We have been discussing a company that we like a lot: The Limited Group. In our previous article, we discussed how Victoria's Secret has gone through a business model transformation
recently. This time we want to review how one of their other divisions, Bath & Body Works is pursuing the strategy of providing "luxury for the masses".
Luxury for the masses
We have been converted to the philosophy of "luxury for the masses" because of several economic indicators in 2004 (we have written extensively on these indicators and rather than providing many links here, we encourage you to do a search instead on our website to read the detailed analysis):
- Some 1.3 million Americans slid into poverty in 2003 despite the economic recovery.
- The percentage of the U.S. population living in poverty rose to 12.5%from 12.1% in 2002.
- We have as many as 36 million poor Americans now.
- Income of Americans (who are still employed) continues to fall.
- iProceed.com expects taxes to rise in 2005, further reducing disposable incomes of Americans.
- The unemployment rate is not expected to change and may even go up as the offshoring trend continues.
- The fiscal health of the US is shaky (implications: lower government spending).
- The small number of new (white collar) jobs being created pay significantly less than what these Americans earned during the 90s.
What are the implications?
Americans are increasingly forced into a lower quality of life but the transition is not going to be easy for most families (we have seen this happen in Japan during the 90s; it is now being played out in America). While some consumers may be naive enough to screw up completely and file for bankruptcy, we expect most consumers will make lifestyle adjustments in line with their incomes (as almost all Japanese have done). Or in other words, they will purchase more of mass-merchandise products but marketed (by clever companies) as luxury products.
That is what Bath & Body Works does exceedingly well. Now that you can purchase Henri Bendel product line in their stores in the malls, you know very well what the strategy of The Limited Group is.
What can you, as a business leader, learn from The Limited Group?
- Watch carefully what other companies are doing, particularly those selling products to middle-income Americans. Product categories to track are electronics, automobiles, apparel, etc.
- Review your business model and introduce two things in it: simplicity and flexibility. The economic environment is changing too fast and if you do not have the simplicity and flexibility in your business model, you may not be able to transform quickly enough.
- Watch your customers. Never lose track of what is happening in the lives of average Americans. So, as we always say, get out of your office and go talk to a few housewives some where.
Related article: Americans become poorer. What does it mean for businesses?