Victoria's Secret's broken angel wings
The third quarter brings the latest sign of trouble for L Brands' dimming star. Can new lingerie chief John Mehas bring the light?
Victoria's Secret third quarter report on Monday, following the recent departures of two top executives (lingerie chief Jan Singer and PINK sub-brand chief Denise Landman), showed once again how much L Brands' brightest star is dimming.
Victoria's Secret store comps fell 2% in the quarter, following a 4% decline in the brand's year-ago quarter. That left the company's Bath & Body Works unit, which saw comps climb 13%, to push its overall same-store sales into the black at 4%.
John Mehas, now president of Tory Burch and previously chief of Ralph Lauren Polo's Club Monaco, early in the new year is taking over for Singer as CEO of Victoria's Secret Lingerie, the company also said. Mehas gained his early retail and merchandising experience at The Gap and Bloomingdale's, according to a company press release. Management was wise to find an outsider to shake the brand out of what Global Data Retail Managing Director Neil Saunders called its "inertia."
"John Mehas will bring in fresh thinking, which is much needed at Victoria's Secret," Saunders told Retail Dive in an email. "His past brand experience also means he will likely focus on what customers want and that means he will listen and learn from the market. However, he has a really challenging job in changing the culture of the company, which is very entrenched and out of step with what consumers want."
That cultural entrenchment was on full display recently. Days before the announcement of Singer's departure, the brand was roiled by fall-out from comments to Vogue made by longtime L Brands marketing chief Edward Razek. Ahead of its famous annual fashion show, he said, among other poorly received comments, that he didn't think they should have “transsexuals in the show.”
Razek's interview reflected a cultural disconnect in the #MeToo era, 48 hours after a record number of women were elected to the U.S. Congress. And they came as the brand's same-store sales continue to slide.
Taking out e-commerce, Victoria's Secret's third quarter physical store-only comps fell even further at a 6% decline. “VS Stores have not posted a positive comp in the last 23 months, despite needing additional promos," Instinet analyst Simeon Siegel said in comments on the brand's October numbers, which were emailed to Retail Dive.
Much is made of the company's merchandising missteps — the brand took much too long to recognize the demand for bralettes, for example, according to retail research firm Edited and Lee Peterson, executive vice president of brand strategy and design at WD Partners, who worked at The Limited when it owned the brand. (Something Razek also acknowledged in his controversial Vogue interview.)
What often goes unrecognized, however, is that it's running too many stores in failing malls, according to Nick Egelanian, president of retail real estate services firm SiteWorks. The company has 1,023 Victoria's Secret and 147 PINK stores in the U.S. and Canada, having closed eight and opened one since February.
“I have been saying for years that they needed to have a proactive, decade-long program to extricate themselves from B and C malls where they have hundreds of stores," he said in an interview with Retail Dive. "Staying put with hundreds of stores in these centers is like having the best stateroom on the Titanic and continuing to throw a party while the ship is going down. It's good while it lasts, but the ship is still going down.”
That reckoning may be imminent, judging by L Brands CEO Les Wexner's statement on Monday: “Our number one priority is improving performance at Victoria's Secret Lingerie and PINK," he said. "In doing so, our new leaders are coming in with a fresh perspective and looking at everything … our marketing, brand positioning, internal talent, real estate portfolio and cost structure."
The cultural miss
Will "everything" include Victoria's Secret's glitzy annual fashion show? Not even falling television ratings have changed it, much less ended it. In Vogue, Razek staked some of his defense of the event's approach on the brand's enduring popularity.
It's true that Victoria's Secret, which saw massive sales in the quarter of $1.53 billion (down from $1.54 billion a year ago), remains the leader in its segment. Last year it captured 28.8% of market share in women's underwear, 27.6% in women's nightwear and possibly much more in the lingerie segment, according to an email to Retail Dive from Michelle Grant, head of retailing at Euromonitor International. Lingerie shoppers spend three-quarters of what they spend on intimates at Victoria's Secret stores, and 85% of their online intimates spending is done at victoriassecret.com, according to a report from NPD's Checkout Tracking service two years ago.
Yet it ignores how vehement many younger consumers are about political and cultural issues. Generation Z is particularly sensitive to a company's stance on issues and they'll account for 40% of all consumers in 2020, according to The NPD Group.
If I was [Singer], I would have also resigned following [his] comments last week. It was shocking to read, word for word, about how one of Victoria's Secret most senior male leaders views the world.
Co-Founder, Co-CEO of ThirdLove
“While many might disregard the social and environmental views of younger consumers, they do so at their peril,” Marshal Cohen, chief industry advisor of The NPD Group said in comments emailed to Retail Dive. “After all, the oldest Gen Z consumers are just now entering the workforce – and the purchasing power of this generation will increase significantly in the years ahead.”
The antithesis of Victoria's Secret
In his defense of his brand and its fashion show, Razek also managed to pick on one of its upstart rivals, ThirdLove, telling Vogue, “But we're nobody's third love. We're their first love. And Victoria's Secret has been women's first love from the beginning.”
Saunders believes that Razek's remarks are telling. "Much of this failure to change comes down to embedded attitudes within management," he said in a note emailed to Retail Dive, adding that Razek's comments about transgender models are "bad for its image" and noting that the "more incisive rival ThirdLove ... has been stealing share from Victoria's Secret for some time."
In fact, Razek's comments prompted ThirdLove co-founder and co-CEO Heidi Zak to fire off her own statements to Retail Dive saying she wasn't threatened by him. “If I was [Singer], I would have also resigned following [his] comments last week. It was shocking to read, word for word, about how one of Victoria's Secret most senior male leaders views the world,” Zak wrote in part, pointing out that former Victoria's Secret chief Lori Greely sits on her brand's board and that it's led a boycott of the infamous show.
ThirdLove went on to publish a full-page ad in Sunday's New York Times with similar thoughts, in an open letter to its larger rival: "You market to men and sell a male fantasy to women. ...Your show may be a 'fantasy' but we live in reality. Our reality is that women wear bras in real life as they go to work, breastfeed their children, play sports, care for ailing parents, and serve their country."
"ThirdLove," the letter also reads, "is the antithesis of Victoria's Secret."
And so the battle lines are drawn.
It’s possible that L Brands hastened Singer’s departure in hopes of pushing Razek’s comments out of the headlines, or even that she was, as Zak implies, bothered by them enough to leave, WD's Peterson speculated to Retail Dive. After all, social media lit up after the Vogue interview published, and Razek’s deflection afterward did little to tamp that down, he noted in an interview.
Enter Mehas, the first male chief at Victoria's Secret in more than a quarter century. Women have led the brand ever since Grace Nichols took over from president Howard Gross in 1991 and stoked sales with "additional bra launches and better stores," Peterson said, noting that the choice is out of character in light of that history, but in character in its refusal to bend to public opinion.
What really matters, though, will be his next step. The brand must now figure out its place in an era when women are demanding different attitudes as well as different lingerie, Peterson noted. It could be that Victoria's Secret will come up with an answer — a fresh way to define and design “sexy,” which is not often mentioned in impassioned statements like Zak's but remains an inducement for plenty of women, including empowered ones.
“Victoria's Secret is suffering injury by a thousand cuts — I don't think it's death by a thousand cuts,” Peterson said. “They could do whatever they want with that show— so part of the question and part of the dissing lately is, ‘Why are you doing the same thing? In the year of the woman? Why wouldn't you start to evolve parts of it?' Come on, this is retail 101: Stop doing the same thing.”
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