Victoria's Secret Strategy: Porter's Five Forces & SWOT

Company Profile and Mission

Limited Brands, of which Victoria's Secret is the dominant brand globally, has defined its mission statement as follows (Investor Relations, 2007): "Limited Brands is committed to building a family of the world's best fashion brands offering captivating customer experiences that drive long-term loyalty and deliver sustained growth for our shareholders." Implicit in this mission statement is a multi-brand strategy that looks to deliver a highly unique, differentiated, and captivating series of experiences for customers to earn their loyalty, with profitability being the result.

Limited Brands (LTD: NYSE) is a publicly traded corporation and one of the leading fashion, apparel, and fragrance companies in the United States, with significant operations across hundreds of product lines. The more dominant lines include apparel, cosmetics, lingerie, fashion accessories, fragrances, and personal care products sold through branded stores globally. The company's brands include Aura Science, Bath & Body Works, Henri Bendel, The Limited, The White Barn Candle Company, and Victoria's Secret.

Limited Brands had previously supported two apparel businesses—Express and The Limited Stores—but due to pricing and margin pressures in the retail sector, sold Express stores earlier in the period under review. Limited Brands is organized around its three strongest brand areas: its apparel business, Bath & Body Works, and Victoria's Secret. Because real estate is integral to its retailing operations, a separate division is specifically dedicated to managing the company's investments in store locations and leases.

A financial analysis of Limited Brands shows both revenues and operating income from 2003 to the most recently available financial period, fiscal year 2007. Victoria's Secret grew from 37% of total revenues in 2003 to 48% in 2007, an 11% increase. Victoria's Secret also offset declining sales in the Apparel segment of the business and contributed 70% of net income in 2003, growing to 81% in 2007. This analysis is based on accumulated filings of the company with the Securities and Exchange Commission (2007).

Competitors to Victoria's Secret include American Eagle's Aerie stores, which have launched a campaign to capture market share, Liz Claiborne Inc., the Gap, and smaller boutique shops that feature lingerie and undergarments for young women. What contributes to the continued growth of Victoria's Secret in both market share and profitability is the company's exceptional understanding of its target customer base, the effective use of in-store promotions, ample fitting room space for trying on bras, and multiple opportunities for customers to sign up for an Angel credit card. On the specific point of why Limited Brands designs stores with many dressing rooms: internal research found that once a bra has been tried on, the same customer purchases that bra or another one 70% of the time (Marketing Leadership Council, 2002).

Porter's Five Forces Analysis

The five forces that comprise Porter's model are industry competitors, pressure from substitute products, bargaining power of suppliers, bargaining power of buyers, and the influence of potential entrants. Each of these forces was originally described by Michael Porter of Harvard University (Porter, 1979) and is analyzed below as it applies to Victoria's Secret.

The most potentially challenging competitor is American Eagle's Aerie stores, followed by department stores that stock higher-end lingerie products. Between department stores and specialty boutiques, the latter are likely to be more difficult to compete with over the long term. Further adding pressure to the competitive landscape is the role that pricing is playing across the market, both from a department store and boutique standpoint.

Unlike mainstream women's lingerie and undergarments, Victoria's Secret has built its brand on four core attributes—feminine, sexy, sophisticated, and quality—which combine to create a highly distinctive identity. With pricing pressure bringing substitute products into the market segments in which Victoria's Secret competes, the company faces a continual need to monitor and critically evaluate new market entrants and, where appropriate, develop counter-strategies in response.

Buyers, or consumers, who find that Victoria's Secret's branding aligns with their self-image have been very loyal and demonstrate high repurchase rates both in stores and online. This loyalty is a direct result of Victoria's Secret management using a structured framework for making branding decisions (Marketing Leadership Council, 2002).

Due to the complexities of logistics and supply chain management, combined with the highly seasonal nature of demand for fabrics, suppliers often hold a significant advantage relative to Victoria's Secret management. Suppliers also exercise considerable bargaining power because Victoria's Secret sources products globally and frequently must maintain several sources for the same type and consistency of fabric to fulfill demand. Suppliers gain additional leverage when they become aware, through discussions with one another, that Victoria's Secret is experiencing a fabric or material shortage.

The success of Victoria's Secret has attracted many potential entrants, many of which lack a parent company like Limited Brands with the financial resources to fund new ventures. What Victoria's Secret must address promptly is completing the development of new store concepts, including Pink and CO Bigelow, as the square footage of the main branded stores has essentially been built out. Department stores developing upscale clothing lines with a specific focus on lingerie—including Walmart and JCPenney—will find it difficult to match the core brand attributes of feminine, sexy, sophisticated, and quality that define Victoria's Secret.

Key Success Factors in Lingerie Retail

The Key Success Factors (KSFs) in the retailing of women's clothing in general, and lingerie specifically, include moving into adjacent product and service categories, creating new brands such as Pink, CO Bigelow, and Intimissimi, and flawless execution of new product introductions. Taken together, these are the KSFs that matter most in women's lingerie retailing and will determine whether Victoria's Secret can continue to grow.

At a more strategic level, the following KSFs apply across lingerie as a global market: market positioning, the ability to generate and sustain customer loyalty, supply chain flexibility to respond to competitive threats with price competitiveness, product quality, store location, product innovation and diversity, financial viability, and the ability to execute marketing strategies quickly. These factors collectively form the foundation of strategically based KSFs for the market in which Victoria's Secret competes.