How Victoria’s Secret lost its way

Victoria’s Secret has struggled to keep pace with shifting consumer tastes. Five years ago, Victoria’s Secret produced nearly two-thirds of the revenue for its parent company, which was then worth $28 billion. This week, Victoria’s Secret was taken private in a deal that values the brand at just $1.1 billion.

L Brands (LB), Victoria’s Secret’s parent company and one of the biggest American clothing companies, sold a controlling stake of the lingerie brand to a private equity firm on Thursday. Leslie Wexner, L Brands (LB)’ 82-year-old CEO and chairman, will step down from the company he founded.

It’s a stunning decline for a brand that once defined femininity for millions of American women.

Victoria’s Secret got its start in 1977 by American businessman Roy Raymond, who wanted both men and women to be comfortable shopping for lingerie at a high-end store. In 1982, Raymond sold the failing San Francisco company for $1 million to Wexner. Two years after Wexner took it over, Victoria’s Secret made $500 million in sales. By the early 1990s, the brand generated $1 billion in annual revenue and became an American lingerie retailer empire.

In 1995, Victoria’s Secret launched the brand’s first annual fashion show, which features supermodels sporting barely-there lingerie while wearing massive wings, heavy makeup and six-inch heels. The show quickly became a pop-culture phenomenon, and managed to attract millions of viewers every year since its broadcast debut in 1999.

But the once prime-time appointment television show was widely criticized for promoting unrealistic ideals of beauty and suffered from a shrinking audience. In 2018, the show drew only 3.3 million viewers, down from 9.7 million in 2013. In 2019, the brand announced that it would no longer air the fashion show.

“The reason I decided to stop working with Victoria’s Secret was I didn’t feel it was an image that was truly reflective of who I am and the kind of message I want to send to young women around the world about what it means to be beautiful,” said Karlie Kloss in an interview with Vogue magazine in 2019. Kloss modeled for Victoria’s Secret from 2011 to 2015 and is a sister-in-law of Ivanka Trump.

The lingerie chain has been losing its grip on shoppers by offering underwear that emphasizes the erotic over comfort. Sales growth at stores open at least a year has tumbled for six consecutive quarters.

As social norms defining beauty and sexiness have changed over the years, Victoria’s Secret has stuck to the same playbook and lost a large number of customers to its competitors. By contrast, some rival lingerie brands and startups feature models with different body types, skin colors, and gender identities, an inclusive marketing strategy that has won them a good chunk of the market.

Although still the largest player in the lingerie industry, the brand’s market share dropped to 24% in 2018, down from 31.7% in 2013, according to a women’s underwear study by Coresight Research.

Aerie, a lingerie brand owned by American Eagle Outfitters, started featuring non-models in its marketing and advertised unpolished photos of women wearing its products in 2014. Aerie generated $646 million revenue in fiscal 2018, up by 6% from the previous year. More than 60% of American Eagle Outfitters’ growth was generated by the lingerie brand.

Target, too, announced a new bra and underwear brand in February 2019, which it said would feature women “in all different shapes and sizes.” Startups, such as ThirdLove and Lively, also aim to compete with Victoria’s Secrets using similar marketing strategies.

Analysts suggest that these competing brands pose significant challenges to Victoria’s Secret.

“The board [of Victoria’s Secret] will need to be careful in charting a new course that resonates with consumers and addresses new competitive challenges such as the rise of rival brands like Aerie,” said Neil Saunders, managing director of GlobalData Retail.

Also hurting the brand was Wexner’s ties to Jeffrey Epstein, a financier and convicted sex offender who committed suicide in jail last year. Wexner has apologized for his association with Epstein, but the relationship was damaging to the company’s image.

Saunders believes that Victoria’s Secret will go through some structural changes and find its new position in the lingerie market after Wexner steps down as CEO.

“In product terms, we expect merchandise will still be fashionable and fun, but more emphasis will be placed on comfort, functionality, materials and making consumers feel good about themselves,” said Saunders.