IBI GIVING VICTORIA’S SECRET PUSH INTO GLOBAL PROMINENCE

Byline: David Moin / With contributions from Pete Born

NEW YORK — As far as Leslie Wexner is concerned, even with sexy supermodels parading in angel wings, Victoria’s Secret’s profile is still too low.
Portraying Victoria’s Secret and its Intimate Brands Inc. parent as revamped, newly integrated and driven by sustained product launches, Wexner, IBI’s chairman and chief executive, said Tuesday the $4 billion specialty giant is on the cusp of going global, and will be revving up the marketing machinery beginning next month. Make no mistake, Victoria’s Secret is about to really strut its stuff.
First up: an Oct. 17 launch of a Victoria’s Secret “fine” fragrance called Dream Angels Heavenly. It’s the first of three under the Dream Angels banner. It’s linked in name and mood to the Victoria’s Secret Angels lingerie campaign and is the first project of Robin Burns, the former Estee Lauder and Calvin Klein executive. She joined the Intimate Beauty Corp. subsidiary and its Victoria’s Secret Beauty division as ceo and president last January.
The launch and Burns are critical to Limited’s new strategy to elevate IBI’s beauty business, from promotionally priced with a mass appeal, to competing against prestige department store cosmetics brands, and to go global.
“We’re interested in making the brand tangible and real, on a global basis,” Wexner stated.
Symbolic of his world aspirations, Wexner intends to steal the spotlight at the next Cannes Film Festival, with a Victoria’s Secret fashion show there that he says will put 30 supermodels on display. It will be live on the Internet. Past Victoria’s Secret shows have been reviewed by some as cheesy and lacking fashion, but enormously popular. Wexner said the Cannes spectacle “will identify the brand with very glamourous people. It will be very newsworthy.”
These and other strategies were disclosed by Wexner and his IBI captains at IBI’s annual analysts’ meeting. Held at Windows on the World, the event is geared to update investors and pump up the stock, but it had little immediate effect. IBI’s stock closed at 37 11/16, down 1 3/16 on the New York Stock Exchange Tuesday. It’s been as high as 52 3/8 and as low as 17 1/8 in the past year. IBI operates Victoria’s Secret and Bath & Body Works.
Also disclosed by IBI officials:
Bath & Body Works will reach $1.5 billion in sales this year, and next year will expand in the U.K., where there’s only a handful of stores.
A Bath & Body Works magalog, currently being tested, could be rolled out in 2000 or 2001.
The rollout of the 22-unit Victoria’s Secret hosiery stores. Hosiery will post $150 million in sales in 1999, a 25 percent increase, and is also sold in Victoria’s Secret lingerie stores. l A rollout of the 50-unit White Barn Candle Co., IBI’s new home fragrance and decor chain. It will be officially launched with a “barn burning” sometime during the week of Nov. 8 in New York’s Bryant Park. About 30 to 35 more stores are seen opening this year, and 50 next year. From its current $185 million in annual sales, Wexner sees it as a potential $1 billion business.
Victoria’s Secret Beauty could eventually be a $1 billion brand, from over $500 million this year.
“The notion of Robin Burns joining IBI really speaks to building global beauty brands,” Wexner told his audience. “We really focused on becoming a global branded consumer growth company,” Wexner said, noting that, in some respects, he’s modeling his company after Coke, Disney, Gillette, Procter & Gamble and Estee Lauder. “We can learn from these companies,” he stated. “They stay close to customers, close to investors and harness global potential.”
And IBI is poised to move ahead, Wexner maintained, since it’s “quite different today than when you invested in 1995,” Wexner told the group, referring to The Limited Inc.’s spinoff of a large stake of IBI to the public. The Limited currently holds an 83 percent interest.
“It did no advertising, except promotional items attached to the catalog and sales signs in stores,” Wexner recalled. “Margins were in the mid-30s, and bras primarily sold at $14.98.”
Victoria’s Secret, he said, was composed of “very independent businesses with no coordination of styles or marketing efforts. There was really nothing beyond the common name that connected the businesses. We thought it was sound enough.”
Now, the average bra sale is over $30, margins are in the mid-40s, and the strategy is to “make sure that Victoria’s Secret stands for an integrated world-class brand. Internal goals are focused on quality, consistency and integration of all marketing efforts,” Wexner said. At the stores, catalog and on the Internet, “the same things will be launched at the same time.”
Over the past year, advertising became a priority, after analysts and investors complained for years that the company was too reliant on mall traffic, and the catalog and windows for advertising. Heeding the call, IBI ran Victoria’s Secret TV ads for 40 weeks last year, and public relations efforts, notably the Internet Victoria’s Secret fashion show in January, viewed by 1 billion people — and causing enormous frustration for those who were locked out — were intensified.
“The advertising piece went from nothing to highly successful and very regular,” Wexner said. “We went from a highly promotional specialty business to a brand. The brand clearly has traction.
“Our view is that we are the dominant lingerie brand, with some global recognition and some global availability,” through the Internet and catalog. After the Cannes show, IBI expects more recognition, and sales.
“We think it may melt down the Internet again,” Wexner joked.
He also said that a “more powerful Valentine’s Day event” and a launch for the swimsuit edition are being planned. Currently, Victoria’s Secret sells in 136 countries through the Internet, but Wexner sees all IBI brands going global. As he noted: “We are embarking on a sustained marketing and advertising campaign for global. We will leverage the back end for Internet fulfillment across all brands.”
Shifting to Bath & Body Works, Wexner said the chain will reach $1.5 billion in sales this year, and will continue to see “superb growth and maintained or increased margins” into next year. He also said there could be as many as 2,000 stores “virtually anywhere there is footfall, in malls, strip centers, airports and hospitals.”
A B&BW catalog, which he likened to a magalog, has been tested for about a year. The growth plan will be detailed in early 2000, he said. “We also believe this brand has global reach.”
So far, however, B&BW’s only overseas venture is in the U.K. “We believe they are doing well, but we are not quite ready to push the button. Clearly, we will be pushing the bricks-and-mortar button in the U.K.”
Wexner also called the fledgling White Barn chain, operated by Bath & Body Works, a “major growth vehicle.”
In her presentation, Grace Nichols, president and ceo of Victoria’s Secret Stores, said there are opportunities in expanding price points and silhouettes. “Continued innovation is the key,” she said, adding that the Body by Victoria line of seamless bras and panties, since its launch in early March, has grown to a projected $200 million in sales this year. “That’s bigger than many bra brands,” she said. About 2.5 million units of the bra have been sold since its introduction, she boasted. She also said that Victoria’s Secret is second only to Hanes in the cotton bra and panty market, exceeding $275 million in sales.
However, sleepwear has been soft, though the category has “stabilized,” Nichols noted.
She said the division would add 70 stores in 1999, and expand selling square footage by 7 percent over the next couple of years.
As far as hosiery — considered a major growth opportunity — “We’re building a design and sourcing organization to prepare for a future rollout of this business,” Nichols said. “It’s a natural extension of lingerie.”
This year, hosiery is seen as a $125 million business, up 25 percent. The Signature Gold hosiery label is modeled after “the best European brands,” Nichols said. She expects 2000 to be “another year of strong increases, with total sales up 15 percent, and operating income up at least 18 percent.”
The Victoria’s Secret Catalogue, like many catalogs, has experienced some sluggishness in recent seasons, but to reverse the trend, it has reduced circulation, while increasing pages per book. Consequently, response rates are 30 percent higher, according to Cynthia Fields, president and ceo of the catalog. She said clothing was still profitable, but declined 4 percent in volume over the past year, though a new in-house design team is being formed. The division has a new general merchandise manager, Mary Ellen Coyne, who held posts at Ann Taylor, Banana Republic and Polo Ralph Lauren before joining IBI in August. Her impact should be felt by fall 2000, officials said.
Fields was most bullish about Victoria’s Secret online. “We went live on Dec. 4, 1998 and we have been profitable on that site from day one,” Fields announced. “We have fulfillment capabilities. We ship effectively and efficiently. That’s an advantage many e-commerce sites don’t have.”
According to Fields, monthly sales have been increasing 100 percent each month, and 40 percent of the web customers are shopping the brand for the first time. Thirty percent are male, which is triple the percentage of males shopping Victoria’s Secret stores and catalog. Victoria’s Secret online has a database with 1 million registrants.
She said catalog circulation is declining in 1999, and there will be low-single-digit sales growth, and flat operating income levels. Internationally, catalog sales were $40 million, or 5 percent of total sales. However, Fields said, “the Internet has shown untapped potential in international marketing.”
Burns described the fragrance launch as “modern, sexy, sophisticated, prestige high-quality products.” The Dream Angels Heavenly fragrance will be in stores, the catalog and on the Internet simultaneously. Following Heavenly, the Halo and Divine fragrances will be launched, Burns said, with Halo to be launched prior to Mother’s Day. Also in the works for Victoria’s Secret Beauty: lotions, candles, gifts and accessories, a body care line tied to the Body by Victoria brand, and a fourth fragrance for holiday. In the nearer term, a Victoria’s Secret nail enamel, now being merchandised in 136 test locations, will be distributed through the brand’s retail network. It is a harbinger of a full color cosmetics line seen for spring selling, and a new format for selling cosmetics that breaks away from the open-sell format. “It’s an innovative format that will be revealed to you at a future date,” Burns said.
Victoria’s Secret Beauty did $470 million in sales in 1998 and is projected posting $505 million in sales for 1999.
For the October fragrance launch, 9 million Victoria’s Secret catalogs will have a scent strip. There will also be a sample of the lotion in about 1 million catalogs, and 3 million vials on cards will be distributed. “There will be a lot of sampling. That’s what it takes to market a fragrance,” Burns said.
“Our stores will feature Dream Angels in a launch that will last through the entire fall season,” Burns said. “No one does that in the department store world,” where fragrance launches typically last about two weeks, she said.
Her overall strategy: “We are moving from mass to prestige price points [in beauty] to get us more in line with the lingerie. We want to create a portfolio of unique beauty brands that we either develop, acquire or license.”
Beth Pritchard, president and ceo of Bath & Body Works, sketched development plans for her division as well. Since 1993, B&BW has grown 63 percent in volume to $1.3 billion last year, or about 5 percent of the $26 billion domestic personal care market.
Fusing product innovation with the real estate advantages of vertical integration, B&BW has a network of 1,200 stores in which to test and target stores. Pritchard said there is a potential for 2,000 to 2,200 stores.
Each season, she said, the division launches two new lines in different categories, which typically generate another $50 million to $70 million in sales.