Victoria’s Secret is the world’s leading specialty retailer of intimate apparel. Its 1,100 stores generate $7.2 billion in annual sales, affording it a 35%+ share of the intimates market in the United States. Operating income margins are 18%+, higher than the apparel industry average.
Victoria’s Secret is a success story – it enjoyed tremendous growth and market share gain over its history, built a powerful name, penetrated popular culture, and commanded brand awareness. But there’s more at play here than just genius marketing. A unique value proposition, and execution of an aligned operating model, are behind the lingerie giant’s success.
Victoria’s Secret creates value for its customers in two key ways:
Products: The company offers innovative, sophisticated products at an attainable price point. The products hold functional value (e.g. push-up design), as well as aspirational value (e.g. collections linked to the world-famous Victoria’s Secret fashion show). To drive store traffic, sales, and growth, Victoria’s Secret continuously launches new products (“fashion launches”) while also maintaining some staples (“non-launch” or “basics”).
Experience: Victoria’s Secret was also able to transform the intimates shopping experience from a “need to do” activity to a branded, quality-service experience.
Five elements of Victoria’s Secret’s operations neatly align with its value creation goals.
Product Design: The business model requires that the company remain agile and refresh its offerings. Victoria’s Secret is continuously working to introduce new and innovative products. The company places tremendous focus on its “concept-to-market” process. It prioritizes design and speed to market. A key philosophy of the company is to “Read. React. Chase.” The company’s internal design studios are constantly seeking inspiration for new product designs. New concepts are tested in small batches in select company stores. The product line Pink was innovated in this way to attract a younger, college-aged woman.
Supply Chain: Victoria’s Secret manages two supply chains – one for fashion launches, another for its basic products. It selects a handful of vendors that have proven innovative, technologically advanced manufacturing that can keep up with the rapid concept-to-market goals for fashion launch products. The remaining vendors are cost-effective, high volume suppliers for the basic lines. Overall, Victoria’s Secret partners with select contract manufacturers who are mostly small and agile. No supplier provides more than 10% of Victoria’s Secret’s purchases. The company also sources 90% of its product via “open buy” and not “committed buy” agreements – allowing greater flexibility in innovating.
Merchandising: Victoria’s Secret also treats fashion launch products differently from basic products in merchandising. Fashion launches are “pushed” from the distribution centers to the stores, in quantities aimed at certain sales targets. On the other hand, basic products are “pulled” from the stores in quantities dictated by replenishment needs and actual sales numbers. This allows Victoria’s Secret flexibility in managing fundamentally different groups of product.
Store Operations: While Victoria’s Secret has a strong direct channel in its website and catalog ($1.6 billion of annual sales), the majority of the business is in its brick-and-mortar channel. The company-owned stores generate the experiential value that helps to differentiate Victoria’s Secret. Interior design choices – lighting, fixtures, décor, and music – promote a feel of feminine luxury. The store layout, typically multiple adjacent room-like spaces, separate fashion launches from basic collections, but always displays “pair” bras and panties, to promote more browsing time and bundled sales.
Sales Associates: A big asset to Victoria’s Secret, and critical to its success, are the sales associates. The company is focused on building a sales force that can give the customer maximum comfort level (it is intimates they’re trying on!), and it hires and trains its associates accordingly.
Limited Brands Annual Report, FY2004
Limited Brands Investor Handout, 8/26/2015
“Supply Chain Strategies in the Apparel Industry: A Case Study of Victoria’s Secret”, Sumit Kumar, MIT
Forbes article, “American Eagle’s Aerie Can Adopt Competitor Victoria’s Secret’s Ways” March 2014