Research Paper on Pink by Victoria’s Secret

  1. Brief Company Profile

Victoria’s Secret is a retail company of women’s clothing and accessories. It sells through approximately 1,019 stores in United States, United Kingdom, and Canada. It has two brands: Victoria’s Secret and Victoria’s Secret PINK brand. The company’s products include: women’s clothing, footwear, sleepwear, swimwear, sportswear, bras and inner garments, body care products and cosmetic products. Its headquarters is located in Reynoldsburg, Ohio (MarketLine, 2013; Victoria’s Secret, 2014).

In 1977, Roy Raymond founded Victoria’s Secret. In 1982, Limited Brands purchased Victoria’s Secret for $1 million. In 1998, it launched its e-commerce site, VictoriasSecret.com. In 2004, the company launched a new lifestyle brand, Victoria’s Secret PINK. In 2009, it launched four Victoria’s Secret PINK stores in Canada. In 2010, Victoria’s Secret PINK entered partnerships with Major League Baseball and the National Football League (MarketLine, 2013).

Victoria’s Secret is a wholly-owned subsidiary of Limited Brands, Inc. It purchases, distributes, and sells lingerie, personal care products, and women’s apparel. Its distribution channels include: 1000 stores, Internet, and direct mail channels. Its brands include: IPEX, PINK, Very Sexy, Body by Victoria, VS Cotton, Dream Angels, Beauty Rush and Angels. It also owns standalone PINK stores in Canada and the US. The PINK stores target young women aged 13 to 25. Victoria’s Secret Beauty offers complete line of fragrance, cosmetics and body products for hair and skin. It also operates Victoria’s Secret Direct, which consists of the famous Victoria’s Secret Catalog and the e-commerce website, VictoriasSecret.com. Once a year, Victoria’s Secret conduct televised fashion show. It features the world’s top models and performances by musicians like Maroon 5 and Kanye West. The Victoria’s Secret group also handles the operations of La Senza, a Canadian lingerie store chain that is also owned by Limited Brands (Hoovers, 2014).

  1. Situational Analysis

In this section, we present extensive situational analysis composed of: general external environment, industry analysis or five forces analysis, competitive analysis, environmental trends, and strategic analysis.

  1. General External Environment

Among the factors of the general external environment, the most important one to consider is sociocultural, demographic, and economic. Technological and global factors are also emerging to play important roles for the industry’s players.

  1. Sociocultural

Before Victoria’s Secret, undergarments were previously considered as “unmentionables.” The company has successfully made sexy undergarments or lingerie from the “unmentionables” to “talked about” category. The company did this by redefining the undergarment market (Blackwell and Stephan, 2004). Victoria’s Secret Company is able to “package sexiness as romance.” Unlike the explicitly erotic undergarment brands like Italy’s La Perla, Victoria’s Secret attempted to convince the American women that they can be classy by spoiling themselves with fancy undergarments. Its catalog portrays sophistication with its English setting: English leisurely country life and aristocratic feel in the interior. The catalog’s setting is designed to be a perfect setting for romance (Simonson and Schmitt, 1997). Yet, regardless of the grandiose setting, the Victoria’s Secret brand still embodies sex. Its catalog successfully became an icon in American culture. It is now constantly mentioned on television sitcoms, movies, and other mass media outlets. The women featured in the catalog became the standard of sexiness in America (Blackwell and Stephan, 2004).

Yet, the cultural influence of Victoria’s Secret is no longer limited to America alone. To strengthen brand authenticity, it diversified its portfolio of models with different nationalities and cultural background. Some of the company’s original models include: Tyra Banks (African American), Claudia Schiffer (German), Karolina Kurkoa (Czech), and Yasmeen Ghari (Canadian, Pakistani, German). Individually, the models of Victoria’s Secret represent different personalities and definitions of beauty. The company also calls a group of its elite models as “Victoria’s Secret Angels.” These models attempt to show a “global personality of sexiness, sophistication, and beauty” (Blackwell and Stephan, 2004). These models are featured in an annual, highly-anticipated fashion shows.

However, not all people approve the sociocultural appeal of the company. For example, Batra (2010) stated: “Most people console themselves by watching the show on television, and even at the risk of… sour-grape syndrome, they feel that the show is nothing but soft pornography p.107). The company faces various criticisms about its sociocultural influence to the American culture, especially now that problem on obesity, anorexia, and other eating disorders are rampant (Batra, 2010). The trend started by Victoria’s Secret is described by Workman (1997) to have replaced the social and moral standards in determining the appropriate wear for women. Furthermore, women now become “victims of moral order that insists the body be confined to be desirable, women are increasingly victimized by a culture which saturates the marketplace with items that are manufactured needs (p.69).”

These criticisms became even stronger when Victoria’s Secret released its PINK line. Victoria’s Secret PINK is comprised primarily of loungewear including such as sweatpants and t-shirts with playful patterns and bright colors. This new line separates itself from the original Victoria’s Secret brand because the PINK line focuses on “cute” rather than “sexy” lifestyle. This new line successfully attracted the attention of their target market of 18 to 30 years old. However, even the girls as young as 11, were also attracted with the new product line. Even if the company toned down sexuality in this new line, the products remained to be “too risqué” for girls under 18. The company received criticisms that it seemingly targets these young consumers as well (Lauber et al., 2010).

  1. Technological

Technological advances in this industry include the wide use of electronic barcode scanners, electronic surveillance, and automated warehouse equipment. Technological change in this industry generally caters to stock control, profitability, and customer experience (Phillips, 2014).  Most of the technological requirements of retailers are customer-focused. Their technological requirements are those needed for customer relations management (CRM), customer intelligence, customer service, and other functions that relate to the customers. CRM technology helps the retailers in identifying the right customers for specific marketing campaigns. Furthermore, customer intelligence enhances their understanding of customer behavior, which is always profitable for them. Lastly, technology can be used to improve customer service (Gronfeldt and Strother, 2006).

  1. Demographic

Growth in the number of women between ages 20 and 64 is an important demand determinant for this industry especially because it primarily caters to female customers. In the past five years, the total number of people aged 20 to 64 has an average growth rate of 0.6%. Furthermore, women within this age segment are generally financially-able to purchase lingerie (Phillips, 2014).

  1. Economic

Lingerie and other apparel that are retailed by this industry are generally discretionary and expensive. Thus, the demand for these products highly depends on economic factors such as per capita disposable income. When per capita income rises, consumers are more likely to make favorable purchasing decisions; hence, driving the demand for industry retailers. Likewise, higher levels of disposable income enable customers to choose high-end, high-margin luxury products. Per capita disposable income is expected to increase in 2014 (Phillips, 2014). Moreover, the world price of cotton, as a major input material, affects the price of apparel. To preserve margins, retailers pass down these costs to end-consumers. Thus, when the price of cotton increases, the price of lingerie and other apparels increases too and consumers may opt not to buy. As a result, industry demand and revenues may decline. In 2014, the world price of cotton is expected to decrease, and this creates potential opportunity for industry retailers (Phillips, 2014).

  1. Global

Globally, the women’s wear is the apparel retail industry’s most lucrative segment. In 2012, it generated total revenues of $633.9 billion. From 2008 to 2012, the industry garnered moderately low level of fluctuating growth. The compound annual growth rate (CAGR) of the global apparel retail industry is 2.8% from 2008 to 2012 forecast period. The Asia-Pacific market is the highest contributor with 3.5% growth in the same period. Americas and Europe remain to be the largest markets with 35.3% and 34.4% share in the global apparel retail industry value. Nevertheless, the market is expected to have accelerated in 2013, and will continue until the end of 2007 (MarketLine, 2013).

Clothing is an essential item in most countries all over the world. Consumer choice is greatly influenced by the desire to signal social success and to follow fast-paced fashion trends. The largest players in the global industry targets to maintain market share in this highly competitive market by creating strong brand consciousness. They run intensive marketing campaigns and always seek to establish the feel of customization and superb customer services. The low barriers to entry and the relatively low capital requirements contribute to the market’s attractiveness to potential investors. Yet, the global apparel retain industry remains to be highly dominated by these leading companies: The Gap, Inc. (USA), H&M Hennes and Mautitz AB (Sweden); Industria de Disenso Textil, SA (Spain); and the TJX Companies, Inc. (USA). These companies contributed approximately $6.7 billion to the industry’s total revenue of $1,249 billion in 2012 (MarketLine, 2013).

The globalization levels of the Lingerie, Swimwear, and Bridal Stores industry have remained stable from 2008 to 2013. A large number of small, independent stores operate locally or regionally, except to some large players like Victoria’s Secret. Smaller stores do not have adequate resources to expand globally, so, operations remain to be limited within the United States. In terms of globalization of trade, this industry’s globalization is accounted at the manufacturing level. In general, international trade in apparel increased due to the increase of cheap merchandizes imported by China (Phillips, 2014).

  1. Industry Analysis

In this section, we look into industry analysis or five forces analysis. In this section, the industry used for the analysis is United States apparel retail industry. Women’s wear is the largest segment of the apparel retail industry in the United States. It accounts for 51.7% of the industry’s total value. This amounts to approximately $175 billion in 2012 (MarketLine, 2013). In this section, we present the industry analysis of the apparel industry in the United States.

  1. Threat of New Entrant and Barriers to Entry

The apparel retail industry of United States has experienced fairly moderate growth in the recent years. This makes the industry less attractive to potential investors. Nevertheless, barriers to entry are not high. The average capital requirements can be low enough even for individuals to enter the enterprise. However, very few large corporations such as The Gap and H&M, account for significant portion of the total revenues of the industry. These companies have also established and benefitted from the economies of scale that enabled them to build strong brands in many retail outlets and to impose stronger buying power. Furthermore, the low switching costs for buyers and low level of product differentiation can help the new entrants compete with existing players (MarketLine, 2013).

  1. Intensity of Rivalry Among Competitors

The US apparel retail industry is fragmented; composed by large numbers of similar independent retailers. There is also large market for smaller players in the industry. The need to increase capacity may be significantly costly for smaller players, yet this could still be accomplished through wise use of resources. Even though some retailers have opted to diversify to other fashion items, there is still strong emphasis on apparel. The fast pace of fashion changes and weak performance of the market contributes to stronger rivalry in the industry. Overall, the degree of rivalry is assessed to be moderate (MarketLine, 2013).

  1. Product Substitutes

There are no substitutes for apparel; yet, there are alternatives to retail. Buyers can purchase directly to the manufacturer or supplier rather than from the retailer. This is made possible by the growth of online sales. Most apparel retailers set up online stores because there is a significant increase in the consumer acceptance of Internet as a new purchasing channel. Home-made or custom-made clothing are also viable alternatives to ready-made clothes. Furthermore, fake branded clothing is also a threat for retailers. Lastly, second-hand clothing stores also act as an alternative. Overall, the threat of substitutes is assessed to be moderate (MarketLine, 2013).

  1. Suppliers

The key suppliers of the retail apparel industry clothing include manufacturers and wholesalers, which are typically small to medium-sized enterprises. Hence, retailers can source from more than one supplier. In the United States, wholesale and clothing manufacturers sector is fragmented; so, this weakens supplier power. The ability of retailers to source out from foreign manufacturers (China and India) further weakens the power of suppliers. Lastly, apparel manufacturing is labor intensive. Likewise, the existence of minimum wage policy in many countries also increases the power of labor suppliers in the apparel manufacturing sector.  In sum, the supplier power in the retail apparel industry is assessed to be weak (MarketLine, 2013).

  1. Buyers

Virtually, all buyers in the apparel industry are individual consumers. Furthermore, many retailers, large or small, tend to have vast number of individual customers. This weakens buyer power of the global apparel industry. Yet, despite the fact that brand consciousness in this industry is substantial, loyalty of specific brands does not always determine the purchasing decisions of buyers. Buyer power is increased by high level of choice and absence of switching costs. In the higher end of the retail industry, brand loyalty is connected more with the designers rather than the retailers. Clothes are also closely associated to lifestyle and social status, large market for non-designer apparel is also large, especially among customers with lower disposable income. Nevertheless, price sensitivity varies regionally in the United States. The strong differentiation capabilities of retailers through styles of clothing and wide price range also weaken the power of buyers. Overall, buyers of the apparel industry lack financial muscle because they are highly fragmented. The retailers also maintain strong position at the end of the value chain further weakens the power of buyers. However, the retailers and designers are obliged to offer the buyers what they demand. This is challenging in the apparel industry because of the unpredictable changes in fashion and zero switching costs. In sum, buyer power is assessed to be moderate (MarketLine, 2013).

  1. Competitive Environment Analysis

The Lingerie, Swimwear, and Bridal Stores industry is characterized by medium level of competitiveness. In 2014, it is estimated that the four largest players account for about 52% of the industry’s total revenue. The largest player is Victoria’s Secret, which contributes about 46.8% of the total revenue. While the industry appears to be highly concentrated at the top, the remaining 50% of the industry is composed by large number of smaller players (Phillips, 2014).

Consumers of the lingerie, gowns, and swimwear industry have been increasingly price conscious. Thus, the players of this industry began to face serious competition from other retail outlets like department stores, discount outlets, and online retailers. These stores typically offer lower prices too compared to specialty stores (Phillips, 2014). According to the US Product and Retail Outlook, total industry sales of lingerie and sleepwear by warehouse clubs and superstores in 2013 amounted to $865 million. It is projected to have increased to $909 million by 2014. Women’s clothing store sold $818 million worth of lingerie and sleepwear in 2013 and this is forecasted to increase to $837 million by 2014. The Department Stores Industry has the highest sales of lingerie and sleepwear amounting to $4,195 million in 2013. Yet, this is forecasted to decrease to $4,130 million in 2014 (Barnes Report, 2013).

  1. Environmental Trends

Due to continued economic recovery and improved consumer confidence, the Lingerie, Swimwear, and Bridal Stores Industry’s revenue is expected to increase at an average annual rate of 4.3% from 2014 to 2019. The industry’s total revenue is forecasted to be at $18.6 billion in 2019. It is estimated that the industry’s revenue will increase by 3.5% in 2015 alone due to increases in disposable income in 2014. Furthermore, with the growth in revenue and decrease in the price of cotton, the industry profitability is also expected to increase. However, the industry’s future is not without challenges. The strengthening competition from alternative retailers is likely to pose pressing price competition on players of this industry (Phillips, 2014).

  1. Strategic Analysis
  2. Key Success Factors

According to IBISWorld, the most important key success factor for the Lingerie, Swimwear, and Bridal Stores in the US Industry are: ability to control stock on hand, superior financial management and debt management, experienced workforce, production of goods currently favored by the target market, establishment of brand names, and attractive product presentation (Phillips, 2014).

  1. Strategies
  2. Corporate Level

In this industry, having a well-known brand name will help boost sales (Phillips, 2014). An existing retail brand strengthens brand awareness and differentiation—important considerations in competition. Furthermore, a well-known brand enhances efficiency of marketing measures. In an age where the consumers are overloaded with marketing information, well-known brands tend to receive more attention compared to unknown brands. Advertising of strong retail brands tend to be perceived and recognized by consumers; thus, resulting to higher efficiency of marketing efforts. On the other hand, from the point of view of the consumers, presence of strong retail brands simplifies the purchasing process because the customers already have knowledge and need not to search for additional information about quality of products, customer service, assortments, prices, and other information that could be addressed by an established brand name. Accordingly, stronger retail brands also reduce the perceived purchasing risk on the part of the customers. For one, buying well-known products by well-known brands is one corporate-level strategy aimed to reduce customer perceived risk. In the same way, strong retail brands tend to reduce price sensitivity of consumers. A well-known brand profile provides a company with the power of preference position, which also minimizes price competition (Zentes et al., 2011). According to Simonson and Schmitt (1997), Victoria’s Secret Company built its success in the lingerie market through the company’s “cleverly conceived theme of a romantic, aristocratic English lifestyle.”

  1. Business Level

At the business level, one important strategy is to have attractive product presentation because a visually appealing store layout and product display encourages favorable purchasing decisions of the consumers and reinforced company image (Phillips, 2014). This is also referred to as strong range dominance. One important business-level strategy of Victoria’s Secret is its strong range dominance. It has more than 1,000 stores that offer a choice of lingerie that is way above the competition. The retail store also offer its customers “intimate, romantic, and feminine” shopping environment. The company’s gross margin per square meter is way above that of other women’s wear retail stores. Its store in Herald Square in New York has 2,500 square meters of different offerings. Its store design is composed of modern colors that portray glamour, sexiness, and super-femininity: black, grey, and beige. In the ground floor, the customers can see the latest lingerie designs. At the upper level, majority of the range products offered by Victoria’s Secret are displayed. The upper level is divided into eight rooms or divisions. The Victoria’s Secret stores effectively use visual merchandizing. There are life-size mannequins all over the store. There are also big screens, large pictures, and extensive product presentation. At the entrance, there is a striking “compression room” aimed to provide relaxation for the customers (Floor, 2006).

  1. Competitive Strategies for Different Industry Segments

Lingerie includes women’s undergarments like bras, corsets, panties, and sleepwear. This is the largest product segment of the Lingerie, Swimwear, and Bridal Stores Industry. This segment has been driven by the advances in modern technologies and production of fabrics. The emergence of innovative products like laser-cut seamless bras and t-shirt bras contributed to the good performance of this segment. In essence, the creation of fashionable lingerie keeps the industry performing well in the market. Furthermore, the changing views of women regarding lingerie also contributed to the improved acceptance in the market of lingerie. Women began to see lingerie as a necessity in their everyday fashion needs. The boost in lingerie sales before the recession was contributed to the changing view of women towards lingerie. However, due to the worldwide economic downturn, the lingerie’s segment remained flat from 2009 to 2014. In 2014, the lingerie segment contributed about 40% of the industry’s revenue (Phillips, 2014).

  1. Core Competencies
  2. Resources
  3. Tangible

Tangible resources are valuable assets that can be seen or quantified. This may include equipment or financial capital. In the retail apparel industry, four types of tangible resources are important: financial, organizational, physical, and technological. Financial, organizational, and physical resources contribute to the firm’s capacity to manufacture and deliver products to its customers (Hoskisson, 2013). An example of technological tangible resource that is very important in apparel retail industry is CRM. One tangible resource that serves as core competency is knowledge of the changing customer needs and preferences. In 2004, the mother company of Victoria’s Secret started studies of customer relationship management (CRM) software in order to explore potential return on market investment. The primary goal is to establish a customer database or customer intelligence to determine specific customers who are most likely to respond to specific marketing campaign (Strother, 2006). Amidst the presence of technical innovations in terms of styling and fabrics, the lingerie product segment appears to be fairly stable and does not adopt any of these innovations. According to John Lewis, a lingerie designer, the consumers buy lingerie not because of peer pressure, but indulgence. Nevertheless, one intangible resource is knowledge of consumers. For example, as consumer gets physically larger, bra design and technology is expected to evolve in order to accommodate curvier customer. Bigger sizes are more functional and designed for older women. The idea here is for the lingerie to make the wearer look attractive no matter what is her age and size (just-style, 2013).

  1. Intangible

Intangible resources include assets that contribute to the creation of value for customers, but cannot be physically identifiable. Some of the major types of intangible resources are human, innovation, and reputational. Intangible resources tend to be less visible and more difficult to replicate by competitors. Thus, more companies tend to rely on intangible resources rather than tangible ones when it comes to striving for competitive advantage (Hoskisson, 2013). In the case of Victoria’s Secret, its brand is its most important resource. Blackwell and Stephan () describe Victoria as the steward of Victoria’s Secret brand:

This fictitious creature wanders the halls and collective minds of the Victoria’s Secret home office, representing the guiding force of what the brand needs to be to connect with customers. Victoria represents the lifestyles, dreams, and aspirations of her customers. And she is ever present among associates as they design lingerie, buy products throughout the world, and plan stores in locations where she would want to shop (p.195).

  1. Capabilities
  2. Value Chain

A company’s value chain consists of customers and suppliers that are linked with each other in order to produce more value for the final customers. This value chain serves as the core an extended network that aims to increase customer value (Lewis, 1995). The key buying group of this industry is the females. The key selling industries include Women’s & Girl’s Apparel Manufacturing Industry in the United States and Women’s & Children’s Apparel Wholesaling Industry in the United States (Phillips, 2014).

In order to customize value chain, Victoria’s Secret sells its products exclusively on its own stores. In turn, this creates enormous competitive advantage. Through color and visual display, Victoria’s Secret stores generate excitement and unique shopping experience to its consumers. The stores have intimate, feminine, and engaging shopping feeling for its customers (Silverstein et al, 2003).

  1. Organization-Specific Competencies

The core competence of the company lies on its strong brand that emanates throughout the organization. Blackwell and Stephan (2004) argue that Victoria’s Secret changed the nature of retail branding: “Victoria’s Secret is the store; Victoria’s Secret is the brand; Victoria’s Secret is the experience (p.194).”

  1. Performance Appraisal

From 2009 to 2014, Victoria’s Secret revenue has increased with an annual average rate of 7.6%. In 2014, company’s revenue amounted to $7.0 billion. After the economic downturn, the economy improves a little and consumers began to earn additional disposable income, which allows them to spend more on discretionary goods. In 2014, IBISWorld forecasted that the company’s revenue will grow by about 5.4%. In 2013, Victoria’s Secret stores recorded 3.0% increase in sales. Moreover, the company’s athletic apparel line under the PINK brand contributed greatly to the increase in sales (Phillips, 2014). According to Forbes Magazine, two factors may have negative effects on the performance of the company. One, the emerging strong competition as new players and other established brands enter the intimate apparel market. Heightened competition may lead to more competitive pricing also has negative impact on Victoria’s Secret performance in the future. The second one is its attempt to reach wider range of consumers and launching lower priced collections. The inclusion of lower priced lingerie in the company’s product mi may also lower its profit margins (Forbes Magazine, 2013).

 

 

 

 

 

 

 

 

 

 

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