Victoria’s Secret Millennial Problem

SMITH BRAIN TRUST – Can Victoria's Secret get her groove back? Faced with shifts in customer preferences, rising online shopping and fading mall traffic, the queen of lingerie has reported a slowdown in sales and is cautioning that this year's revenue won't be among its perkiest. Now experts are wondering whether the brand can bounce back.

Jie Zhang, professor of marketing and the Harvey Sanders Fellow of Retail Management at the Robert H. Smith School of Business at the University of Maryland, says it won't be easy. The chain is struggling, like many retailers, as foot traffic dwindles at shopping malls and as companies shift focus to online sales, where they must compete against the Amazon juggernaut. Mall traffic overall was 14 percent lower year-over-year in February, according to analysts at UBS.

Sales at Victoria's Secret stores that had been open at least a year fell in 2016, according to the parent company L Brand's most recent earnings report, marking the first decline in seven years. The company forecast that same-store sales for the lingerie chain would likely be about 20 percent lower in February, the usually buoyant Valentine's month, and offered full-year 2017 guidance that was well short of analyst expectations.

But in the bigger picture, Victoria's Secret is grappling with "the mismatch of its brand image and what its customers' needs really are," Zhang says.

It was slow to adapt to the e-commerce trends, managing its brick-and-mortar and its catalog businesses separately, with separate product design and procurement processes, long after other retailers made the shift into more customer-friendly omnichannel retailing.

It's been slow to adopt a modern corporate brand identity that would appeal to the millennial generation, whose disposable income is among the fastest-growing in the country. "Millennial women are looking for a brand identity that they can relate to," Zhang says. "They want a brand that stands for something."

Although Victoria's Secret's wares are aimed at women, its parent L Brands has been criticized for not having any women in the C-suite and for having just two women on its 11-member board of directors, one of whom is attorney Abigail Wexner, wife of the company's CEO, Les Wexner. "Millennials are paying attention to these issues, much more than previous generations," Zhang says.

And Victoria's Secret, whose identity was crafted by cleavage-creating luxury push-up bras, was slow to adapt to the bralette trend embraced by millennial women — a preference for simple, more comfortable bras without underwire or padding.

The bralette, and other athleisure-inspired sports bras, are simpler and cheaper to make, with fewer materials involved and less complicated construction. They also command a lower price. In many stores, bralettes cost around $20, as compared to the $50 or $60 that Victoria's Secret can charge for a push-up bra. And that might be part of the reason why Victoria's Secret was slow to adopt them.

By the time Victoria's Secret began marketing its bralette fashions, competitors such as Aerie, Urban Outfitters and the Gap had already built a consumer following. Victoria's Secret has been racing to catch up and now it must deal with another competitor in the race, with Amazon.com preparing to enter the unmentionables space with its own line of bras and intimates. Amazon recently started selling bras for less than $10 in Europe, where it uses the label Iris & Lilly.

Yajin Wang, assistant professor of marketing at the Smith School, says Victoria's Secret should think carefully before taking on Amazon. Its price point is too low, and Victoria's Secret may be better off guarding its luxury identity, says Wang, who studies the psychological effects of luxury consumption.

"If Victoria's Secret extends its brand to this very cheap end of the product line, that might attract new consumers," Wang says. "But the very loyal Victoria's Secret users might feel that the brand meaning has changed."

A better move, she says, would be for Victoria's Secret to find a way to distinguish itself from Amazon and other competitors. Victoria's Secret appears to be doing just that, positioning itself on the luxury end of the bralette spectrum. On Wednesday, it introduced a new Dream Angels bralette line, with two styles: An off-the-shoulder bralette and a lace-up one. The new collection, introduced by supermodels Stella Maxwell and Romee Strijd, are priced at $34.50 and $68.50.