Victoria’s Secret Is Rethinking Sexy with Profit Margins in Mind

Beneath Victoria’s Secret’s plan to shed its image as a peddler of male lust is an age-old business strategy: boost how much shoppers like your brand and rising profits usually follow.

The retailer took plenty of gut punches over the past several years. There’s been ongoing criticism that its marketing objectified women. And then former Chief Executive Officer Les Wexner’s ties to convicted sex offender Jeffrey Epstein further damaged the brand.

But despite all that, the major issue for the biggest unit of L Brands Inc., which also owns Bath & Body Works, wasn’t big declines in revenue as its customers mostly stuck with it. The bigger problem proved to be relying on a lot of discounting to sell items. That weighed on profitability as its parent company’s overall gross margin narrowed by about 8 percentage points from 2016 to 2019.

“We’re going to look at new customers,” said Martha Pease, who was named chief marketing officer at Victoria’s Secret last year as part of a management overhaul. “And that will drive the demand that new customers will have for our brand.”

The retailer’s marketing overhaul, announced this week, broadens what it defines as sexy, including highlighting plus-sized and transgender models. The angels, a group of scantily-clad supermodels, have been retired. It’s also brought on seven prominent female celebrities, including soccer star Megan Rapinoe and actress Priyanka Chopra Jonas, to help vouch for the chain and craft its revitalization.

“At the end of the day, the notion of elevating the brand and creating an image that customers will pay for is what drives sustainable margins,” said Simeon Siegel, an analyst at BMO Capital Markets. When a brand makes a strong argument that it matters, it becomes more sought after, and then it’s easier to convince shoppers to spend more, he said. “An investor would much rather see a dollar spent on marketing than a promotion.”

Changing Structure

It’s a big bet for a brand entering a new era. Later this year, the plan is for Victoria’s Secret to spin off into its own public company. That will only increase pressure to show it can win over Generation Z, whose oldest members are in their early 20s. This cohort say they care more what a brand stands for than previous generations. The shift may already be working. In recent earnings calls, executives at L Brands have touted that the lingerie chain has reduced promotions.

Even as Victoria’s Secret was embroiled in controversy over the past few years, it maintained high customer loyalty, according to the company. And some of those fans, which turned it into a dominant force in women’s apparel, could be alienated by the shift in aesthetics and embrace of issues, such as LGBTQ rights, that the brand had historically avoided.

“There may be people who may not like it,” said Raul Martinez, who became creative director at Victoria’s Secret in January and has a teenage daughter. “We have to have ethics, and we have to be on the right side of history in a sense.”

One positive for investors is that this new strategy does provide a clear message on what the retailer plans to do once it gets spun off, said Gabriella Santaniello, founder of retail consultancy A-Line Partners.

“This gives them hope that they’re going to actually turn around,” Santaniello said. “It’s a big opportunity for them.”

©2021 Bloomberg L.P.

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