L Brands’ Aggressive Market Testing Suggests That It Might Be Gearing Up For Major Changes

The key theme in L Brands’s first quarter fiscal 2017 call (first quarter ends in January) was that the company tested and learnt a lot in Q1 and there might be some significant changes and new launches under both Victoria’s Secret (VS) and Bath & Body Works (BBW) in the coming months. The personal care business (BBW) is going very well for the company right now with the customers shopping for full body care products starting from shower gels to perfumes. In the VS lingerie segment the company had been aggressive in its pursuit of growth in the sports bras and unconstructed bras categories. This has led to a growth in sales and attracted younger customers to the brand. The Lingerie CEO, Jan Singer, who joined VS last September, has been instrumental with this drive. There’s a strong product lineup for the coming fall months that stresses on rebalancing the offerings with a focus on the constructed bras. The company is trying to grow PINK’s lingerie business and as a result the bra sales grew by double digits in Q1. PINK is one of the highest selling brands among its retail products and is currently approaching $3 billion in annual sales figures.

The company’s net sales declined by 7% y-o-y to $2.44 billion while its comparable sales for the first quarter decreased 9%. Its earnings per share during the same period stood at $0.33 compared to $0.52 for Q1 FY 2016. A lot of this decline was due to the category exits from swimsuit and apparel that the company undertook in an effort to streamline VS’ offerings.

New Learnings In Advertisements

L Brands has been tweaking its advertising strategy in tune with its learnings from the market. For example, it had earlier eliminated the catalog at VS and now it is trying to be more digital in its communications through social media and emails. A year back the company made changes in its direct mailing program so that it becomes more brand appropriate and carries more interesting and appealing offers, instead of the standard and repetitive offers in every mail.

L Brands’ Dynamic Store Strategy Is A Key To Its Success In Brick-And-Mortar Retail

Despite the failing brick and mortar sales for other companies in North America, 99% of L Brands’ stores still generate a positive cash flow. The company is invested in making the stores more interesting with concepts, designs, and the merchandise on offer. The stores are known for selling ‘experiences’ and that’s the biggest appeal of the brand in the minds of its consumers and it tries to live up to that image. Also, its flexible contracts while buying the lease for a store helps it in leaving a mall if the occupancy level falls below a specified limit. Its capital expenditures in North America also follows a flexible schedule in sync with the performance of its business. Along with making changes in VS stores, the company is also undertaking remodeling activities for its BBW stores to make them more appealing for customers.

PINK Has Huge Growth Potential

The management believes that among its lingerie brands, PINK, the brand for teenagers and young adults, has the potential to almost double its sales in North America. Currently, the distribution of the full assortment of PINK merchandise is limited in stores because there is less than adequate square footage available for it, but even then the brand offers over $1,000 of revenue per square foot of display. There is a huge scope for growth with the expansion of PINK’s presence in stores and also online.

China Business Is Growing Well

L Brands made major changes in its international business in fiscal 2016. VS built a business in China in order to deal with problems like foreign exchange headwinds and lack of traction in travel retail sales. In terms of its new business in China, the company is making significant progress. VS has opened its first full assortment store in the last quarter and an additional two stores in February with a very encouraging customer response. There are four more stores to be opened in China over the rest of the year. The Beauty segment, which has been present in China over the last couple of years, is also performing well. The direct-to-consumer business, launched in the fall, is making monthly progress.

The patterns of demand and consumer behavior in China is similar to North America. However, the differences in business in the two geographies are that China’s lingerie demand is for smaller sized customers and China has a longer lead time for getting products to the market because of a stricter regulatory environment.

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