11/28/2019 Victoria’s Secret to Success – Technology and Operations Management

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Assignment: The TOM Challenge: TOM…

Victoria’s Secret to Success

By Afaf
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POSTED DEC 9, 2015

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Push-up Bras and Focused Operations

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11/28/2019 Victoria’s Secret to Success – Technology and Operations Management

Victoria’s Secret is the world’s leading specialty retailer of intimate apparel. Its
1,100 stores generate $7.2 billion in annual sales, affording it a 35%+ share of the
intimates market in the United States. Operating income margins are 18%+, higher
than the apparel industry average.

Victoria’s Secret is a success story – it enjoyed tremendous growth and market share
gain over its history, built a powerful name, penetrated popular culture, and
commanded brand awareness. But there’s more at play here than just genius
marketing. A unique value proposition, and execution of an aligned operating model,
are behind the lingerie giant’s success.

Business Model
Victoria’s Secret creates value for its customers in two key ways:

Products: The company offers innovative, sophisticated products at an attainable

price point. The products hold functional value (e.g. push-up design), as well as
aspirational value (e.g. collections linked to the world-famous Victoria’s Secret
fashion show). To drive store traffic, sales, and growth, Victoria’s Secret continuously
launches new products (“fashion launches”) while also maintaining some staples
(“non-launch” or “basics”).

FROM HBS DIGITAL INITIATIVE

The fan of the future requires venues

to be “smart”

Innovation & Disruption

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11/28/2019 Victoria’s Secret to Success – Technology and Operations Management

Distance still matters despite the

internet

Digital Infrastructure

Experience: Victoria’s Secret was also able to transform the intimates shopping
experience from a “need to do” activity to a branded, quality-service experience.

Operating Model
Five elements of Victoria’s Secret’s operations neatly align with its value creation
goals.

Product Design: The business model requires that the company remain agile and
refresh its offerings. Victoria’s Secret is continuously working to introduce new and
innovative products. The company places tremendous focus on its “concept-to-
market” process. It prioritizes design and speed to market. A key philosophy of the
company is to “Read. React. Chase.” The company’s internal design studios are
constantly seeking inspiration for new product designs. New concepts are tested in
small batches in select company stores. The product line Pink was innovated in this
way to attract a younger, college-aged woman.

Supply Chain: Victoria’s Secret manages two supply chains – one for fashion
launches, another for its basic products. It selects a handful of vendors that have
proven innovative, technologically advanced manufacturing that can keep up with
the rapid concept-to-market goals for fashion launch products. The remaining
vendors are cost-effective, high volume suppliers for the basic lines. Overall,
Victoria’s Secret partners with select contract manufacturers who are mostly small
and agile. No supplier provides more than 10% of Victoria’s Secret’s purchases. The
company also sources 90% of its product via “open buy” and not “committed buy”
agreements – allowing greater flexibility in innovating.

Merchandising: Victoria’s Secret also treats fashion launch products differently from
basic products in merchandising. Fashion launches are “pushed” from the
distribution centers to the stores, in quantities aimed at certain sales targets. On the
other hand, basic products are “pulled” from the stores in quantities dictated by
replenishment needs and actual sales numbers. This allows Victoria’s Secret
flexibility in managing fundamentally different groups of product.

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11/28/2019 Victoria’s Secret to Success – Technology and Operations Management

Store Operations: While Victoria’s Secret has a strong direct channel in its website
and catalog ($1.6 billion of annual sales), the majority of the business is in its brick-
and-mortar channel. The company-owned stores generate the experiential value that
helps to differentiate Victoria’s Secret. Interior design choices – lighting, fixtures,
décor, and music – promote a feel of feminine luxury. The store layout, typically
multiple adjacent room-like spaces, separate fashion launches from basic
collections, but always displays “pair” bras and panties, to promote more browsing
time and bundled sales.

Sales Associates: A big asset to Victoria’s Secret, and critical to its success, are the
sales associates. The company is focused on building a sales force that can give the
customer maximum comfort level (it is intimates they’re trying on!), and it hires and
trains its associates accordingly.

Sources:

Limited Brands Annual Report, FY2004

Limited Brands Investor Handout, 8/26/2015

“Supply Chain Strategies in the Apparel Industry: A Case Study of Victoria’s Secret”,
Sumit Kumar, MIT

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11/28/2019 Victoria’s Secret to Success – Technology and Operations Management

Forbes article, “American Eagle’s Aerie Can Adopt Competitor Victoria’s Secret’s
Ways” March 2014

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7 thoughts on “Victoria’s Secret to Success”

DECEMBER 13, 2015

Marco Iansiti says:

Great post with some really nice detail on the operating model!

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DECEMBER 13, 2015

Karl Lagerfeld says:

Interesting post! 1) Where/how do you think they will find growth in the business?
(physical retail expansion is slow and expensive) 2) What do you think their reaction
will be to the emerging e-commerce competitors in the lingerie industry (such as

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11/28/2019 Victoria’s Secret to Success – Technology and Operations Management

Adore Me, HBS startup, pure e-commerce player, hired ex VS designer and half the
price of VS merchandise)?

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DECEMBER 13, 2015

AI says:

Good questions! 1) It’s true – retail expansion is expensive, and there’s also some
saturation risk. I think there will be two key avenues for growth: the online platform,
and international expansion. The challenge with the former is the increasing
competition (lower barriers to entry). The challenge with the latter is finding the right
partners. Currently, VS has a small presence in 70 countries through franchise,
licensing, and wholesale partnerships that help de-risk the international operations.
2) My best guess is they’ll react by improving the online channel, squeezing supply
chain costs, focusing on the design process, and retaining their key designers. I
think their “right to win” in the medium-term will remain in the brick-and-mortar
retail experience. But I’m very interested to see how much share the pure e-
commerce players will gain and how rapidly.

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DECEMBER 13, 2015

Charlotte says:

I think it’s so impressive that VS has been able to remain a market leader and
relevant all these years, and thanks to your post I have a better understanding of
how! Interesting and logical strategy on their part that “no supplier provides more
than 10% of Victoria’s Secret’s purchases” and also I really like your analysis of
push and pull marketing in terms of their merchandising.

On a personal note, I’m curious how you see their strategy in terms of target
customer… is to obtain and retain loyal customers over the years (for instance
keeping one shopper who makes her first purchase at age 16 keep coming back until
she’s 26, 36, etc) or are they more focused on always targeting the largest
proportion possible of their best performing customers (e.g.16-25 year olds, for
instance)? I’m curious because I used to shop at VS until probably the age of 22 but
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11/28/2019 Victoria’s Secret to Success – Technology and Operations Management

I’ve turned to other sources such as department stores (Saks or Bloomingdales),

Journelle, Natori, Hanky Panky, to make these apparel purchases. Maybe because
my WTP increased, but also I think I have a perception of VS as a “younger” brand.
That being said, I still tune into the VSFS every year, buy bathing suits from there
occasionally, and will always feel a certain nostalgia for the brand!

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DECEMBER 13, 2015

AI says:

I was curious about the same thing on VS’s targeting strategy! Based on
investor communications, I gather that VS is increasingly targeting a younger
woman with the goal of retaining her over her lingerie-shopping years. The 10-
k, for example, describes Victoria’s Secret’s approach as one that “markets
products to the college-aged woman with PINK and then transitions her to
glamorous and sexy product lines.” Their launch of PINK lines, and their
deliberate choice of which sizes to carry, favors a younger woman too. I do
think attrition naturally happens in that transition from college woman to
professional woman, increasingly a pain point for VS as you pointed out.

On VSFS – I’m always amazed how much attention it gets. It’s brilliant
marketing.

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DECEMBER 13, 2015

Buzz Lightyear says:

Great post! Really interesting to see the different ways that they have structured
their product and channel operations to maintain maximum flexibility. I sometimes
get my bathing suits there, and I think a big way that they distinguish themselves
from competitors is their store design (as you mentioned in the post). Their
comfortable dressing rooms get you to linger longer (aka try on more stuff) and the
dim lighting in their dressing rooms makes you look better than you actually do in
real life haha. Seems like a small thing, but I am always amazed when other stores
of the same caliber do not pay attention to these details — I think it makes a big
difference on sales. Thank you for the post!

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11/28/2019 Victoria’s Secret to Success – Technology and Operations Management

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DECEMBER 14, 2015

taarini.vohra says:

Great post! I’m curious to your thoughts around brand dilution as Victoria Secret
expands into other markets? Do you also think competitors like True & Co are
legitimate threats to Victoria Secret’s market position?

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