Victoria's Secret: Bargain of the Century?
Scandals aside, Victoria’s Secret has the market know-how and the retail network to remain on top — with the right guidance. Can new owner Sycamore Partners pull it off?
Beleaguered mass lingerie maker Victoria’s Secret’s bid to go private was realised on Thursday, in a deal that gave private equity firm Sycamore Partners 55 percent of the business for $525 million, valuing the whole company at just $955 million. L Brands, the public group that owned Victoria’s Secret, will retain the other 45 percent stake, including its Pink sub-brand, which continues to perform well in comparison.
Given that Victoria’s Secret as a whole — including VS lingerie, Pink and VS beauty — still generates roughly $7 billion in annual revenue (and about $4 billion from the marquee brand alone) — that’s a measly sum. And yet, it was the best deal L Brands was able to find, as no interested parties were willing to acquire the business in its entirety, according to a source familiar with the details. It also leaves L Brands saddled with more than $4 billion in debt and reliant on the growth of Bath and Body Works, which will likely retain Wexner's longstanding executives as Sycamore brings in new leadership for Victoria's Secret.
While Victoria’s Secret has been losing ground to more culturally sensitive competitors, in particular, the American Eagle-owned label Aerie, it’s still the dominant player in the global lingerie industry. It was the interpersonal scandals — the connection to Jefferey Epstein, the reports of misogyny and inappropriate behaviour — that got activist investors riled up enough to take action against L Brands Chairman and Chief Executive, Les Wexner, who has stepped down from his role in the face of the deal.
There is a chance that, like a restaurant chain mired in a food-poisoning scandal, Victoria’s Secret’s reputation has been ruined forever, and its sales will continue to decline. But Victoria’s Secret has something most restaurant chains don’t: dominance in a difficult market to crack. (Bras are difficult to get right when it comes to their industrial design and manufacturing, and they’re one of the few remaining items consumers still like to try on.) Victoria’s Secret has the know-how, and the retail network, to remain on top — with the right guidance.
“This transformation will not happen overnight; it is not as simple as simply flicking a switch to turn off a proposition that has been misaligned for years,” wrote Neil Saunders, an analyst at global data retail, in a recent note. “The board will need to be careful in charting a new course that resonates with consumers and addresses new competitive challenges such as the rise of rival brands like Aerie.”
That’s where Sycamore comes in. The private equity firm is known for its shrewd business tactics and impressive track record: many of the struggling brands it has acquired, including Talbots and Hot Topic, are now stable, if not growing explosively. Sometimes, rescuing companies from the brink has required drastic changes to how they operate, including splitting up brands.
This week, senior correspondent Chantal Fernandez took a deeper look at Sycamore’s strategy, breaking it down acquisition by acquisition. Read her analysis here, and have a great weekend.