2 Challengers to Victoria's Secret

The first quarter has been mixed for L Brand's Victoria's Secret. Through the first quarter, the brand posted a 3% increase in comparable-store sales, but online and catalog sales have slowed, down 4% over the same time frame. Overall, revenue at the brand is up 2%, which doesn't bode well for the rest of the year. That weakness is making Victoria's Secret a viable target for other companies, and two competitors are stepping up to the challenge.

The immediate threat: American Eagle
Over 2012, American Eagle's Aerie lingerie brand grew comparable sales by 6%. While the company had a weak fourth quarter -- comparable sales were down 3% -- the overall trend has been strong. The company is paring back its store footprint to focus on its best performers. That's helped the brand's margin, and should continue to help throughout 2013, as American Eagle shuts more underperforming locations.

The Aerie brand is also focusing in on classic offerings, which should put it in more direct competition with Victoria's Secret. The brand has already seen success online -- where Victoria's Secret has failed -- with online revenue up 24% last quarter.


The future threat: Juicy Couture
While Aerie is making moves in the here and now, next year L Brands is going to have to fight off a reenergized Juicy Couture from Fifth and Pacific . In the first half of 2014, Juicy is going to launch its new intimates line. On the latest earnings call, CEO William McComb said, "[We] know the customers [are] looking for other options in the intimates category besides just Victoria's Secret."

Juicy is the last Fifth and Pacific brand that needs to get its act together. Kate Spade and Lucky, the company's other two brands, both posted positive comparable sales last quarter, with Juicy seeing the only decline, down 2%. Both Kate Spade and Lucky have has successful turnarounds, so Fifth and Pacific clearly knows how to make this happen.

The bottom line
Victoria's Secret has an issue with drawing customers in. In order to fend off Aerie and get ready for Juicy, it needs to mix things up a bit. The brand's Pink line has performed well, but the full line is only in about 20% of the company's stores. Expanding that line and offering customers new products will make the difference, but there's a lot of work to be done if Victoria's Secret wants to stay on top.

3 retail rulers
The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.

The article 2 Challengers to Victoria's Secret originally appeared on Fool.com.

Fool contributor Andrew Marder has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


Increase your money and finance knowledge from home

Investor’s Toolbox

Improve your investing savvy with the right financial toolset.

View Course »

Investing in Startups

The lucrative and risky world of startups.

View Course »

Add a Comment

*0 / 3000 Character Maximum