells Fargo in a note.

RETURN TO SWIM

That may be about to change with the proposed business reevaluation, as the brand prepares to reenter categories including swim, which will make its comeback in spring 2019. “[It’s] fundamentally a decision that reflects listening to our customers,” Burgdoerfer said by way of explanation. “We’ve already begun marketing and selling boots, for example, but also eyewear and other licensed businesses," he added.

The announcement marks a U-turn in strategy for the brand, which exited the swim category in 2016 in order to focus on its core line of bras and panties. However, the loss of the swim business, which was worth $525 million at the time of the exit, weighed on the bottom line more than expected. Wells Fargo analysts have previously said that the exit “did more bad than good” and speculated that the company had underestimated the impact on seasonal sales and the segment’s worth as a traffic driver.   

While Victoria's Secret was reluctant to expand on the reasons behind the decision, increased consumer demand for cross-seasonal holiday apparel, including swimwear, has been a driving factor in the fashion industry's move towards a seasonless model. Market research firm Edited has predicted that the swimwear market will be worth $20 billion globally next year, citing a boom in international air travel and increased interest in fitness as reasons behind the growth.


The 'Angels' bra collection was not a hit with customers



MERCHANDISING

But while the categories themselves are back on the table, it’s certain that the style themselves will be up for review.

Merchandising is a priority consideration, Burgdoerfer confirmed, admitting that the brand had made a number of blunders that had exacerbated sales declines amongst a customer base which has turned away from the sexy, glittery and highly constructed styles for which the brand is famous, in favour of more comfortable, wearable apparel sold by competing brands such as American Eagle Outfitters-owned Aerie.

Recent loungewear designs at Victoria’s Secret Pink, the line aimed at college-age women, and which until recently had outpaced its big-sister brand, in particular failed to appeal.

“We launched the fall season with a distortion into bling, apparel with a lot of embellishment and a lot of investment in the product. The customer didn’t respond to that in the way that we’d hoped for,” Burgdoerfer said, adding that the low sales for the fall line resulted in deeper promotions in order to clear inventory. Meanwhile, sales for the Body by Victoria franchise and the Angels bra collection also floundered and led to increased markdowns.

As such, ensuring a “compelling” selection of merchandise is top of the list for the company, and those selected to update the company’s offering for the current female consumer are Amy Hauk as the CEO at Victoria’s Secret Pink, and John Mehas as CEO of Victoria’s Secret Lingerie, who joins from Tory Burch, replacing Singer.

“[Mehas] has served female customers for meaningful and substantial parts of his career,” Burgdoefer commented on the appointment. As for Hauk, the CFO conceded that she will have a challenging task of her: "Amy is a very talented leader that has spent 10 years with us and a lot of time prior to that in this industry... her understanding of the business end-to-end is very, very strong. With that said, Rome wasn’t built in a day."

Returning the Lingerie and Pink lines to growth won’t be a quick transition. Victoria’s Secret is battling to reduce losses by slashing dividends to reduce debt and scaling down stores in both number and size, but receptiveness to all the potentially profit-boosting options available – including backtracking where necessary – could be the first steps towards getting the iconic lingerie brand back on track in the long-term.

 

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