Victoria’s Secrets’ Parent L Brands Coach ‘Cut Their Own Throat’ With Discount Stores; Physical stores among top Victoria’s Secret attributes

LIMITED BRANDS CEO: Coach ‘Cut Their Own Throat’ With Discount Stores

HAYLEY PETERSON OCT. 17, 2013, 12:44 PM 1,562 4

The CEO of Victoria’s Secret parent L Brands Inc. blasted Coach on Wednesday for seeking “easy money” by becoming a discount outlet, the Wall Street Journal reports.  “Coach became a discount outlet,” L Brands CEO Les Wexner said at an analyst meeting in New York. “They cut their own throat. The outlet business is easy money, [but] discounting yourself is the beginning of the end. I can’t find the exception. It’s hard to have a dual identity. Outlet doesn’t build a brand. We don’t milk it.” Coach’s net income dropped a staggering 12% in the second quarter as the luxury handbag maker faces intense competition from Michael Kors, Kate Spade and Tory Burch. Coach’s outlet stores have grown to 60% of its retail sales in North America from about 30% in 2006, The Journal reported in July. The outlets have become more profitable for the brand than its full-price stores, bringing in about $600 more in sales per square foot.  Wexner said Wednesday that L Brands is moving Victoria’s Secret in the opposite direction with plans to close one of the lingerie brand’s four outlet locations.

Physical stores among top Victoria’s Secret attributes: L Brands CEO Wexner

October 16, 2013, 4:10 PM

By Andria ChengAt Victoria’s Secret parent L Brands Inc.’s LTD  analyst meeting in New York, Chief Executive Les Wexner talked about his son, who as a recent high-school graduate worked last summer at a Bath & Body Works store.

After a woman bought $80 worth of merchandise, Wexner’s son asked her if she’d like to try a $7 foot cream. She did. The next day she returned to the store, with a neighbor, and asked for his son, and they bought two more. “We build customer loyalty,” the elder Wexner said. “When you have emotional content, not only does it stimulate purchase; it brings word of mouth.”

With retailers jittery heading into the holiday season — particularly over consumer confidence, despite an apparent breakthrough Wednesday in the effort to avert a full-scale budget crisis — Wexner said he hasn’t felt this confident in years about the business, which is dominated by Victoria’s Secret and sister labels Pink and Bath & Body Works.

“The consumer is nervous, for obvious reasons,” he said. “We all are.” But “a bad holiday is often self-inflicted rather than from competition or general world conditions. We have a very good business, considering all the static. We are in a very sound position. It’ll be a merry Christmas.”

The company laid out in greater detail its international expansion plan, including testing a Victoria’s Secret Beauty & Accessories store in China and expanding its franchised business in Turkey and the Middle East.

As noteworthy, though, are Wexner’s confidence in North American operations’ capacity to double and his enduring belief in physical stores.

The 250 analysts and investors in attendance took heed of Wexner’s views on those points. The 76-year-old is an industry legend, renowned for his merchandising acumen and for building (and spinning off) such brands as Express EXPR  and Abercrombie & Fitch ANF . He introduced the Victoria’s Secret fashion show and the “angel” concept that has helped make the lingerie brand a global powerhouse.

The retailer’s per-share profit is expected to grow up to $3.21 this year from $1.05 in 2008.

Even in the face of declining mall traffic, the company said 99% of its 2,600-plus-store fleet, mostly mall-based, are cash-flow-positive after taxes.

While it’s making investments online, the company still sees plenty of room to grow through physical stores. For instance, sales rose 30% at Chicago-area Victoria’s Secret stores after the company increased training, beefed up the ratio of full- to part-time staff, and increased its focus on recruiting top sales talent.

“We can have a lot of growth through running better stores,” said CFO Stuart Burgdoerfer.

The company also has more than doubled its capital spending since 2010 to open freestanding Pink stores as well as full-assortment Victoria’s Secret locations, which have seen sales increase about 50%.

One bricks-and-mortar area from which Wexner has shied is discount outlets, which have played a key part in the growth of retailers like Coach  COH  and Gap  GPS . In fact, he said he plans to trim the current four Victoria’s Secret outlet locations to three.

“Coach became a discount outlet,” he said. “They cut their own throat. The outlet business is easy money, [but] discounting yourself is the beginning of the end. I can’t find the exception. It’s hard to have a dual identity. Outlet doesn’t build a brand. We don’t milk it.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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