Analysis: Victoria’s Secret reinvention will take time and money to enact
That L Brands has opted to sell a majority stake in Victoria’s Secret is a tacit recognition that the brand was on the road to nowhere under its previous leadership. This is underlined by the departure of Les Wexner as CEO and chairman of the company.
While still a retailer of significant scale, Victoria’s Secret has become increasingly detached from the consumer zeitgeist. Management has seemingly recognized this to be the case on many occasions but has always lacked the will or the knowledge to make the necessary changes. This has resulted in a steady decline in both customers and sales and the loss of a significant amount of market share.
The deal with Sycamore potentially gives Victoria’s Secret a chance to reassess and rebuild. However, the transaction itself is not a solution, that can only come from a process of reinvention which will take both time and money to enact. This is one of the reasons why the sale of the 55% stake netted a relatively slim $525 million. The truth is that the Victoria’s Secret brand no longer attracts a premium in the way it once did.
In our view, Sycamore will be keen to maximize its investment and its closer involvement with the company will bring new thinking and ultimately a new positioning for the brand. We expect this to be more authentic, less sexualized, and more attuned to the way most consumers now think. In product terms, we expect merchandise will still be fashionable and fun, but more emphasis will be placed on comfort, functionality, materials and making consumers feel good about themselves.
This transformation will not happen overnight — it is not as simple as simply flicking a switch to turn off a proposition that has been misaligned for years. The board will need to be careful in charting a new course that resonates with consumers and addresses new competitive challenges such as the rise of rival brands like Aerie.
Aside from its significant minority stake in Victoria’s Secret, L Brand is now a company focused on the Bath & Body Works business. In our opinion, Bath & Body Works still has significant potential, especially in terms of expanding into overseas markets and attracting new shoppers to its stores. However, it’s long run of very strong growth does make future gains harder to come by and L Brands will need to pull out all the stops to deliver them.
Today’s transaction could have been avoided if L Brands had taken decisive action on Victoria’s Secret a long time ago. That it didn’t has cost the company what was once a key brand and has diminished its sale value. Ultimately, that is the price of being asleep in a market that has become more woke.