Swimwear is returning to Victoria’s Secret.
After a three-year vacation, the retailer said it would bring swimsuits back to Victoria’s Secret in the spring as part of a broader reevaluation of its business that will also have it looking at store closures as a new leader, John Mehas, heads toward the corner office.
The move back into swimwear is an attempt to win back shoppers in a formerly $525 million business and to increase traffic in stores and online. Victoria’s Secret will also add items like Ugg boots, eyewear and other licensed brands to its stores and web site.
The lingerie company is still the leader in the intimates space, but has steadily been losing market share for years as consumers shift to bras and underwear from more inclusive brands offering a wider range of options. Victoria’s Secret discontinued its swimwear line in spring 2016 and its popular catalogue around the same time. Both moves had a negative impact on the business.
“We believe that shuttering the category may have eliminated a meaningful traffic driver and turned off loyal consumers,” said Ike Boruchow, an analyst at Wells Fargo.
Comparable sales at Victoria’s Secret, both in-store and online, fell 2 percent during 2018’s third quarter — on top of a 4 percent decline in the same period last year. Net sales slipped 0.7 percent to $1.53 billion in the quarter. Income in all of L Brands, parent company to Victoria’s Secret, was only a third of last year’s figure at $103 million, compared with $319 million.
During a conference call with analysts on Tuesday, Stuart Burgdoerfer, chief financial officer of L Brands, said the decision to eliminate the swim division was the specialty retailer’s attempt to focus on what it’s known for: lingerie.
But after reevaluating the situation, Victoria’s Secret is “not going to spend a lot of time looking back frankly,” Burgdoerfer said. “We are where we are.
“But as we evaluate the situation today, [we have made] a very important decision and we believe a good one to reenter the swim business again, driven principally by customer feedback that we’ve received,” he said.
Other reassessment plans include skimming down real estate, such as smaller stores in China and a “meaningful reduction” in North American stores, and bringing in new leadership.
The company said Mehas of Tory Burch would be joining Victoria’s Secret in early 2019 as head of the lingerie division. Mehas is replacing Jan Singer, who unexpectedly resigned as chief executive officer.
“He is a very accomplished retail leader. He’s got a very strong reputation,” Burgdoerfer said of Mehas.
Wells Fargo’s Boruchow said Victoria’s Secret resistance to change is to blame for declining sales. The company hasn’t shut down any Victoria’s Secrets stores in North America, even as retail in general has seen more business go online, and has opened up 500 new stores internationally in the last five years.
The analyst noted that Victoria’s Secret is at “peak-level stores in North America. I don’t known any other companies, that we track, that have peak-level stores.”
But a string of recent changes, including shutting down Henri Bendel, are “a strong offensive move by [L Brands], which we view favorably,” Boruchow added.
Burgdoerfer said the decision to close stores in the U.S. will be “a financial decision. But it’s one that considers sales transfer of nearby stores…so it is simply, What are the costs to exit a store? And how does that relate to the ongoing cash flow effect of the store in question and the sales transfer to nearby stores?”
He said the company is currently testing the closure of less lucrative stores.
Shares of L brand closed down 2.1 percent to $34.55 on Monday before the earnings release, and continued to fall, more than 14 percent, Tuesday, to less than $30 a share.