Victoria’s Secret in financial chaos
THE United State's number one lingerie brand Victoria's Secret is in severe strife as financial reports show the company's popularity is not being reflected in sales.
Victoria's Secret annual fashion show is a fashion event that is unparalleled in the world of e-commerce.
It features the biggest models and has successfully branded itself as an model of empowerment for viewers and the models involved. This is despite it being a lingerie parade in the service of selling stuff. So bravo.
Yet the brand appears unable to convert the televised event into profitable and consistent sales on a retail level.
The first Victoria's Secret Fashion Show in 1995 was advertised during the Super Bowl with a 72 hour countdown, and was subsequently watched online by 2 million people. Last year its ratings were 5 million, but that's a 32 per cent slump from former years.
The fashion show was actually embarrassingly beaten in the ratings by Rudolf the Red Nosed Reindeer, which CBS was airing a repeat of. It follows a trend of steady decline in ratings for the once blockbuster TV event.
The brand has found it hard to translate the fashion event, which features live performances from musicians as well as lingerie struts, into consistent online and retail sales. The company also relies on biannual sales events - one to coincide with its massive fashion show, and one over the summer.
In July, L Brands - the parent company who owns Victoria's Secret - reported a dramatic 12 per cent slump in its shares following it's July sales period this year. Sales were disappointing, described by the company as a "soft start with negative traffic levels" that did not improve despite the brand extending the sales period.
According to Jefferies analyst Randal Konik, the continual cheapening of the brand by Victoria's Secret is doing little to endear the brand to its target market. Victoria's Secret PINK brand, marketed to teenagers, sells panties for as little as $3.
Konik called the brand "out of touch", said the cheapening retail prices were "a fad" and said "as it unwinds there will be severe margin and cashflow implications as a result," speaking to Market Insider.
Following a disappointing result for the lingerie producer in July, investors were quick to sell up stocks in droves leading to the massive slump in stock prices.
The brand recently sent sets of outfits and wings to the homes of the Kardashian sisters, whose social media reach is larger than the population of the United Kingdom, far outstripping the viewership of the televised fashion show.
It's possible L Brands finds itself in difficulty with Victoria's Secret's stalling sales because of a business model that has left itself exposed to strain as one business suffers. L Brands was formerly more diverse as a company, including brands The Express, Gaylans and others, but many of these have been merged so that the company can focus on Victoria's Secret and its other major retailer Bath & Body Works.
While L Brands recently reported an 8 per cent uptick in sales for the last quarter, they have attributed these improved figures to market performance by Bath & Body Works, not lingerie giant Victoria's Secret.
MASSIVE BUSINESS CHANGES HAVE NOT PAID OFF
The business has made a number of changes in the last few years which they have attributed to flattening sales, including culling VS-specific features such as the mail-out catalogue.
In 2015, around 300 million people were receiving this - but as the world moved out of print and into digital the business looked to save itself $US150 million ($AU207 million) in printing and distribution.
The decision was made by reconsidering Victoria's Secret's model, as "starting this business today in current context 2016," according to Stuart Burgdoerfer, L Brands finance chief.
But the decision to axe the popular catalogue may now be considered a mistake, along with other popular elements of the brand, including their panty mail outs before purchase. The brand also axed it's popular swimwear and apparel lines, calling them "non-core."
Victoria's Secret remains the number one lingerie brand in the US but it's hold on the market is slipping.
Many start ups that offer direct-to-consumer business models have enjoyed strong growth, where direct-to-consumer marketing takes place on social media platforms (not too dissimilar from Victoria Secret's original catalogue-to-consumer model).
L Brands shares have plummeted 43 per cent over the course of this year.