By  on October 17, 2007

How does Leslie H. Wexner feel about shedding the apparel businesses he founded and built into national retail powerhouses before they fell into a prolonged slump?

"Happy and delighted," he said at an all-day analysts' meeting Tuesday in Columbus, Ohio, where his $11 billion Limited Brands Inc. is based.

Getting out of apparel retailing could also be the reason Wexner is so upbeat over the new state of Limited Brands and its two core brands, Victoria's Secret and Bath & Body Works. Shedding apparel also freed him to examine the global picture and eye international growth with greater intensity than ever.

"We are looking at the potential and I think we will probably announce first steps, hopefully sometime in the first quarter of '08. It's bigger than a bread box and I don't know how it will play out," he said.

As far more immediate concerns, Wexner believes the company could garner "more than its fair share" of the holiday market, after a challenging 2006.

"I think we are better led and better planned than we have ever been going into holiday for many years," Wexner said in his opening remarks at the conference, the company's first since selling off most of Limited Stores, which he founded in 1963, and Express, which he launched a few years later. In July, Limited Brands completed two deals to sell off 75 percent stakes in Express and Limited Stores to Golden Gate Capital and Sun Capital Partners, respectively. Back in January, Limited Brands bought La Senza, which sells bras, panties, sleepwear, loungewear, body care and accessories at more than 320 stores in Canada and another 340 licensed stores in about 40 countries.

"We are drastically better planned than last year," Wexner added. "There is no overhang of distractions from systems installations, inventory is reduced in line and we don't see any inventory problems. If the inventory and the merchandise have been thoughtfully planned—hopefully it is and will be desired by our customers—I think we could and should have a very good holiday and hopefully we will get more of our fair share. We enter into it very clear eyed, very controlled, very disciplined and very well thought out in our merchandising."He described the planning as "conservative, though we didn't pull in our horns completely. It's sounder but still conservative....I feel very confident and very much at ease going into this holiday season."

In his remarks, Wexner made it clear he has no regrets over exiting the business that helped make him a multibillionaire. "Happily," Wexner continued, "we are not in apparel specialty retailing. That was a concern for many of you and us for many years. I am delighted we don't have apparel retailing stores and that we are as dominant and significant in the categories we are in.

"Brand loyalty to beauty and lingerie is very different than loyalty to apparel. Because of that loyalty, we get trial and repeat [business] in a way that apparel does not get. It's a very different pattern of purchasing behavior.

"Both categories have significantly longer product life cycles and reduced markdowns, giving the business unusual characteristics and stability....For substantial reasons, I am more confident than I've ever felt — tactfully and strategically.

"The next and new frontier is international," Wexner declared. "We have looked at it, thought about it and clearly we believe that is the next frontier."

Limited has already stepped into the international arena through the acquisition of La Senza, which has a thorough knowledge of Canadian customers and real estate and licensed operations in 40 countries. According to Wexner, personal care and beauty products generally work well on a global basis, unlike apparel.

"Much of our future growth will come from international growth from our two dominant brands," he said.

Other growth vehicles cited by Wexner were:

- The expansion of Victoria's Secret's assortment store by store, and the Victoria's Secret beauty business, where margins are higher. Intimissimi and VS Sport are also expected to expand.

- Business via the Internet.

- Selling products on QVC, which "has tested very successfully. We look for more growth through that channel."

He told the analysts not to regard Limited Brands as a large specialty business that isn't in the apparel business, but in "a more positive way, with new and fresh eyes." Victoria's Secret and Bath & Body Works are dominant specialty brands operating more than 3,000 stores, "globally recognized," but without stores overseas."This is really a new company...very well positioned and very differentiated from other specialty retailers."

In both the lingerie and beauty businesses, "we dominate those categories in the U.S. market and, by sheer size, we dominate in the world market."

He also said VS "almost owns supermodels" and has the technical expertise in bras, providing tremendous competitive advantages. "The technical and functional aspects of bras are really, really difficult," and involve getting the fit just right, as well as 15 or 16 components in the construction. "There is no apparel that comes close to the complexity and emotional aspects" associated with bras.

He characterized Limited's personal care operation as the fifth largest in the U.S., with Estée Lauder fourth.

Wexner, considered one of the nation's most visionary merchants who admitted to being "very preachy internally," divulged some of his formula for success. He stated that "retail is detail" and that it's necessary to maintain "a shopkeeper's mentality. Imagine if you had a store, how much you would know about the store, the characteristics of customers and you probably know each by name. That merchant intuition that comes from really being in touch with the customer is what you have to do. It isn't just visiting stores. It begins with curiosity about the customer, anticipating what she will buy....You have to know them like you know your friends."

That entails being sensitive to what they have bought, what things they picked up and then put down, or came back for in several days, and what items they repurchased. The sales data, Wexner suggested, doesn't tell the whole story. He illustrated his point by giving the example of two shower gels, in lemon and lime. In the first week on the selling floor, the lemon sells but the lime doesn't. Even though the lime gel isn't selling right away, the customer could be thinking that if she discovers she likes the lemon gel after using it, she might decide to later buy the lime, as well.

On top of that, "we have to have superb focus," beginning with inventory control."Last year's "loose inventories" were embarrassing, he admitted. However, the company has reined in inventories as well as expenses, and "returned to those fundamentals." Expenses, he noted, were quickly reduced by $100 million.

Asked by one analyst which retailers he benchmarks against, Wexner replied: "The two we talk about most are Apple and Starbucks. We learn most from them. VS and Apple should be like cousins."

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