Victoria’s Secret Needs to Break Out of Its Sexpot Rut

(Bloomberg Opinion) -- The annual Victoria's Secret fashion show aired on Sunday night, and it was the same old sexpot parade we've come to expect from the mall stalwart: Gobs of sparkles! Oversize wings and sprays of peacock feathers! Impossibly big hair atop impossibly tiny bodies! 

The pageantry was an encapsulation of the retailer's recent problems. It was basically an hour-long ode to bombshells and glamour-pusses at a time when women have clearly said “no thanks” to that vibe (not that the show is aimed entirely at them). 

Shares of Victoria's Secret's parent company, L Brands Inc., have plunged more than 45 percent this year, making it among the worst-performing stocks in the S&P 500 Index. And signs of distress keep piling up. The company said in November that it was slashing its annual dividend. The leaders of both the Victoria's Secret and Pink brands have resigned recently.

I keep coming back to one question as I've watched Victoria's Secret flail. How did this formidable chain end up in a place where it failed to detect that consumer winds were changing?

Here's my theory: Its massive market share in the bra-and-panties business —  an unusual position in the otherwise fragmented apparel world — allowed it to get complacent.

In general, when American women fill their closets, their dollars are spread widely among national brands found at off-price chains and department stores; private labels from the likes of Target Corp.; and, of course, the specialty-apparel stores that dot the mall.

But the lingerie business is different. Victoria's Secret commands a huge share of the U.S. market, both for the underwear category, which includes bras and panties, and also for the “nightwear” category, which includes pajama sets and silky chemises.

Victoria's Secret has been the runaway market-share leader for some time, though. So why would this suddenly become a liability now? Because a confluence of factors arose that presented a fresh challenge, and its muscles for fending off competition had atrophied.  

Ed Yruma, a retail analyst at Keybanc Capital Markets, points out that making push-up bras, long a Victoria's Secret staple, is something of an engineering challenge and a unique supply-chain capability. But newly popular styles like bralettes and sports bras can be made by many factories, he notes, and that has made it easier for new competitors to get in the game and tread on Victoria's Secret's turf. 

Digital-centric newcomers like ThirdLove and Adore Me are also making inroads, even if  they aren't close to challenging Victoria's Secret's crown. Their arrival has exposed something that's probably been true for some time: Certain shoppers weren't going to Victoria's Secret because they truly wanted to. They were going because they didn't see better options.

It reminds me of how a dominant cable provider in a given geographic area can skate by despite lousy customer service, or how airlines get passengers to fork over $25 to check a bag: They can get away with an unsatisfying customer experience because the consumer doesn't have much choice.

The stubborn commitment to sexy isn't the only sign that Victoria's Secret isn't a well-oiled retailing machine these days. Consider its swimsuit business: It decided to ax it in 2016, the logic being that it's a highly seasonal category and was a distraction from shoring up the core lingerie lineup.

But last month, the company said it had decided to relaunch a swim line in 2019, a move CFO Stuart Burgdoerfer told investors was “driven principally by customer feedback.” Translation: The company is being forced to do a 180-degree turn on a major strategic initiative because it didn't have a good handle on how shoppers would react to it.

There is still hope for Victoria's Secret to get back on track. Consider the saga of Abercrombie & Fitch Co., another mall giant that stumbled years ago when it became too committed to beefcake and centerfold imagery and obstinately clung to the styles that defined the early 2000s. It has taken a while, but the company seems to finally be finding its way out of the wilderness.

Last week, its shares shot up nearly 21 percent in one day when it reported upbeat third-quarter earnings and named Hollister leader Kristin Scott to a new role overseeing all of its global brands, a move that offers hope of more of Hollister's magic rubbing off on its corporate sibling. Hollister has for several years accounted for more than half of the company's revenue, thanks to its lower price tags as well as marketing and merchandise that's of-the-moment.

If Victoria's Secret is going to find similar salvation, I recommend it stop thinking like the market-share leader it is and start thinking, instead, like a scrappy startup that needs to prove itself.

 — “Victoria's Reign” chart created by Elaine He.

To contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.

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