Sale of 49% stake in the joint venture Can Victoria's Secret return to the "top stream" of lingerie?

Reporter Li Haoyue

As of the close of the US stock market on January 28, the stock price of the underwear brand Victoria's Secret (hereinafter referred to as "Victoria's Secret") was reported at $56.4, up 5.48%, with a market value of nearly $5 billion. But its share price is still far from the all-time high of $81 after its listing in August 2021.

On January 25, local time, Victoria's Secret issued an announcement that it would cooperate with Chinese manufacturer Virginie (02199. HK) set up a joint venture, with Victoria's Secret holding 51% of the shares, and Virginy acquired the remaining 49% stake for $45 million, which will be responsible for operating all Victoria's Secret stores in China and related online businesses. According to the company's latest financial report, as of October 30, 2021, the number of Victoria's Secret stores in China reached 63. According to a number of media reports, Victoria's Secret hopes to expand its stores to about 80 by the end of 2021.

For the move of Victoria's Secret, Jiang Han, a senior researcher at Pangu Think Tank, told the Securities Daily reporter, "After cooperating with Chinese manufacturers, Victoria's Secret can better understand the Chinese market." Relatively speaking, its own income level and manufacturing capacity can also be improved. The future development advantages of the brand are mainly in the manufacturing, capital and market. But it remains to be seen whether some of the problems that Victoria's Secret has left in the past will be recognized by Chinese consumers. ”

So, what is wrong with the former underwear "top stream"?

"Sexy" obsolete

Brilliant is not there

The Victoria's Secret brand has a history of more than 40 years and has been extremely influential around the world.

LBrands Group founder Leslie Wexner acquired Victoria's Secret for $1 million in 1982, changing the brand's previous thinking of aesthetically designing women's underwear for male users and adding luxury to sexiness. Also during the operation of LBrands Group, Victoria's Secret began to use decades of supermodel catwalks to deepen the brand's sexy and luxurious positioning, and build it into a world-renowned women's underwear brand.

According to Nielsen data, the Victoria's Secret show received 12.4 million viewers in 2001, which is also the highest data in history so far. LBrands Group relies on Victoria's Secret to make a lot of money. In 2003, Victoria's Secret had annual sales of $2.8 billion and more than 1,000 stores worldwide. In 2009, Victoria's Secret sold a record of 600 pieces of underwear per minute, with sales reaching $10.75 billion.

However, with the changes in women's aesthetics in recent years, consumers have become more and more resistant to the sexy image created by the Victoria's Secret brand through the supermodel figure. In addition, the group's executives were involved in sexual harassment controversy, coupled with the discriminatory remarks of victoria's secret marketing chief, which led to a decline in the reputation of the Victoria's Secret brand, and these negative effects eventually fed back into performance.

Nielsen data shows that since 2015, the ratings of victoria's secret shows have fallen off a cliff, from 12.4 million in 2001 to 3.3 million in 2018, and the company had to end the 23-year campaign in 2019. LBrands Group's financial position is also not optimistic, with net income in 2017 and 2018 falling by 15.11% and 34.49% year-on-year, respectively. In 2019, Victoria's Secret's total sales fell to $6.805 billion and the Group lost $366 million. In 2020, LBrands Group announced the permanent closure of 250 stores and even expressed the idea of selling the Victoria's Secret brand.

It is difficult to rival domestic goods

Accelerate the layout of the Chinese market

After years of dismal victoria's secret performance, the company tried to change the brand image, reduce the endorsement of slender supermodels, and use some plus-size, multi-image models to improve the brand image. In the Chinese market, on April 20, 2020, Victoria's Secret officially announced Zhou Dongyu as a brand endorsement, which was the first time that Victoria's Secret used celebrity endorsements other than models.

In 2021, Victoria's Secret performance began to spring. On May 20 of the same year, LBrands Group released its first quarter report for fiscal 2021, and as of May 1, the Group's net sales were US$3.024 billion, up 82.8% compared to US$1.654 billion in the same period last year. Victoria's Secret achieved a 73.9% increase in net sales. This gives the LBrands Group the confidence to reinvigorate. The group abandoned the idea of selling Victoria's Secret and spun it off to go public. In August of the same year, Victoria's Secret was listed on the New York Stock Exchange, and its market value exceeded $5.3 billion on the first day, and the stock price rose to $81 in the following days.

But the home of the Victoria's Secret brand is still the United States. At its peak, there were more than 1,000 stores in the United States, and as of its latest financial report, the number of stores in the United States has shrunk to more than 800. The Group urgently needs to expand its stable performance in overseas markets.

As Victoria's Secret CEO Martin Waters introduced, together with Virgin, the aim is to grow the business in China.

It is worth mentioning that Tmall data shows that in 2021, on the list of "double 11" pre-sale first-day japanese clothing brands, domestic brands won the 1st, 2nd and 4th. Victoria's Secret ranked 19th, failing to make it into the top 10. The reporter combed and found that the three domestic brands are mainly basic, comfortable, no steel ring, and victoria's secret sexy style is very different. From the perspective of Victoria's Secret flagship store products, there is no removal of products with sexy elements, and the style of the entire store is still sexy elements that prevail.

The founder of a domestic brand told the "Securities Daily" reporter that after overseas brands enter the Chinese market, they often have a situation of water and soil dissatisfaction in marketing, and it is even difficult to defeat young domestic brands. "It's not a matter of financial resources, but localization takes time and energy. Young domestic brands usually devote their company efforts to solve pain points, but it is difficult for giants to focus on a certain problem to make changes. ”

Jiang Han said, "In this context, Victoria's Secret's choice to cooperate with Chinese enterprises is also an inevitable trend on the road of enterprise development. Judging from the announcement, Virginie will be responsible for Victoria's Secret China business, and will even be involved in design, development, manufacturing, marketing and sales.

(Edited by Cui Man, Sun Qian)