For Leslie H. Wexner, chairman and chief executive officer of Limited Brands Inc., home is where the heart is.“We are progressing in our domestic market. In about a five-year period, we have an opportunity to double the business,” to over $20 billion from the current $10 billion, Wexner told investors at the three-hour annual investor update meeting in New York. In another bullish prediction, Stuart Burgdoerfer, executive vice president and chief financial officer, said Limited Brands’ operating margin for 2011 could hit 15 percent, up from 12.65 percent last year.“If the fourth quarter is a good quarter, we are absolutely confident we are going to get to the number. We actually see our potential in the high teens,” Burgdoerfer said, though he didn’t say by when. He also forecast $1.5 billion in cash by yearend, and noted 99 percent of the store fleet is cash flow positive on an after-tax basis.However, looking at the macro-economic environment near term, Wexner said, “It’s going to be dodgy. The world will kind of galumph along.”Nevertheless, Wexner is set on growing his domestic business, calling it “the golden goose,” then making the case to investors for heady U.S. growth at a time when many retailers feel tapped out at home and are aggressively looking abroad, particularly China. Wexner prefaced his remarks by stating, “Most importantly, I want to talk about domestic growth. Secondly, I’ll talk about international. That may challenge you.”The prospect of doubling Limited Brands’ U.S. business “fascinates” Wexner, who said the company is “working hard at getting faster, growing from the core and protecting our intellectual property here.…The measure is simple: Are we doing better here? “We don’t need an international business to hit our growth objectives,” he stated. “We don’t want international business to be the millstone that we trip over. We watched Benetton, Next and American competitors. Something really funky happens in international specialty retailing. Sometimes what works here doesn’t work there. Sometimes what works there doesn’t work here.”Before the company purchased the La Senza lingerie chain in 2007, “We thought about Canada for a long time,” Wexner said, explaining La Senza was enticing because of its international scale and experience, and because of its standing as the third-largest lingerie brand in the world, next to the Victoria’s Secret and Pink brands, which, along with Bath & Body Works and Henri Bendel, are owned by Limited Brands.“We run Canada as if it’s a very foreign country,” Wexner said. “It gives us a training base on how to run international operations. Their culture is close to ours but it is different.”In response to investor concerns that Limited isn’t moving fast enough in the international arena, Wexner said, “Why can’t we have double-digit growth abroad? We can’t train ourselves that rapidly to be competitive.…Why can’t we open more rapidly in France? I don’t think there are three people in the company that speak French and none of them are store managers. “Apple had a dozen people who could speak Mandarin and they were [in China with personnel] a year before the opening. These guys are really smart. But we have to build a really basic set of skills, language skills, communication skills. International will grow as fast as we believe we can build the support and experience to grow. We don’t want to take a giant leap forward and take a giant leap back.” Ironically, Wexner just cancelled a trip to China due to the flu, but he didn’t seem to regret it terribly. Martin Waters, president of Limited International, is still going. “The international business, although an enormous opportunity, is different. We recognize China is a major market,” Wexner said, though the company has yet to open stores there.“Opening stores is easy. Running stores is hard,” he asserted. “Delivering the same quality brand experience [overseas] is really tough. We are going as fast as we can go. The limitation is not capital. It isn’t demand. The limitation is our own experience.…We are building a foundation, but we are not getting ahead of ourselves.” Wexner cited everything from language barriers to the appropriateness of fitting rooms and how transactions are made, to convey the complications in overseas expansion. “It’s tough stuff. We want to make sure we don’t screw up.” According to Wexner, “Most domestic competitors grow internationally because they have to, and I don’t have to reference domestic competitors.…You can’t export bad intellectual property very long. The natives figure it out.”Waters spelled out the international strategy, noting that there were 580 units at the beginning of 2010 and by the end of 2012, there will be 880. That compares to more than 2,600 stores domestically. “We are serious about international,” Waters said. “It will be a tremendous source of growth for us as a very healthy add-on to our domestic businesses.”Among the upcoming moves, Victoria’s Secret has set a 22,000-square-foot flagship opening on London’s Bond Street for June 2012, followed by two others later in the year in the U.K., as well as openings in the Middle East in fall 2012. BBW sees five to 10 new stores in Canada next year, on top of the 69 operating this year, and another 25 to 30 in other countries next year. But Waters cautiously described international as a “test and learn” strategy, involving wholly owned stores and a small number of franchise partners. “It’s a highly controlled model,” he said. “We own the assortments, the pricing, promotions, store design and real estate approval. Partners own inventory, make the capital investment, have real estate skills, people skills and are expert in local practices. We get paid primarily through retail royalties. We want to be as invested as our partners in retail sales,” and Limited will always have people overseas “coaching , inspecting, expediting,” Waters said. Wexner said at La Senza, “We have turned that business literally inside out.” In addition to changing the brand’s leadership, “we fired all our customers and hired another batch. With an average bra size down to 32 from 38, “the notion of being young, sexy and value is just getting traction. Now we have to develop internal skills to really grow that business and sort it out.”Switching to domestic growth, Wexner broke it down by brand. “The biggest growth will come from Victoria’s Secret and Pink” and specifically from bras, panties, sleepwear, loungewear and beauty, which represent core categories.“Victoria’s Secret Beauty is about a $1 billion in the U.S. The potential is about $2.5 billion,” Wexner said. “Victoria’s Secret Beauty has improved in profitability but has not grown volume significantly. It’s grown insignificantly in the last five years.“The Pink brand is over $1 billion. Looking at the potential, it takes it to $2 to $3 billion in five years.”BBW, Wexner said, has enormous opportunity to grow its core categories, and he said he believes home fragrance, where there’s “real traction,” could double in size. With its focus on women, Wexner cited major potential to cater to men and children. “My view on Bath and Body Works is that we have just begun to fight.” Henri Bendel will end the year with 18 stores, but Wexner said the division — which specializes in handbags, jewelry and gifts — can grow to 200 in about five years. “We think we are building a very unique brand with enormous profit potential. It’s a tourist destination.…Probably the biggest potential is international,” he added, citing Bond and Sloane Streets in the U.K. as potential sites.
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