NEW YORK — Leslie Wexner has long let his lieutenants wave the Limited flag. But at Wednesday’s annual analysts’ meeting in Columbus, Ohio, it was Wexner unchained.
He ripped into developers for lacking creativity, predicted a "sloppy Christmas" where Limited will get more than its fair share of business, said the world is "a pretty scary place," and that he’s learned "not to pursue the goddess of growth."
The chairman and chief executive of Limited Brands also reassured analysts the company is on sound footing despite the general gloom, with a healthy balance and narrower mix of brands differentiated from the competition. Lingerie, personal care and apparel each account for a third of the $9 billion specialty retailer’s volume.
The future depends on a different operating model, Wexner stressed, involving customer intimacy, merchant intuition, and recognizing that money is made via topline sales. In addition, "We did not spend a lot of money on infrastructure and systems three-to-five years ago. Now there is a real need to build operating capabilities inside the business."
While Limited pushed hard for growth and underwent years of downsizing, "We’ve never had to say we’ve made no money," Wexner said. "The enterprise has done remarkably well in terms of rethinking its strategy and rethinking its tactics. The future to me looks very secure."
Conservatism has arrived, with Wexner and other officials emphasizing fiscal prudence, planning flat inventories through spring, centralizing services, such as human resources, for divisions, and "dramatically" reducing recruitment efforts to focus on retaining talent. He said Limited’s cautious world view is "uncharacteristic. Normally, the company is extraordinarily optimistic by nature." But, he said, "It has been tough, it is tough and predictably, it is going to be tough. The good news is that we kind of called it. We said we are going to play to the downsides."
But with Victoria’s Secret and Express, bullishness still prevails. "Our best example of a megabrand [now] and in the future is in Victoria’s Secret," Wexner said. "We are seeing all cylinders firing."
According to Grace Nichols, president and ceo of VS Stores, the division could ultimately double in sales to $4 billion through "tremendous growth in best-at categories, which are bras. Our current share of the bra market is 19 percent, up from 15.5 percent in 2000. The challenge is to continue our momentum. We are going to do that with even stronger product launches, better defined and more powerful sub-brands and building stronger relationships with customers. We’re good at launches, not excellent." For next year, new registers, improved product screening, and a rollout of the new Pink collection of lingerie targeting 15 to 22 year olds, are in the works. Pink was introduced to 15 stores last season, and the goal for 2004 is to carry it in 150 to 200 locations.Wexner cited "enormous opportunity in personal care, fragrance or a color brand connected with Express," and predicted Express could build a $1 billion fashion denim business. The goal is to reduce total square footage but increase productivity and profit by converting to dual gender stores
Over the last few years, Limited has spun off Limited, Too and Abercrombie & Fitch, sold Lane Bryant and most recently folded Structure men’s wear into Express. There’s also been wide speculation among analysts that Lerner’s, which is being gradually converted to the New York & Co. logo, could also be sold off. Lerner and Limited Stores are "both in repair," Wexner said. "The smaller businesses have to get to a better place. The focus is on the megabrands," which are Victoria’s Secret, Express and Bath & Body Works.
While VS and BBW are both building larger stores, overall, Limited Brands continues to be "demure-ish" about capital expenses, with the cap-ex budget down to $375 million this year, from $430 million last year. "I’d rather be a dollar long than a dollar short," Wexner said. "One of the lessons I learned is not to pursue the goddess of growth. People get so infatuated with growth they take inappropriate risks, foolishly pushing too hard."
His overall industry outlook isn’t good. "I would not be surprised come the first of the year, if you see retailers go out of business," Wexner predicted. He said he sees no real changes in business patterns through Christmas, adding, "I believe it’s going to be kind of sloppy."
Traffic declines at malls complicate matters and Wexner blames the developers. "Developers get kind ofdead in the head,’ creating "redundant unemotional uninspiring retail spaces, with four, five, six department stores. It isn’t a happy future….Most don’t have a retail mentality to create something exciting."
Wexner said Easton Town Center, not far from Columbus, Ohio, where Limited is based, "is our most penetrating insight into the retail future. It is very different, the architecture is different, and it has a very different mix of stores. Casual dining volume about equals department stores’ volume." The center, which Wexner developed, has only two department stores, Lazarus and Nordstrom. "What I was trying to prove to commercial developers is that they have it wrong. There has to be emotional content to the shopping experience. Easton proves that there is another turn to the retail wheel."According to V. Ann Hailey, executive vice president and chief financial officer, Victoria’s Secret is conducting multiple store tests, including larger stores in high traffic malls with higher productivity and expanded beauty assortments. Hailey also said larger BBW stores will open, seven next year, including five in specialty centers. Twenty seven are being expanded, so there will be 45 by yearend considered "flagships.’
With Lerner, by yearend there should be 157 operating under the New York & Co. banner.
Hailey said the company is conducting a review of its capital structure, including debt level, capital requirements and share repurchases, which should be completed by the end of the fall and help determine what to do with the company’s cash. At the end of the second quarter, the company had $1.2 billion in cash and $250 million in long-term debt. That could lead to an acquisition, which Wexner is open to, but probably not in the apparel business.
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