BY RICHARD BROWNE
Deputy Editor The Matt Haycox Report
The secret is out and lingerie company Victoria’s Secret is struggling to keep itself covered through the age of COVID-19. As the company faces oblivion, it’s a story of how a once great brand couldn’t adapt to a rapidly changing cultural landscape, and must now fight to hold its core together.
The luxury underwear company has announced the closure of hundreds of its stores and the sacking of even more staff. While the company tries to get a hold of its home market in North America, it fell into administration in the UK where it is trying to sell its stores in the UK to well-known retailer Next.
Previously the brand was famous for its sexually-charged fashion shows with minimally-dressed models, known as angels, wearing lingerie and decorated wings. But those were brought to a halt in 2018, having been perceived as being outdated at the very least.
Victoria’s Secret owner L Brands from Columbus, Ohio in the USA, said recently that it expects second-quarter revenue to have fallen 20 per cent compared to 2019. It was moving ahead with plans to make Victoria’s Secret into a separate company following a failure to complete a sale deal. Meanwhile it is focusing on running the more successful Bath & Body Works on its own.
On Tuesday the company announced that it would be reducing employment by 15 per cent or about 850 people in the USA market to help create US$400 million in annual savings.
Other aspects of the plan included tighter inventory management which had already seen inventory receipts down by 45 per cent for the spring compared to 2019, and an expectation for fall to be about 50 per cent less.
L Brands will also close 250 Victoria’s Secret stores this year, while working on getting rent relief from landlords.
Victoria’s Secret CEO Stuart Burgdoerfer reportedly said closures were a strategy to strengthen the business. And that strategy would continue for some time, as he said there would also be more closures in 2021 and probably a bit more in 2022.
The situation was even more serious in the UK, where Victoria’s Secret has about 25 stores in the UK market, with over 800 employees.
After sales for the British division had fallen sharply, with pre-tax losses of £171m, the company resorted to a light form of administration back in June to enable it to better explore selling off the business.
In a report earlier this year on the underwear industry in the UK, market research firm Mintel said, “while the underwear sector has been more resilient to the overall drop-off in sales that has hit the rest of the fashion sector, Mintel estimates that consumer spending on underwear, nightwear and loungewear will still fall by 12 per cent in 2020 to £4.2 billion, following a 2.7 per cent rise in 2019 to £4.7 billion.”
Negotiations for the Next sale are still continuing and may be finalized next month. Next may decide not to keep all the stores, and negotiations with landlords are critical.
Meanwhile, the Asian market has also been hit, as over in Hong Kong, the company shut down its main store and is cutting overhead expenses.
But as bad as the year has been so far, the company actually performed better than it feared with a near 40 per cent fall for Victoria’s Secret. When viewed together with the 10 per cent growth for Bath & Body Works, net sales fell by 20 per cent. Sales were led by increased numbers for online purchases.
It was reported that the company also had a strong cash and liquidity position also remains strong. As of July 24, it had a cash balance of over US$2.5 billion.
Net sales during the first quarter ending May 2 fell by 37 per cent to US$1.65 billion.
The company made a net loss of US$296.9 million for the quarter. That compared to a profit of US$40.3 million last year. Total sales plunged by 46 per cent to US$821.5 million.
Earnings for the second quarter will be reported on August 19.
Its easy to conclude that much of the blame for the fall of Victoria’s Secret lies with the pandemic, with the company forced to close its stores during the lock down and seeing sales plummet to virtually nothing for months.
But really the writing was on the wall for this iconic brand for at least a year, and the pandemic was only the rather weighty straw that broke the camel’s back.
Victoria’s secret was having a hard time keeping up with a rapidly evolving culture, where the Me Too movement was growing rapidly as was the move away from romanticism for undergarments towards more athletic garments.
Victoria’s Secret had a sexy image which it built upon with yearly fashion shows, which from today’s vantage point look sexist, dated and almost repellent to members of the MeToo# generation.
“Despite being a desirable yet expensive underwear brand when it launched in the UK in 2012, Victoria’s [Secret] has since lost its appeal for many shoppers due to a lack of inclusivity,” Sofie Willmott, lead retail analyst at GlobalData in the UK told Retail Dive back in May.
“Its famous catwalk show was cancelled last year after much debate but for many of its target customer base, it was too little too late and they had already gone elsewhere,” she said.
And as the world looks toward a new culture with greater equality between the sexes, where there are new rules about how men should complement or approach women, the idea of buying lingerie as a present has become less attractive.
That is a problem for Victoria’s Secret which was basically started not as a store for women, but as a store for men to buy presents for women. One which could seal the deal, so to speak, or at least ensure the deal was kept strong.
TOP MANAGEMENT CHANGES
The image of the company as being out of step with the Me Too movement wasn’t helped when octogenarian Les Wexner, the L Brands founder, left as CEO in April after almost 60 years of leading the company. His relationship with Jeffrey Epstein – the multi-millionaire financier who was convicted of sex offences and died while in prison last year – did nothing the help the bruised image of the brand. Wexner expressed regret over that relationship, but the damage was already done.
Wexner said during an investors call in September that he had been taken advantage of by Epstein, who was “so sick, so cunning, so depraved is something that I’m embarrassed that I was even close to,” according to the Associated Press.
“But that is in the past,” Wexner added, saying he was embarrassed by the relationship and that he had cut ties with him almost 12 years previously.
Victoria’s Secret was also recently found to be out of step by some when it came to accepting and promoting the rights of transgender people. Back in August last year, Ed Razek, L Brands’ chief marketing stepped down after being heavily criticized for statements he made that he wouldn’t include transgender models in fashion shows because they might ruin the brand’s “fantasy” appeal.
Victoria’s Secret was founded in 1977 by Roy and Gaye Raymond and was sold to Leslie Wexner in 1982
Wexner was the one who grew the brand into US shopping malls, making the company the largest lingerie brand in the United States, with some 350 stores across the country and sales of US$1 billion by the early 1990s.
But that mall strategy ended up being another nail in the company’s coffin as it relied too much on brick and mortar. The rapid decline in the popularity of shopping malls hit Victoria’s Secret, and unlike its sister-company Bath & Body, it didn’t compensate for those losses with a winning online strategy.
“L Brands is practically a disaster area,” Jim Cramer, the host of “Mad Money” on CNBC, said recently. “They have a major presence in shopping malls all over the country, especially Victoria’s Secret, so the steady decline of the mall has crushed them.”
So even without COVID-19, Victoria’s Secret had found itself as a bruised competitor in a struggling industry.
There is a run in Victoria’s Secret’s stocking, and nothing can hide it, No one wants a stocking with a run in it. The company’s only chance now is to go back to its core market and look to once again differentiate itself, but this time with an emphasis on the online space.