A diminished Victoria’s Secret is sold
New York – Victoria’s Secret, which once defined sexy with its leggy supermodels prancing around in their bras and oversized angel wings, is being sold, its fortunes diminished as women increasingly look for styles that more realistically fit their body types.
The company’s owner, L Brands, said that the private-equity firm Sycamore Partners will buy 55% of Victoria’s Secret for about $525 million. The Columbus, Ohio, company will keep the remaining 45% stake. After the sale, L Brands will be left with its Bath & Body Works chain and Victoria’s Secret will become a private company.
Les Wexner, who founded the company in 1963, will step down as chairman and CEO after the transaction is completed and become chairman emeritus. Wexner has been grappling with his own troubles, including questions over his ties to the late financier Jeffrey Epstein, who was indicted on sex-trafficking charges.
The selling price for Victoria’s Secret signifies a marked decline for a brand with hundreds of stores that booked about $7 billion in revenue last year. Shares of L Brands fell 88 cents, or 3.6% to close Thursday at $23.42.
“We believe the separation of Victoria’s Secret Lingerie, Victoria’s Secret Beauty and PINK into a privately held company provides the best path to restoring these businesses to their historic levels of profitability and growth,” Wexner said in a prepared statement. “Sycamore, which has deep experience in the retail industry and a superior track record of success, will bring a fresh perspective and greater focus to the business.”
Sycamore faces big challenges to turn around the Victoria’s Secret brand, which has struggled to keep up with competition. It has also failed to respond to changing tastes among women who are demanding more comfortable styles and don’t want to be dictated to.
Rivals like Adore Me and ThirdLove, which have sprouted up online and marketed themselves heavily on social media platforms like Instagram, have focused on fit and comfort while offering more options for different body types. Meanwhile, American Eagle’s Aerie lingerie chain, which partners with women activists like Manuela Baron, has also lured customers away from Victoria’s Secret.
Many experts say the executives running the company were in a sense designing for men, not for women.
“It was always about men feeling good,” said Neil Saunders, managing director at retail consultancy GlobalData Retail. “It should be about making women feel good about themselves.”
Stacey Widlitz, president of SW Retail Advisors, a retail consulting firm, said that Victoria’s Secret designs in the last few years were going in the opposite direction of what women wanted, ever sexier and of poorer quality.
“They were going down a rabbit hole,” she said.
And while last year Victoria’s Secret started featuring more diverse models, including its first openly transgender model, the moves fell short.
Victoria’s Secret suffered a 12% drop in same-store sales during the most recent holiday season, and L Brands said Thursday the decline during the fourth quarter was 10%. Bath & Body Works, which had been a bright spot, is now mostly a candle business, says Randal J. Konik, an analyst at Jefferies.
“The (Victoria’s Secret) brand has lost its way, while the lingerie market is not large or high growth, and has become commoditized,” Konik wrote Thursday. “Furthermore, with athleisure taking over, the need for regular bras continues to wane.”
Victoria’s Secret lit up runways and clogged up the internet with its supermodels and an annual television special that mixed fashion, beauty and music. That glamour has faded and so have sales. The show was canceled last year and shares of Victoria’s Secret have gone from triple digits less than five years ago to a quarter of that today.
The company has been beset by allegations of a toxic work environment and its founder recently apologized for his ties to Epstein, who was found hanged in his jail cell after his indictment. L Brands’ chief marketing officer Ed Razek resigned last August after making controversial comments about why transsexuals shouldn’t be models at its annual fashion show.
Epstein started managing Wexner’s money in the late 1980s and helped straighten out the finances for a real estate development backed by Wexner in a wealthy suburb of Columbus. Wexner has said he completely severed ties with Epstein nearly 12 years ago and accused him of misappropriating “vast sums” of his fortune.
Wexner offered an apology at the opening address of L Brands’ annual investor day last fall, saying he was “embarrassed” by his former ties with Epstein.
Wexner is the longest-serving CEO of an S&P 500 company. He founded what would eventually become L Brands in 1963 with The Limited retail store, according to the company’s website. Wexner owns about 17% of L Brands, according to FactSet.
Sycamore has about $10 billion in assets under management. The firm’s investment portfolio includes retailers such as Belk, Coldwater Creek, Hot Topic and Talbots.
“The separation of Victoria’s Secret into a private entity will enable L Brands to reduce debt and focus on its strong core business of Bath & Body Works, which represents over 80% of its operating income,” said Moody’s vice president Christina Boni.