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Chipping Away

Victoria's Secret still holds a solid footing in the intimates arena, but it is starting to look over its shoulder at some intensifying competition.

LINGERIE IS ONE OF THE MUST-HAVE CATEGORIES THAT A NUMBER of retailers are muscling in on to get a bigger piece of the action.

The interest in intimate apparel by scores of stores has increased dramatically over the past year, at a time when consolidation is pressuring smaller players as well as major competitors to come up with new ideas, concepts, classifications and product that will open consumers’ pocketbooks.

In their quest for new avenues of profitability, value-driven products and items that have a dual-purpose fashion twist, many retailers are looking at the Victoria’s Secret business model as a gravy train to increased sales and incremental business, according to several industry executives.

While lingerie has mainly been viewed as a lucrative, albeit commodity, business for decades, it has blossomed into a huge money-making segment of apparel retailing — thanks in large part to Victoria’s Secret. Many merchants at major department stores like Macy’s and J.C. Penney, promotional department stores such as Kohl’s, mass merchants Wal-Mart and Target, a slew of catalogues including Newport News and Spiegel and e-commerce businesses including figleaves.com and barenecessities.com are looking to cash in on the lingerie bonanza.

Even specialty stores that have never done lingerie in the past, such as young, contemporary shops Hot Topic, Wet Seal and American Eagle, as well as the misses’-oriented Soma by Chico’s, are developing strong lingerie alliances, whether branded or private label.

All of this activity is chipping away at the queen of sexy lingerie, Victoria’s Secret, although it continues to hold the lion’s share of the business. But the $5.1 billion specialty retailer — which generated sales of $3.7 billion at retail, and $1.42 billion in catalogue and e-commerce revenues last year, along with $23 million via its acquisition of La Senza — is beginning to show a few cracks in its fortress. In WWD’s shopping survey, when consumers were asked to pick up to five stores where they regularly shop for lingerie, results showed Victoria’s Secret, which operates 1,003 stores nationwide, was down 10 percent against last year.

But, according to Leslie H. Wexner, chairman and chief executive officer of parent Limited Brands Inc., in its 2006 annual report, Victoria’s Secret’s mail-order and e-commerce business was up 16 percent, along with significant operating income.

This story first appeared in the June 28, 2007 issue of WWD.  Subscribe Today.

Wal-Mart, the $349 billion behemoth, is another key example of a drop in consumer interest in lingerie at the mass level, even though there has been a concerted effort to merchandise fashion items with brands including Curvation, Vassarette, Just My Size, Playtex and Disney. Wal-Mart fell 4 points to 30 percent of regular destination shopping for lingerie.

Wal-Mart did, however, pick up a point to 20 percent when consumers were asked to name the one store they shopped most often for lingerie, while Victoria’s Secret took 14 percent of this group, down 8 percent from last year. Kohl’s response rate in this category grew by 2 points to 10 percent. As reported in WWD in May, Kohl’s said it plans to add two new intimates brands: one, a private label called Moments, and the other, an extension of the Daisy Fuentes apparel line.

The transition is all about the vested interest in lingerie as a cash cow, according to Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates.

“Everybody from mass to class is looking at lingerie as a new opportunity on top of what’s been a reasonably profitable business,” said Aronson. “It’s been handbags and accessories. Now, it’s lingerie that’s fashion and fun, and the competition that is probably less promotional is trying to muscle in on the Victoria’s Secret business model.”

Norman Katz, a 45-year veteran on the innerwear industry, observed, “This is a very interesting turn of events. The only way I can explain it is Victoria’s Secret is resting on its laurels. The catalogues are as stimulating as they used to be, but the stores look the same, the same sexy S&M looks, and consumers are no longer surprised or excited by just that.”