The Rise and Fall of Victoria’s Secret

Lauren Sherman and Chantal Fernandez are co-authors of Selling Sexy: Victoria’s Secret and the Unraveling of an American Icon. In this podcast, they join Motley Fool host Mary Long to talk about topics including:

• What Les Wexner understood about American consumers.
• The new competition for Victoria’s Secret.
• Lessons for retailers from Abercrombie & Fitch.

To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our beginner’s guide to investing in stocks. A full transcript follows the video.

This video was recorded on Oct. 20, 2024.

Lauren Sherman: Thing about Wexner is he himself is not creative. He wasn’t a creative visionary. He understood how to co-opt creativity and scale it. Every idea he had was based in the practical.

Ricky Mulvey: I’m Ricky Mulvey, and that’s Lauren Sherman, a fashion correspondent at Puck and the co-author, of Selling Sexy, Victoria’s Secret, and the Unraveling of an American icon. Sherman and her co-author Chantal Fernandez caught up with my colleague, Mary Long for a conversation about why retail companies have a tough time staying at the top, the turning point for Victoria’s Secret, and why Abercrombie and Fitch is thriving in 2024.

Mary Long: Before we get to the book, you both are coming off like a whirlwind couple of months, in part because of the book, for sure, but also because there’s been one fashion week after another. Any business takeaways from those trips? What are the high powered people of fashion talking about?

Lauren Sherman: They’re real worried about making money. Nobody’s buying anything. People are buying billions of dollar a year of clothing, but it feels like they’re not, and so everybody’s real worried.

Chantal Fernandez: Yeah, there’s like a luxury slow down right now that’s giving everyone a lot of stress, and they’re like, firing all their creative directors as a result, trying to mix things up. I just wrote about VICs, the top spenders in luxury and how these brands are now desperate to get them to spend more and more because more kind of aspirational, “regular luxury shoppers” are cutting back. It’s a really stressful, interesting time in fashion.

Mary Long: I actually think that a trend of the past several years could arguably be or not arguably would be e-commerce and almost like the democratization of fashion in some ways, just because of like, heightened accessibility. Victoria Secret is a great case study in that tension between trying to have an elite brand, not a luxury brand, but an elite brand, but also something that’s accessible. There are moments where they arguably do that well and moments where they arguably don’t do that as well. We can use that as a segue to talk about the book itself. So much of the Victoria Secret story centers around this character Les Wexner. He’s the man who purchases Victoria Secret in 1982, and arguably becomes one of, if not the dominant player in American retail. He opens his first store the Limited in Ohio when he’s 25-years-old and y’all point out in the book a stat that Wexner himself love to put out there, $1,000 investment in the company at that time, 1963, I think it would have been, would become $45 million 50 years later. What does Les Wexner understand about the American consumer, especially at his height?

Chantal Fernandez: So much, man. He really he cracked us. I think he understood the signals of value in our brains and what would get us excited to spend a little bit more than we would spend at a Walmart or a Target. What would feel like a cheap thrill? What would signal enough a trend that we may recognize from somewhere, but also be accessible delivered in good enough quality at the right price. The combination of all of these things. I think he understood, he didn’t invent specialty retail this idea of concentrating on a category or an aesthetic style in his stores, the limited Express, bathroom body works, Victoria Secret. But he really perfected that model and used it to his advantage, on an inventory supply chain side to maximize that value per price and create that special in store experience that felt unlike anything else in the mall. We call it retail theater. He was doing that before a lot of other people. He wasn’t doing that in the ’60s. It took him a while to get there. But once he understood the value of that, I think he really leveraged that to create these moments where you were excited, just going to the store itself was fun and almost like the body spray was a souvenir from that experience. That’s an idea that extends so much across fashion and luxury today.

Lauren Sherman: Yeah, I think in business schools, they teach this idea of price value equation, and it sounds like shocky marketing talk, but MBA talk. But the reality is it’s like, are you getting your money’s worth? He realized when his parents had a store called Leslie’s in Columbus, where they sold women’s clothing, and it was really high quality stuff. He was working at the store when they were on vacation. One, I think, over like a holiday break or something, and he realized, oh, you know what? The stuff is really expensive for what it is, and if you sold stuff that was a bit cheaper and maybe the quality wasn’t as good, but it felt like you were getting more for your dollar, then I Chantal said cheap thrills.

So like a fun, good thing that was also not crazy, expensive. He just totally nailed that equation on so many times over his career. It’s something that I think every brand is chasing, no matter how much you actually charge for what you buy. He really understood that, and he was one of the first US retailers to produce in Asia and Hong Kong specifically, but then all over Asia and to take that leap because at the time, it was still A, seen as not good for the US economy to do that, but B, seen as poor quality to produce overseas. He took that risk, and it really paid off.

Mary Long: While Wexner is building this retail company in Columbus, Ohio. If you go to the West Coast, it’s around 1977, and you have two married entrepreneurs Roy and Gay Raymond. They’re in San Francisco. They already have a sex toy catalog called Xandria, and they come to realize in part because of this catalog that there aren’t too many places for women to buy lingerie. You can get boring basic stuff at the department store, or you can go into a raci more high end place, but there’s not really an in between option. They open the First Victoria Secret Store. Take us inside that first store. What was it like, and why did it work?

Chantal Fernandez: Yeah, Lauren, talk about the decoration, which is like my favorite part of this, but it’s so fun to think about what it must have been like to walk into a store like that, which was unlike anything else, and especially compared to the department stores, which were so clinical and stayed. But yeah, Lauren knows more about this part.

Lauren Sherman: The founders Gay and Roy, Roy in particular had very expensive taste. They would buy, like, antique Victorian furniture to fill these things. They actually were spending a million dollars per store to outfit them. This is the late ’70s, early ’80s. It was very much like supposed to look like Victorian boudoir, whatever that looks like. But just like really beautiful furniture, really beautiful rugs, furnished, like the fanciest home you could ever imagine. Also, this was the era of late ’70s. There was a lot of references to the ’40s, which would reference the early turn of the century. It was the first time that vintage was a real thing like women in the ’70s started wearing clothes from the ’40s sometimes, things like that.

Chantal Fernandez: The thrill gowns came back into style. There had been a period where women weren’t wearing bras as much, but now lingerie that had this Victorian, British designers, all of that stuff was coming back into style, so they rode that too, which was super interesting.

Mary Long: Then you mentioned within four years, Victoria’s Secret, this early iteration of Victoria’s Secret has generated around $6 million in sales, and that’s with just four stores and a mail order catalog. A year later, the store is on the brink of bankruptcy, and that’s in large part because of Roy’s spending habits. Then you have Les Wexner, who enters the picture, and he comes knocking. He offers the Ravens a million dollars in limited stock no cash. But no one in Wexner’s inner circle really wants him to do this. We know how the story ends. Wexner buys Victoria’s Secret, but why do that rather than just replicate what the Ravens already have going on?

Chantal Fernandez: I think he understood the value of what they had built. Also, it’s a great deal for him. But there was the catalog which already had this national reputation, anesthetic, the mailing list, a theme around Wexner is he’s interested in scale and speed. I think he understood the value of the time he could save by acquiring this business and then certainly, revolutionizing it. But he was always interested in growth and speed. I think he recognized there was a value there in what had been built in the reputation already, which it had only been less than a decade. But there was a recognition there, especially with the catalogs that went beyond the Bay area.

Lauren Sherman: Yeah, I would second that, I think the list that they had was really valuable. We see people acquiring companies just for their list of emails all the time, and I think it was a similar thing. Also thing about Wexner is he himself is not creative. He wasn’t a creative visionary. He understood how to co-opt creativity and scale it. Every idea he had was based in the practical, even the way he approached trends and merchandising and things. He him he wasn’t making those decisions. He was using tactics to make those decisions. In the case of this, the product that was in the stores at Victoria’s Secret prior to Wexner acquiring it was actually quite expensive. There was like a set, again, this is like 1982 or whatever. That was $2,000 at the time.

It was like the Barneys New York Lingerie. It was really high end stuff. He immediately started producing cheaper product, $20. One executive said, remember a $20 red teddy that just horrified all the old guard. He was quickly replaced the product itself, but thatidea. When he replicated and scaled, the interiors of the store, so much of what he did with them was inspired by those original interiors, but he wasn’t, like buying antiques to put in them. It was all about how to do it in a cheap, cheerful way. That was one of the most interesting things about him when you look at him as a merchant, and we mentioned in the book, he wasn’t a typical merchant. He was a merchant for sure, but it wasn’t about his gut instinct about whether or not something like a piece of clothing was good or bad. It was about his gut instinct of how to find that piece of clothing, if that makes sense. It was about the process, not about the thing for him, and that is the key to his success throughout his career.

Mary Long: When do we hit peek Victoria?

Chantal Fernandez: Depends on your metrics for that. I think revenue and profit wise, it wasn’t until 2015, 2016. I think for a lot of people my age, like Millennials, that early 2000s Michael Bay era is really frozen in people’s minds apeek Victoria Secret when the show first started for younger people, maybe it’s the years that Taylor Swift was so closely aligned with the brand, which is funny to think of Naviger, because she doesn’t do that thing at all with fashion brands. It’s interesting how there’s different generations of it, and there’s women who were like, oh, I remember the British years in the ’90s, and that was what I loved. It’s part of what is so fascinating about this brand. It’s been connected to the Zeitgeist in all these different ways through so many different eras, and that’s really unprecedented in like a fashion retail business.

Mary Long: One of the things that stuck out to me in reading this is, is it feels as though for so long, Victoria’s Secret is growing, growing, growing, building, and then the downfall just happens like this. Chantal, you mentioned this, in 2015 Victoria Secret and Pink hit their peak profit and revenue. They’re responsible for more than 40% of intimate apparel sales in the US. They’re doing $8 billion in revenue each year. A lot is happening, and then it all comes crashing down. There’s a lot culturally that contributes to that. You have Webster’s associations with Epstein, you have changing the same socio-cultural ideas that catapulted Victoria Secret. Then that’s starts to change to include body positivity. I don’t want to undercut the cultural aspects that led to the unraveling of this brand, but from a business perspective, what went wrong?

Chantal Fernandez: I think part of an important thing to remember is this is something that is unique or not necessarily unique, but inherent to retail. If you think about the overhead costs of having 1,000 stores, $8 billion worth of sales. When things start to go wrong, the numbers show it quickly, because this is an expensive business to run and inventory piles up quickly. You can very, very quickly go from success to a problem that is just growing every day. I think it’s really interesting thinking about when did the problems really start to show themselves. Lauren and I feel like it began even before the company peaked and this bralette trend emerged. That was an existential threat to the idea of underwear of bras that Victoria Secret had sold us for so long, underwire lined, molded cup bras. That was their bread and butter. For many women, the idea that you would go to work without one of those bras on was crazy.

Then that started to really shift when they were saying, I want more comfortable bras. Almost like t-shirt camisole type things. It started as a Coachella type trend, and then I think it really began to change the way women thought about their underwear drawers. That was a really tricky idea for Victoria Secret to manage. Both from an inventory perspective, the push up underwire bra is a high margin product. They don’t want to sacrifice that business. Then from a marketing perspective, what does that mean about this sexy idea that they’ve been pushing for so long? They ignored it or underplayed it, didn’t embrace it. I think they were so dominant in the market that they felt that they could control that trend and soften it.

Lauren Sherman: Yeah, the ignoring the rise of the bralette is like a symptom of the greater disease within the company. Everybody during this journey that we’ve been on with this book, has asked, what was the turning point? We always mentioned the bralette because it just foreshadowed so much else. It showed the weaknesses in the business, that a business that looked really strong from the outside. It showed a lack of understanding of what was happening in the culture. It showed a lack of understanding of what had happened in the culture. It’s the perfect example of where they started to not be with the program. Yeah, it’s fascinating to think it comes down to this little piece of fabric, but it really does. It represents so much.

Chantal Fernandez: But then you think, could they have weathered that if they had made more investment in their e-commerce business earlier, or if they had worked to modernize their marketing earlier, or if their active ware, athletic ware business was stronger? It’s like, would it have been so consequential, if not for these other things? When Sharon Jester Turney who had been the CEO for nearly a decade, left in 2016, then Wexner took over and was managing the business day to day for the first time in many years, and he shut down the catalog, he cut swim ware too. Again, things that don’t seem so significant, but came at a really bad time. It weakened a business that was already struggling. All of these things combined together, and that was even before we get to the Jeffrey Epstein of it all and these other reputational hits that just added on to these problems that were already brewing. But I don’t think that any of those media narratives would have been as damaging if the brand wasn’t already financially struggling.

Mary Long: For all the trouble that Victoria Secret has faced in more recent memory, this is still a company that is still the largest seller of women’s underwear in the US? Sales have plummeted. They went from $8 billion at that peak that we mentioned in 2015 and 2018 to closer to $6 billion in the past 12 months. What brands stand out as Victoria Secrets chief competition today?

Chantal Fernandez: I think Lauren and I both agree that it’s SKIMS. Even though there’s a lot of really interesting challenges. ARI is much bigger than SKIMS and has been growing for many years. But SKIMS, the Kim Kardashian brand is the biggest threat, I think, in terms of cultural cache and influence, and ability to create these buzzy marketing moments that Victoria Secret was once an expert at and speak to these cultural ideas about what is sexy now. Throughout the book, there’s executives at different eras who are, usually women thinking, what is sexy now? How do we speak to that? How do we reflect that? I think SKIMS isnailing that with their color palette, with their visual language. They have a really strong visual language, which Victoria Secret once had and was one of the assets of the brand identity. Yeah, I think SKIMS punches above its weight in terms of cultural influence.

Mary Long: SKIMS there’s been rumors that they’re looking to IPO in 2025, you also have Rihanna’s lingerie brand, Savage Fenty, which was talking about an IPO, and then I guess that disappeared and didn’t happen. When does or doesn’t it make sense for these smaller than Victoria Secret, smaller fashion brand lingerie companies to go public or to not go public?

Lauren Sherman: Well, so the big reason to go public is to raise capital, as you know. The thing about retail and this type of retail in particular, the only way to become bigger is to have more distribution, to open more stores. Stores are extremely expensive to open. Right now, SKIMS has raised tons of money. They only have four stores. They’re never going to have 600 stores, the way Victoria Secret does, but they need many more stores to be able to scale to. I think they’re crossing the billion dollar in sales line this year, or they have already crossed it to get to two or $3 billion, which is probably, like the right size for a lingerie business at this point in retail. They have to open more stores. The IPO would help with that. From all the reporting we’ve done, they have a pretty healthy EBITDA margin. They don’t have crazy discounting, like a lot of their competitors at SKIM. IPO-ing would be really helpful.

The challenge with it is that the market doesn’t respond well to retail IPOs, for the most part. They might be interested in it for a bit, and then they fall off. But retail is very cyclical, and that doesn’t really work with Wall Street. Especially now, if you look at the last couple of years, there were some crazy IPOs during the pandemic, many of those stocks are now penny stocks. Allbirds is worth $85 million. Four years ago was worth four billion or something like that. It’s crazy. The challenge is, yes, you can raise some money, and and it’s not institutional or at least it’s public, so it’s a little bit. You can become more liquid, but the problem is keeping up with it is very, very hard because the street expects increases in sales and a certain level of profitability every single quarter, and that can be really challenging in retails. We’ll see. I know that SKIMS was originally planning on IPO-ing in 2024, and then in the background, they whispered to people, we’re not doing it because of the election, etc. But we’ll see if it happens in 2025. It might be unnecessary given how much money they’ve raised and how big they want to be. But on the other hand, it will bring with it new challenges.

Mary Long: As fickle and cyclical as consumer tastes are, retail turnarounds do happen. Abercrombie and Fitch is a great example of that. About a month ago, Victoria Secret brings on a new CEO, Hillary Super, who previously had been at Rihanna’s lingerie brand. She also led anthropology, which is owned by Urban Outfitters. What do you think Hillary Super needs to do to make an Abercrombie esque turnaround out of Victoria’s Secret, if that’s the goal?

Chantal Fernandez: Well, I think the lesson from Abercrombie, which again, is a much smaller business and has a more flexible category options. It’s not so focused in intimates. I think the lesson from Abercrombie is really focusing on the product quality. There’s this frustration across the market for non luxury consumers who feel like everything’s gotten so expensive, and I think Abercrombie has succeeded because, again, it’s hitting that price-to-value like, sweet spot for people who don’t want to shop from Shein, but also are confused as to why everything on sexfifthavenue.com is so expensive and wanting something in between there that is trendy enough, understated. I think the other lesson from Abercrombie is that they chose a very specific target customer, someone early in their career or young parents with disposable income, but still wanting to feel youthful and went after that customer with a very specific strategy about long weekends and how they go to weddings and concerts, when do they actually dress up and Victoria’s Secret. What I would want to see is a focus on product.

They have so much stuff in that store. I think a lot of customers don’t even know that they’ve expanded their size range. Comfort is such a huge motivating factor for buying bras and underwear these days more than it was before, so why not create a reputation around that? There’s no word of mouth around Victoria’s Secret, and that’s something that brands can help spur through TikTok and influencers and all these things. I’d be interested to see that strategy, but that’s not historically been something Victoria Secret did. It was we sell hope, not help. It was never about the nitty gritty of the products. But I think that’s a cultural shift that they can embrace and used to their advantage.

Ricky Mulvey: As always, people on the program may have interests in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don’t buy or sell anything based solely on what you hear. I’m Ricky Mulvey. Thanks for listening. We’ll be back tomorrow.