The parent company of Victoria’s Secret is trimming corporate headcount as part of a larger $400 million cost reduction plan.
The company, which also owns Bath & Body Works, is reducing its home office headcount by approximately 15%, or about 850 associates. The layoffs follow what L Brands says was a review of its home office organizations to reduce overhead expenses and decentralize shared functions and services in order to establish Bath & Body Works as a pure-play public company and prepare Victoria’s Secret (including Victoria’s Secret Beauty and Pink) to operate as a separate, standalone company.
L Brands says it is providing a comprehensive benefits package for terminated employees, including severance, continuing access to health benefits and outplacement services. In the second quarter of fiscal 2020, the company expects to record pre-tax severance costs of approximately $75 million related to the headcount reductions.
The staff cuts are part of a larger $400 million cost reduction program that L Brands expects to generate approximately $175 million of savings in fiscal 2020. The plan also includes the previously announced closing of 250 Victoria’s Secret stores while negotiating with landlords for ongoing rent relief.
Other cost-cutting measures L Brands is following include working with suppliers to identify opportunities to reduce merchandise costs in order to increase merchandise margin rates at Victoria’s Secret. The company says as a result of this effort to date, spring inventory receipts for Victoria’s Secret were down approximately 45% compared to the prior year, and fall receipts are expected to be down approximately 50% compared to 2019.
In addition, L Brands intends to reduce Victoria’s Secret store selling costs through changes in management structure and the labor model, and is actively working to reduce operating losses in company-owned businesses in the U.K. and China. Currently, L Brands is in exclusive negotiations to sell its U.K. business to a “major fashion retailer” and has closed an unprofitable flagship in Hong Kong, among other measures.
“Decisions relating to our workforce are incredibly difficult and not taken lightly, but these actions are necessary to best position our company for the long-term,” said Andrew Meslow, CEO of L Brands.
Providing a business update, L Brands said most Bath & Body Works and Victoria’s Secret stores in North America have reopened with sales at both businesses strong and exceeding the company’s expectations. Total company net sales for the second quarter are expected to be down approximately 20% year-over-year, including an increase of roughly 10% at Bath & Body Works and an approximate 40% decline at Victoria’s Secret.
According to L Brands, total direct channel sales at both businesses are up “significantly” year-over-year, offset by a decline in store sales, as stores were closed for periods of time during the quarter due to the COVID-19 pandemic.
L Brands operates 2,897 company-owned specialty stores in the U.S., Canada, U.K. and Greater China, and its brands are also sold in more than 700 franchised locations worldwide.