Leslie Wexner is set to step down as CEO of L Brands upon completion of a planned sale of the company's lingerie business to private equity firm Sycamore Partners, which was announced on Thursday. He will remain a member of the company's board as "chairman emeritus," according to a press release emailed to Retail Dive.
Sycamore will purchase a 55% interest in Victoria's Secret for about $525 million, and L Brands will retain a 45% stake. Bath & Body Works Chief Operating Officer Andrew Meslow has been promoted to CEO of that brand, and will take over as L Brands CEO once the deal is done.
The deal is part of a broader plan to separate L Brands' Bath & Body Works personal care business "as a highly profitable, standalone public company" and Victoria's Secret into a privately-held entity, majority-owned by Sycamore. Victoria's Secret includes Victoria's Secret Lingerie, Victoria's Secret Beauty and Pink, and all told has an enterprise value of $1.1 billion, per the release.
Like so many Victoria's Secret customers in recent years, Sycamore is buying the brand at a discount.
It's also buying a project. New ownership brings with it a chance at a fresh start, but that will hardly be a snap, according to GlobalData Retail Managing Director Neil Saunders.
"[T]he transaction itself is not a solution, that can only come from a process of reinvention which will take both time and money to enact," he said in emailed comments. "This is one of the reasons why the sale of the 55% stake netted a relatively slim $525 million; the truth is that the Victoria's Secret brand no longer attracts a premium in the way it once did."
Credit Suisse analyst Michael Binetti was harsh in a client note issued after the deal was announced, calling the stated value of Victoria's Secret's "worse than expected."
Financially at least, it's a good move, at least to some extent. Separating Victoria's Secret into a private company will both help L Brands reduce its debt and allow it to focus on its better-performing Bath & Body Works business, "which represents over 80% of its operating income," according to emailed comments from Moody's vice president Christina Boni. "The transaction combined with cash on its balance will result in estimated debt reduction [of] approximately $1 billion and mitigates the risk associated with the turnaround of the Victoria's Secret business," she wrote.
It's also a good move for the whole segment, according to Heidi Zak, co-founder and co-CEO of lingerie upstart ThirdLove, who has openly sparred with L Brands executives, including longtime marketing chief Ed Razek, who left the company last year after controversial remarks on the brand's now defunct fashion show.
"This is a positive step for our industry, which was historically dominated by unrealistic ideals and images of what femininity and sexy should be," she said in a statement released Thursday. She also said in emailed comments that "over the last several years we've seen inclusion become table stakes for most modern brands."
While Zak represents a high profile rival, she is stating what several analysts of the segment have also said repeatedly in recent years about the lingerie stalwart's failure to keep up with changing customer tastes and to respond to the cultural shift of the #MeToo era. Even as growth stalled and then declined, the brand may have been reluctant to risk what continued to be billions in global sales.
L Brands on Thursday said it now expects to report a fourth quarter comparable sales decline of 2%, with a positive 10% comp at Bath & Body Works and a 10% comp decline at Victoria's Secret. But, while Victoria's Secret revenue in the third quarter fell 7.6%, it still reached $1.41 billion, overshadowing Bath & Body Works sales of $1.06 billion.
"While still a retailer of significant scale, Victoria's Secret has become increasingly detached from the consumer zeitgeist," Saunders said. "Management has seemingly recognized this to be the case on many occasions but has always lacked the will or the knowledge to make the necessary changes. This has resulted in a steady decline in both customers and sales and the loss of a significant amount of market share."
Plus, Bath & Body Works is on the rise: That third quarter revenue performance reflected growth of more than 11%. While the brand has potential, the pressure is on now, considering that its streak of big gains won't easily continue at the same pace, Saunders warned.
The moves announced Thursday were a long time coming. Activist firm Barington Capital last March began pressuring L Brands to contemplate ways of unlocking value, including a spinoff, and at their investors day last September L Brands executives said the idea was on the table. On Thursday, L Brands said it has extended last year's agreement with Barington for another 12 months, which entails Barington continuing to serve as "special advisor to L Brands."
The maneuvers also mark the end of an era for Wexner, who began his empire in the 1960s with a single Columbus, Ohio apparel store that grew into The Limited. He is now taking leave of that — and of apparel retail — with his signature lingerie brand in poor shape and his reputation marred by his close relationship (since disavowed) with disgraced financier and convicted sex offender Jeffrey Epstein, whose death in prison last year was ruled a suicide.
"Today's transaction could have been avoided if L Brands had taken decisive action on Victoria's Secret a long time ago," Saunders said. "That it didn't has cost the company what was once a key brand and has diminished its sale value. Ultimately, that is the price of being asleep in a market that has become more woke."