Victoria’s Secret: Unveiling More than a New Reputation
By: Shania Madan & Rachel Colucci
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
The Birth of a Royal Brand
Roy Raymond founded Victoria’s Secret & Co. (VS) with the vision of creating a women’s undergarment retailer that allowed men to feel comfortable buying lingerie for women. In 1977, he leased a space in a California mall, and marketed the first VS location towards men by staging their products in a Victorian-inspired store that resembled a brothel. In 1982, VS was on the verge of bankruptcy and their six stores were acquired by L Brands (formerly known as Limited) in a $1-million deal. Within eight years, L Brands transformed VS into a dominant industry player with 350 stores, $1-billion in annual sales, and a network of loyal customers.
Modeling a New Future
Throughout the late 1990s and early 2000s, VS appealed to the masses, focusing on a strategy of selling high quality products through a hypersexual, aspirational appeal. The company expanded beyond lingerie into fragrances in 1991 and then into cosmetics in 1998. VS was widely known for their extensive brick-and-mortar locations, which immerse customers in their romantic and glamorous atmosphere. The company introduced the well-acclaimed VS Fashion Show in 1995, which featured A-list supermodels and generated millions of viewers. VS successfully expanded into the Canadian market in 2010 and the United Kingdom shortly after in 2012. The company also began to diversify their product lines by expanding into swimwear, shoes, sleepwear, athleisure, and accessories.
The Victorian Era: A Decade of Royal Failures
VS has suffered a turbulent few years, characterized by evolving social ideals and constant leadership changes, resulting in financial struggles. The rise of social campaigns like the Body Positivity Movement empowered women and changed ideals around sexuality, beauty, and body image. Growing societal emphasis on diverse body types and gender identities starkly contrasted with VS's founding values and their brand image at the time.
The global lingerie retail market was valued at $42-billion in 2020, and is forecasted to reach $79-billion by 2027. Despite anticipated industry growth, VS has been losing customers due to increased competition. Brands like Aerie have won over market share due to its consumer-aligned mission, authentic representation of beauty, and practical product lines. The demand for diverse sizing and colour options led to the success of new players such as Savage x Fenty and Skims. While competitors focused on listening to what their customers wanted, VS continued to release ill-fitting campaigns and failed to align products with evolving consumer preferences, resulting in eroded brand loyalty and lost market share. During the pandemic, many competitors experienced success by deploying an ecommerce-first strategy to eliminate costs associated with retail space and inventory management. Now emerging from the pandemic, retailers are under pressure to embrace an omnichannel approach, in which online and in-person shopping experiences support each other to increase sales conversion.
VS currently has 1,350 retail stores worldwide that are, on average, 6,000 square feet. The company has an extensive portfolio of brick-and-mortar locations, many of which are situated on prime real estate in major cities. These fixed assets present a key competitive advantage for the company, as its high capital requirements make it difficult for other competitors to obtain. Additionally, the store locations provide VS value by giving consumers a tactile shopping experience. In 2017, nearly 60 percent of female consumers preferred shopping in-person to assess the feel and fit of undergarments, whereas 13 percent did so to access consultation from sales associates. Both experiences that are difficult to replicate in an online setting. This consumer preference presents an opportunity for VS, which can leverage its existing brick-and-mortar locations to offer in-person shopping experiences.
However, VS's sales have decreased by 8 percent from 2021 to 2022, while operating expenses have increased by 7 percent, demonstrating the company’s struggles in managing its brick-and-mortar strategy. In light of financial struggles, VS closed over 240 stores in 2020 alone, and discounted products to survive. Furthermore, VS has been slow to adapt to technological trends, such as the shift to online retail, which resulted in lost customers and failure to recoup profit from decreasing brick-and-mortar sales through an online shopping experience.
Reputational Issues: A Secret No More
Amidst these financial struggles, it has been increasingly important for VS to make meaningful changes to capture a broader customer base and maintain their store locations, but the question remains: is it enough? VS has received criticism for making changes so late, which management attributed to their lack of control over the company. In August 2021, L Brands split with VS to allow for increased autonomy, growth opportunities, and shareholder value. As a now independent company, VS has undertaken the “Victoria’s Secret Transformation,” a range of efforts to shift company values and begin financial recovery.
To signify the company’s newfound priorities, VS partnered with Amplifyher Ventures to invest in female entrepreneurs, announcing a $7-million investment in February 2022. VS also launched VS&Co Essentials, which collaborates with non-profit organizations to distribute intimates to women in need. In April 2022, VS started Happy Nation, a gender-neutral loungewear and undergarment brand for tweens. Finally, the retailer launched VS&CO-Lab, where VS sells third-party products exclusively through its own website, with a focus on highlighting small, female-founded intimates, swimwear, and shapewear brands.
To promote further recovery, VS acquired the New York-based lingerie and sleepwear startup Adore Me Inc. (Adore Me). Adore Me’s key strengths are their inclusive products, ecommerce focus, and its home try-on service. The “Home Try On” model offers customers professional consultation and the tactile experience in the comfort of their own homes, a substitution for the in-person shopping experience. This allows VS to overcome the challenges accompanied with purchasing lingerie online, creating a more seamless digital experience to complement their existing brick-and-mortar locations. Adore Me is also B-Corporation certified due to their focus on sustainability and diversity, furthering VS's efforts to align with the preferences of socially conscious consumers. VS should leverage these synergies to modernize the company and accelerate their growth.
Despite continued negative media attention, VS has begun to show early signs of improvement. The company reported a 25 percent increase in sales between Q2FY21 and Q2FY22, VS's first positive growth in sales in the past four years. The company’s VS Beauty segment now represents 15 percent of its total sales, indicating an opportunity for VS to further drive growth by leveraging their beauty division. However, for continued survival, VS should continue to build their beauty distribution channel, and partner with brands that align with their core values.
Brick-and-Mortar gets a Makeover
A major strength for VS is the 1,350 stores under their ownership. Each store has large square footage, stylish fixings such as crystal chandeliers, and are strategically located in major shopping malls or fashion-forward districts of major cities. This represents a major opportunity to showcase the start-up, women-led brands listed through the VS&Co-Lab. With 15 percent of VS's sales in 2022 coming from the VS Beauty segment, VS should expand within this category.
As such, VS should add skincare and makeup brands to VS&Co-Lab, instead of being limited to selling apparel products. After evaluating the success of skincare and cosmetics brands from online sales through VS&Co-Lab, VS should feature them in-store to support the in-person, tactile buying experience that is essential in translating to sales in the cosmetics category. VS can execute this by adopting the same business model as Sephora, in which they buy the products in bulk at wholesale price and sell them at their normal retail price. Forming strategic partnerships with other brands would allow VS to reach and capture new customers. VS should partner with smaller, mission-driven brands such as Fluide, Jecca Blac and Trixie Cosmetics, which lack the scale and recognizability to be listed at big-box retailers like Sephora. Potential customers would be drawn into VS stores by partner beauty brands, but would also be acquainted with VS's core product offerings that demonstrate the brand’s newfound commitment to diverse sizing and empowering apparel.
After VS sees success with partner brands, they should make their own in-house beauty and skincare product lines. Skincare is cited as the world’s most profitable segment of beauty, accounting for 42 percent of global cosmetic revenue. Furthermore, VS has a vertically integrated personal care product supply chain, which allows VS to have pricing control and production transparency. Therefore, VS not only has the existing capabilities to sell these in-house product lines, but the company would also be able to earn high profit margins. VS's current beauty and fragrance positioning is mid-price, so these product lines should be the same.
Loyalty to the Secret
Due to declining brand loyalty, VS should also build a strong loyalty program to increase customer retention and repeat purchases. Top-performing loyalty programs like Sephora Insiders and Ulta highlight the success that beauty retailers often experience from strong loyalty programs with valuable incentives. Loyal customers are also found to boost revenue by 15-25 percent, increasing companies’ ability to grow market share in the fiercely competitive landscape.
Currently, VS has an underwhelming loyalty program. The company only offers a VS credit card, where customers must apply for the perk of 5 percent back in rewards. Customers must submit formal documentation and government identification to enter the program, and maintain a certain level of spending to continue accessing rewards. VS's current system rewards their most loyal customers who only represent a small share of their customer base, while barring new and infrequent shoppers from joining the program due to its application requirements.
VS should launch “VS Lovers,” a free membership program that is integrated with both online and in-person shopping experiences. “VS Lovers” should also provide points for every dollar spent on all VS products – including partner retailers such as the Happy Nation brand. This would provide VS more data on its customers, allowing the brand to better serve customer needs and offer personalized shopping experiences over the long run.
In VS further integrating their beauty segment with their existing capabilities in the brick-and-mortar shopping experience, VS can set themselves on a new trajectory towards long-term growth and improvement.
