L Brands CEO Says Victoria's Secret Was Getting Stale
November 01 2016 - 07:00PM
Dow Jones News
L Brands Inc. CEO Les Wexner said he decided to make drastic
changes at Victoria's Secret to ensure the chain didn't suffer the
same fate as many other specialty retail brands.
"Most fashion brands live about 10 years successfully because
they cannot renew," said Mr. Wexner, who acquired the brand in 1982
and built it into a bra juggernaut with images of busty models and
fashion shows.
Earlier this year, Mr. Wexner took charge of Victoria's Secret
and announced big changes, including shifting away from catalog
mailings and getting out of the swimwear business.
"I thought the brand had stalled out in beauty, in lingerie and
the direct channel," Mr. Wexner said Tuesday at a meeting with
investors and financial analysts. "I wish we had taken those
actions two years ago or three."
The athleisure trend, including a shift toward bralettes, has
forced the company to adjust its lingerie assortment to fend off
competitors. Mr. Wexner said bralettes—bras without underwire and
padding—can be a substitute for bras and customers aren't as
particular about quality and technical expertise. "It's easy for
someone in the apparel business to sell them," he said.
"You always worry about competitors and it's tough to see
sometimes," Mr. Wexner said. "When BlackBerry owned the market,
they didn't see Apple coming."
He also highlighted concerns over an aging customer and the
diminishing benefit of the company's previous promotional strategy.
"We abused our brands at Victoria's Secret by promoting endlessly
and endlessly," he said, such as constantly offering a coupon for
free panties.
Instead of coupons, the company has been using aggressive
markdowns to attract customers to items like sports bras and
bralettes. The discounts have also put pressure on margins. "It's
going to cost a few bucks to eat someone else's lunch," he
said.
On Monday, L Brands warned its third-quarter earnings would come
in at the lower end of its previous forecast range. It now expects
to earn about 40 cents a share, well short of the 55 cents a share
it made last year. Analysts were expecting 46 cents a share.
Shares, which are down more than 30% over the year, fell 8% to
$66.50 in 4 p.m. trading on Tuesday, after the company cut its
forecast.
The company will face pressure from its restructuring efforts
this fall and into next spring and will be in a position to deliver
sales growth in the range of 7% to 10% by the back half of 2017,
said finance chief Stuart Burgdoerfer. "We are very clear minded
about why we are making those changes—that is, to accelerate
growth."
Executives are bullish about the future of brick-and-mortar
stores. Victoria's Secret and Bath & Body Works are "best
experienced in person," said Mr. Burgdoerfer, highlighting growth
of the businesses in malls of all types across the country.
The company has been focusing on opening stores abroad,
particularly in China, and plans to sell products on Alibaba's
Tmall, a Chinese e-commerce marketplace. Mr. Wexner said that
millions of dollars worth of volume is already being done by
resellers of Victoria's Secret products in China. "We look at China
as a second home office and we see potential there equal to the
United States," he said.
Victoria's Secret is holding its famous fashion show in Paris
this holiday as it explores opportunities for growth in Western
Europe. Mr. Wexner hinted at the possibility of holding the show in
Shanghai next year.
Write to Khadeeja Safdar at khadeeja.safdar@wsj.com
(END) Dow Jones Newswires
November 01, 2016 18:45 ET (22:45 GMT)
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