victoria\'s secret shouldn\'t push up prices
Decided to suddenly throw away coupons that customers love, quickly erase sales of more than $1 billion, and alienate loyal shoppers?
2013 episode moments starring former Apple CEO Ron Johnson
Classic case study of what retail should not do.
Obviously not everyone is watching.
Victoria\'s Secret parent company, brand L
It\'s the latest retailer to pay for trying to break consumers\' addiction to a lot of promotions.
Shares of the company fell more than 17% on Thursday after the company reported poor quarterly results, blaming the mall for its weaker traffic.
L brand warns that comparable sales could suffer double losses
Figures for the quarter fell from a year earlier.
Much of the pain comes from Victoria\'s Secret, whose sales in February may have fallen 20% from a year earlier.
The company said the decline in sales in the second half may ease.
Don\'t expect it.
I hate to reveal this to brand L, but a big part of the reason people don\'t shop in Victoria\'s Secret is that they no longer get catalogues and coupons that encourage them to do so.
With the rise of Amazon, the underwear industry is becoming more and more competitive. com Inc.
And other online players who are eroding the market share of the L brand.
In order to keep the profit margin, Victoria\'s Secret is almost in J. C.
Penney: discounts and promotions for many core products have decreased.
But this has led to a decline in shopper traffic and sales.
On Thursday\'s earnings call, L brand chief financial officer Stuart Burgdoerfer defended the company\'s position, saying it would not spray \"simple, no-brand-
\"In fact, the L brand has been steadily raising prices even though Forever 21, H & M, American Eagle and other fast-
Fashion retailers offer similar products at lower prices.
Victoria\'s Secret has a bright spot: the hot sales of new millennials
Key products such as sports bras and \"bras\", bras without underwear and padding, run counter to the company\'s traditional sexy underwear and push businessup bras.
Sportswear items sell well because young consumers are increasingly fond of comfortable underwear.
But the other side of the demand equation is that at $20, bras and sports bras are also much cheaper than Victoria Secret\'s traditional padded bras, usually between $50 and $60.
These new products are becoming more and more popular, posing an increasing threat to Victoria Secret\'s business.
Konik estimates that every 10% shifts from traditional bras to bras are equivalent to 6% of bra sales and 2% of total revenue.
If bralettes reaches 20 per cent of the brand\'s bra business in the next two to three years, then Konik believes that the brand\'s total sales may fall by 12%.
If he is right, then the share price of the L brand should be lower than it is now. Two-
Three analysts following Bloomberg have cut 12-
The monthly price target for stocks in the past month.
However, the L brand is still trading at 14 times the forward earnings, roughly the same as the price-earnings ratio of competitors such as city furniture companies
Even higher than the American Eagle apparel company.
And Ascena Retail Group
The forward earnings of both companies are around 11 times.
A lot of retail strategies come down to creative things like fashion and fitness.
In this case, the L brand is a simple math and historical question from here.
Contact the author of this story: Shelly Banjo, sbanjo @ bloomberg, New York.
NetTo contacted the editor in charge of the story: Mark Gongloff from mgongloff1 @ bloomberg.