Victoria's Secret to Success

One of our favorite companies (disclosure: iProceed or its staff does not own any stock in the company and this is not a recommendation to own the stock) is the Limited Brands (Ticker symbol: NYSE: LTD). We particularly like their two brands (Victoria's Secret and Bath & Body Works) and we will discuss them in two separate articles. The major reason that we like them is how the company truly understands the concept of "luxury for the masses" particularly in the context of growing middle class in America (particularly with the entry of new groups like Hispanics) but continued financial pressure on the middle class (falling incomes of average Americans).

Victoria's Secret to Success

There is a lot that every American consumer packaged goods (CPG) company can learn from the success of Victoria's Secret. In our opinion, here are the secrets of their success:

• Create a buzz. Turn your customers into your salesforce. Push the envelope little by little, so that you create enough buzz to stir (media) controversy but not to a point that someone starts to talk about boycotting your products. There is no better advertising ROI than through "positive controversy".
• Learn from the masters. While the company has turned itself into a true American icon, it has also learned a lot from European and Japanese lingerie brands that dominate the global lingerie market.
• Create a (mass) market when it doesn't exist. Thus, we put them in the same category as Starbucks. American women (masses, again) were never known to be fanatic about lingerie but so was the case for coffee (Didn't all of us actually thought that Dunkin' Donuts sold "coffee" prior to arrival of Starbucks?). The way Starbucks taught American masses to appreciate good coffee, Victoria's Secret has taught them to appreciate good lingerie.
• "Inexpensive" and "cheap" are two different words. You do not have to be rich to shop in Victoria's Secret lingerie stores but the rich don't feel that they are shopping with the hoi polloi. Thus, while many of their products are as inexpensive as those in a mass merchandise store, their stores are a class by themselves. A woman can shop there, spend less than $10, and still feel that she shops at a luxury store and wears branded lingerie. Here is the other secret: she often spends more because what brought her in was something inexpensive, but what tempted her to spend more was a luxury product.
• Finally, create fantasies/dreams for your customers. Many designers that we have spoken to do not think of their lingerie to be the most creative or using the highest-quality fabric or craftsmanship or being the most comfortable lingerie to wear. They do, however, create enormous fantasies for both men and women through their creative advertising.

During last couple of months, the Limted Brands is quietly transforming its business models and many of its lingerie stores are undergoing complete transformation. Not only are these stores attracting a lot of attention (iProceed team visited their stores for this story), sales are up 11% (year to date, July 2004). Of course, investors also understand the secret to Victoria's success. The stock price has shown tremendous growth during last 52 weeks.