Victoria’s Secret has closed its Hong Kong flagship less than two years after its opening, another sign that the coronavirus is wreaking havoc on the global retail industry.
“Running a retail business in Hong Kong has become increasingly challenging over the past year due to the difficult trading conditions,” according to a statement provided by a company spokesperson. “Victoria’s Secret will continue to offer its products to consumers in Hong Kong through its official web site victoriassecret.com. There is no impact to our business in mainland China and we continue to operate all Victoria’s Secret stores on the mainland.”
But customer traffic wasn’t the only headwind Victoria’s Secret was facing. Last year’s ongoing protests in Hong Kong, coupled with COVID-19 and subsequent lockdown and travel restrictions, meant a severe drop in tourism. In addition, globally, L Brands took a $296 million hit last quarter after the retailer temporarily closed both Victoria’s Secret and Bath & Body Works stores in March, along with Victoria’s Secret online shop, to prevent the spread of the coronavirus.
To help curb losses in the Victoria’s Secret business, L Brands said it would close about 250 stores this year.
“There will be more in 2021 and probably a bit more in 2022,” Stuart Burgdoerfer, executive vice president and chief financial officer, as well as interim chief executive officer of Victoria’s Secret, told analysts during May’s quarterly conference call.
The company’s go-forward strategy also included reevaluating the businesses in the U.K. and China. Earlier this month, L Brands filed a “light touch administration” credit protection in the U.K. — a tool similar to Chapter 11 bankruptcy in the U.S. — to help restructure the U.K. business, which consists of 25 stores.
Burgdoerfer said in his statement at the time that L Brands hopes to renegotiate lease terms in the U.K. The company is also open to selling that portion of the business.
“This action has no impact on our stores in any other part of the world and our U.K. online activities will continue to operate as normal,” Burgdoerfer said.
As of Feb. 2, L Brands had 1,091 Victoria’s Secret stores in North America and 90 units internationally.
Some critics said the company could benefit by optimizing its extensive global store fleet.
“VS is under-earning by overselling,” Simeon Siegel, managing director and senior retail analyst at BMO Capital Markets, wrote in a note. “VS, among the largest brands in history (and yet, unprofitable), is under appreciated and would benefit as a smaller/healthier business….VS shut Hong Kong’s flagship overnight, representing another step toward cutting profit-dragging segments, growing its bottom line by shrinking the top.”
The 50,000-square-foot Hong Kong store opened in July 2018. L Brands would not comment on the Hong Kong location’s lease terms.
Meanwhile, L Brands filed a lawsuit in New York last May asking for rent abatements and to get out of one of its most expensive leases: the Victoria’s Secret and Pink store located in Manhattan’s Herald Square.
Shares of L Brands, which opened up about 0.5 percent at the start of Thursday’s trading session, are down 44 percent year-over-year.