Victoria’s Secret has struggled recently due to a change in consumer preferences, significant real estate investments in malls and increased competition. The majority control of the company was sold to private equity firm Sycamore Partners for $525 million in hopes to revitalize the brand.
, fourth-quarter results showed Victoria’s Secret comparable sales down 10%. The challenge for the brand in the changeover of ownership will be improving the brick-and-mortar store performance through merchandise assortments, store count and in-store experience while re-establishing the tarnished reputation of being a company focused only on sexy supermodel imaging and body perfection.
Gross margin for Victoria’s Secret has dropped 5 percentage points from 42% to 37% since 2015 which creates an opportunity for improvement. One of the specific categories that has been a challenge for Victoria’s Secret is sports bras and comfort-fitting styles. In an, a third of Millennial bra dollars in 2018 was spent on sports bras. The report states that sales of sports bras will continue to grow, contributing $139 million to the apparel industry over the past three years.
There is a change in consumer mindset regarding body positivity and body inclusivity featuring models of a variety of body types, sizes, ages and ethnicities. This is contrary to the sexy, supermodel image portrayed by Victoria’s Secret, which in the past has helped develop the brand to the major player in the market it is today. Intra-type competition from Chico’s Soma and American Eagle Outfitter’s Aerie continue to grow as these brands embrace body imperfection and inclusivity.
While private equity brands have significant strength in the business process and effective operating of business models, they may not have the retail expertise to best understand the consumer market from a product, store experience and merchandising perspective. In thereport about retail equity acquisitions, seven of nine private equity companies had at least one bankruptcy attributed to the portfolio of businesses, including Sycamore.
discussed the example of Talbots receiving a significant share of its inventory through MGF Sourcing, a Sycamore-owned supply agent. Sycamore wins from both a whole and retail perspective and minimizes losses with investments in both companies.Sycamore has been known to purchase struggling brands and then sell off the most valuable assets.
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