By and  on October 23, 2008

Most retailers feel tortured by the econ-omy — but not Limited Brands Inc. chairman and chief executive officer Leslie H. Wexner.

“I am really in a very good mood today. I have been in a very good spirit for the last month or so,” Wexner told analysts at Limited’s investor update meeting Wednesday in Columbus, Ohio. “I don’t think it’s irrational. I probably have pretty good reasons for feeling good.”

Those include reading the tea leaves on the downturn, foreseeing the “emotional bloom falling off apparel” and his firm’s decisive sell-offs of the Express and Limited Stores apparel chains, enabling the company to fully focus on the higher margin, more productive Victoria’s Secret and Bath & Body Works.

“When I am shaving in the morning, I say to myself, ‘Boy, that was a pretty smart thing to do,’” said Wexner.

His comments came on a day when the Dow plunged 514.45 points and Limited Brands’ stock fell 3.29 percent to $11.76, about half the 52-week high of $22.43. But it’s not like the business is bullish. The $10 billion Limited Brands has decided to scale back on capital expenditures in 2009, to $350 million for new stores and renovations from an earlier projection of up to $400 million. Yet as a Johnny-come-lately in the international arena, the retailer has wet its toes in Canada and has begun planting the seeds for major European expansion. In Canada, a handful of BBW stores were recently opened, and in Europe, partnerships for BBW and Victoria’s Secret are being sought. Wexner said he’ll have some established next year for store openings in 2010 or 2011.

Canada represents an “easy billion-dollar pickup,” Wexner said, and the BBW stores there have performed “substantially beyond our first-year projections.” Canada’s economy has slowed, but not nearly as much as the U.S. Last year, the company bought the La Senza lingerie chain, based in Canada, but with stores in 40 countries.

“We are building a base of talent so we can be prepared to move to the rest of the world,” Wexner said. “This is exciting for us at this time for several reasons. Beauty and lingerie move internationally much more successfully than apparel.”

No European apparel retailer has been successful expanding in the U.S., Wexner contended, whether that’s Mexx, H&M or Zara. Furthermore, no U.S. apparel retailer has been successful in expanding abroad. “It just hasn’t happened,” Wexner said. But beauty and lingerie represent “a very different case.”

On the home front, Wexner cited “major growth” opportunities in home fragrance, lingerie, bras and panties, and even an opportunity with Bendel’s, which operates just two stores, in Easton, Ohio, and the flagship on Fifth Avenue in Manhattan, and plans an additional three this year. The Easton unit, considered the prototype for the future units, sells handbags, small leather goods, home fragrance, personal care, jewelry and other accessories. The company has been tinkering with Bendel’s for years, trying to get the merchandise formula correct.

The C.O. Bigelow division, a contemporary apothecary, is also doing much merchandise testing, to increase margins and raise profitability before expanding.

Wexner spent much of his address reassuring investors about the company’s condition. He said Limited Brands will end the year with $1 billion in cash and $1.3 billion in bank lines “we don’t intend to use. From a financial point of view, it’s about as good as it’s ever been. Inventories are in great shape. The expense structure is in great shape. I just can’t see the bumps in the road. And we’re not naïve about seeing these rocks and what derailment looks like. I just don’t see it in the present. We are very, very buttoned up. We are practiced at offense and defense. Defense is a hell of a thing if you have to learn it after the game has begun.”

He also put a positive spin on the consumer mind-set. Americans shop in a recession because visiting the mall is “free entertainment, a cheap thrill.”

“You might challenge this, [but] I think these are the best of times if you are prepared. It could be the worst if you are not prepared. That kind of emotional sense is where we are,” he added. “We have generally been steady, prepared and insightful.”

Wexner said his company is probably “better prepared for recession than ever,” in terms of inventory levels, newness and creative thinking, he said. “Unlike the financial markets, we are not inventing it a day at a time.…So here we are in this dumb fashion business being very insightful. I would imagine you are somewhat surprised by my attitude. That is just how it is.”

In the apparel retail world, “The excitement has come from Zara, very much a value merchant, and H&M. If you look at couture, bridge, department stores, the emotional bloom is generally off the apparel business. We will continue to see them struggle into the future. It will be a dogfight for apparel.”

He said the company’s shift to lingerie, beauty and personal care was accomplished “almost seamlessly from a financial point of view” and abetted by fashion and real estate skills already in-house. “When we see competitors emulating our strategy, moving into lingerie, going into beauty, then we know we are right. We have a head start. We have accumulated skills. We got out [of apparel] profitably, patiently. We didn’t panic. It was a great place to have been over the last several years. It’s not a great place to be now.”

Wexner was not shy about how driven to success he has been. “I always made money since I was 12. I have strong instincts to make money. I have never run out of cash,” he said during the Q&A.

Despite the cash position, there are no ambitions to buy another company. “I can’t think of an acquisition that if it were for free, I would be interested in. Strategically, we are so well set. We have such strong incubators. The stuff that is homemade is so much better. If any of you have friends who are investment bankers, don’t send us things.”

Sharon Jester Turney, ceo of Victoria’s Secret, said the last 12 months were focused on buttoning up operations and making more emotional connections to customers. The company is also increasing the sophistication of sleepwear, elevating the fashion and quality of panties for holiday, and trying to be less promotional.

A big launch will be in November with an “extreme push-up” version of the Miracle Bra. The $3.7 billion division will also launch VS at Home, a new gifting collection, while Pink’s collegiate collection will be at more schools.

BBW ceo Diane Neal called 2008 “a year of transition.” Having trimmed many of the third-party brands from its mix over the last year, BBW returned the focus to its core proprietary brands, namely Signature Collection, True Blue Spa, C.O. Bigelow, Aromatherapy, Slatkin & Co. and Wexler.

“We’re concentrating on fewer, better and more powerful brands,” Neal said. She added that BBW has whittled down its number of stockkeeping units from last year’s levels to increase productivity, and introduced the leaner lineup in fall assortments.

The 1,650-store chain, which generates $2.5 billion in sales, revamped its Signature Collection, the line of scented bath and body products that makes up 50 percent of the retailer’s business, to reverse year-over-year declines, said Neal. New packaging and formulas landed in the Columbus market in mid-September, and are slated to roll out chainwide this winter. To complement its Signature Collection, BBW also plans to dramatically grow its offering of bath and body accessories.

Shifting to the retailer’s overall strategy, Neal said adopting a segmentation approach may prove to be the retailer’s greatest growth opportunity. She noted the micro-marketing strategy requires BBW to evaluate floor plans, in-store experiences and the sales floor in every store.

Its holiday strategy entails rotating floor sets every three weeks and consistent promotions. “This year, we are expecting discounting pricing to be more relevant,” said Neal.

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