L Brands, Inc.
By Group 3 Anushri Pant (G1507460X) (G1507460X) Charlie Sugianto So (G1509685W) Daniel Harsono (G1127841N) Denise Tan (G1521727N) Evelyn Boh (S7629512C) Jia Chenqi (G1507074P) Vithiiya Gajandaran (S9139817F)
12 October 2015 MGMT672 – Foundations of Strategic Management Singapore Management University MSc in Management Instructor: Professor Kannan Srikanth
Table of Contents 1.
Executive Executive Summary Summary ................................................. ............................................................................. ..................................................... .........................1
2.
Backgroun Background d ...................................................... ................................................................................. ....................................................... .................................. ...... 3
3.
Industry Industry Analysis Analysis ...................................................... .................................................................................. ..................................................... .........................3 3.1
Global Specialty Retail Industry Overview ............... ........ ............... ................ ................ ............... ............... ................ .......... 3
3.1.1
4.
Sub-industries: Intimate Apparel and Personal Care ............... ....... ................ ................ ............... .......... ... 4
3.2
Specialty Retail Apparel Industry Analysis ............... ........ ............... ................ ................ ............... ............... ................ .......... 4
3.3
Industry Industry Trends Trends .................................................. .............................................................................. ..................................................... .........................6
3.4
Competito Competitorr Analysi Analysis s ..................................................... ................................................................................ ........................................... ................8
Company Company Analysis Analysis ................................................... ............................................................................... ..................................................... ......................... 8 4.1
Resource Resources s and Capabil Capabilities ities ................................................... ............................................................................... .................................. ...... 9
4.1.1
Tangible Tangible Resources Resources ................................................... .............................................................................. ....................................... ............9
4.1.2
Intangible Intangible Resources Resources ...................................................... ................................................................................. .................................. .......9
4.1.3
Capabiliti Capabilities es .................................................. .............................................................................. ................................................... .......................10
4.2
Core Competenc Competencies............. ies........................................ ....................................................... ...................................................... ............................ 11
4.3
Value Value Chain Chain Analysis Analysis ................................................... .............................................................................. ......................................... ..............11
4.4
Company Performance over Time ................ ........ ................ ................ ................ ................ ................ ................ ............... ......... .. 13
4.5
Important Issues Faced by L Brands, Inc. and Solutions ............... ....... ................ ................ ............... .........14
Appendix ................ ........ ............... ............... ................ ................ ............... ............... ............... ............... ................ ................ ............... ............... ................ ................ ........ 16 Reference References s .................................................... ................................................................................ ....................................................... ......................................... ..............28
Table of Contents 1.
Executive Executive Summary Summary ................................................. ............................................................................. ..................................................... .........................1
2.
Backgroun Background d ...................................................... ................................................................................. ....................................................... .................................. ...... 3
3.
Industry Industry Analysis Analysis ...................................................... .................................................................................. ..................................................... .........................3 3.1
Global Specialty Retail Industry Overview ............... ........ ............... ................ ................ ............... ............... ................ .......... 3
3.1.1
4.
Sub-industries: Intimate Apparel and Personal Care ............... ....... ................ ................ ............... .......... ... 4
3.2
Specialty Retail Apparel Industry Analysis ............... ........ ............... ................ ................ ............... ............... ................ .......... 4
3.3
Industry Industry Trends Trends .................................................. .............................................................................. ..................................................... .........................6
3.4
Competito Competitorr Analysi Analysis s ..................................................... ................................................................................ ........................................... ................8
Company Company Analysis Analysis ................................................... ............................................................................... ..................................................... ......................... 8 4.1
Resource Resources s and Capabil Capabilities ities ................................................... ............................................................................... .................................. ...... 9
4.1.1
Tangible Tangible Resources Resources ................................................... .............................................................................. ....................................... ............9
4.1.2
Intangible Intangible Resources Resources ...................................................... ................................................................................. .................................. .......9
4.1.3
Capabiliti Capabilities es .................................................. .............................................................................. ................................................... .......................10
4.2
Core Competenc Competencies............. ies........................................ ....................................................... ...................................................... ............................ 11
4.3
Value Value Chain Chain Analysis Analysis ................................................... .............................................................................. ......................................... ..............11
4.4
Company Performance over Time ................ ........ ................ ................ ................ ................ ................ ................ ............... ......... .. 13
4.5
Important Issues Faced by L Brands, Inc. and Solutions ............... ....... ................ ................ ............... .........14
Appendix ................ ........ ............... ............... ................ ................ ............... ............... ............... ............... ................ ................ ............... ............... ................ ................ ........ 16 Reference References s .................................................... ................................................................................ ....................................................... ......................................... ..............28
1. Executive Summary L Brands, Inc. is one of the largest specialized retail giants. It started out as Limited Brands in 1963, by the current CEO Les Wexner. The Limited focused on specific apparels instead of generic clothing for all. L Brands, Inc. has been following the same strategy ever since. L Brands, Inc. competes in specialty retail industry. This industry is a rising industry that has grown 23.8% in retail value since 2010. It also competes in sub-industries of intimate apparel and personal care. Its major competitors are The TJX Cos Inc., Ross Stores Inc., and The Gap Inc. Porter’s five forces analysis has shown that competition as well as threat of new entrants is high in the specialty retail industry because of availability of relatively inexpensive online retail platforms. In addition, bargaining power of buyers is also high in view of the availability of undifferentiated options in the market. Conversely, the bargaining power of suppliers is low since the industry has a wide reach to many suppliers. Regarding the threat of substitutes, it is rather low for intimate apparel given the dominant ownership of most lingerie items by L Brands but this threat is high for personal care since there are standardised products offered by many competitors. The industry faces impact from several trends. Consumer spending power may potentially increase from a strong job market and employability if, the economy remains strong in the future. A proportion of this spending power might also be contributed by the rising influence of young adults and women. Technology has also enabled the increase of online platforms, which will shift traditional shopping behaviour from purchases from retail shops to mobile online shops. The revenues of L Brands, Inc. are constantly increasing since the acquisition of Victoria’s Secret in 1980 (The Financial Times LTD, n.d.). For FY2015, the net revenue of L
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Brands Inc. is more than $11 billion, which is a 5% increase from FY2014 (The Financial Times LTD, n.d.). The main source of revenues for the company (MarketLine, 2014) are the following three business segments: 1) Victoria's Secret (62% of the total revenues in FY2014), 2) Bath & Body Works (27.2%) and 3) Others (10.8%). The competitive advantage of L Brands can be attributed to the development of its resources and capabilities. Tangible resources include the strategic management of its CEO, a strong net income that is higher than the industry’s average and a pool of skilled high -end fashion designers. Intangible resources include a well-known brand and its association which has enabled its Victoria’s Secret brand to be ranked number one in a br and perception study. In terms of capabilities, L Brands has also consistently introduced innovation in its products and operational efficiency in its processes. L Brands’ core competencies lies in its experienced management, innovative products, effective customer service and the ability to market to segmented and targeted customer base. L Brands has deployed horizontal synergy in its value chain through linking relevant activities of its successful Victoria’s Secret and Bath & Body Works brands. This has helped them reduce redundancies, increase its bargaining power over suppliers and enable effective management of its inventories and product flow. Although L Brands, Inc. is performing well, it is riddled by some problems such as rising wages in the US, cannibalisation by its online stores, real estate issues, negative effects on brand image from claims of child labour etc. It also faces generic problems that are present across retail industry, such as store thefts and counterfeiting. This paper seeks to analyse the industry and company profile of L Brands, Inc. Moreover, this paper will also track its growth and performance over the years and across segments and geography. Finally, the paper aims to address the problems that the company faces and provides solutions to some of them.
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2. Background “We don’t sell products. We sell experiences.” The Limited was established in 1963 by Leslie. H. Wexner, as a women’s clothing
store, by opening its first store in Columbus, Ohio. The store grew quickly and the profits were used to expand business, focusing on women’s clothing. In 1980, Limited acquired Victoria’s Secret, a lingerie store and Lane Bryant, a women’s clothing specialty store. By the
end of 1990, The Limited owned several chains including Victoria’s Secret, Lane Bryant, Henri Bendel, Bath & Body Works, Lerner Stores and Abercrombie & Fitch (A&F) (Ohio History Central, 2015). The company also held interest in other businesses. It opened several retail stores including Cacique (French lingerie), Limited Too (girls’ fashion) and men’s
sportswear stores. During the late 1990s, The Limited sold its entire stake in A&F and downsized its pervasive business holdings. In 2002, the company changed its name to Limited Brands and by 2007, the company started focussing on intimate apparel and personal care through its well-recognized brands. Both Victoria’s Secret and Bath & Body works also launched online stores in an
attempt to extend its market reach. In March 2013, Limited Brands changed its name to L Brands as a requirement of the 2007 sale of Limited Stores. Currently, Victoria’s Secret and
Bath & Body Works are major segments of L Brands. The company operates stores across the world. Exhibit 1 lists the brands currently under the company (L Brands, 2015).
3. Industry Analysis 3.1
Global Specialty Retail Industry Overview
L Brands, Inc. is a specialty retail that focuses in lingerie, beauty and personal care products that makes consumers feel young, sexy and sophisticated. Its key brands include
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Victoria’s Secret and Bath & Body Works (Sedeh, 2011). The report will analyse the specialty
retail industry as a whole which will also include some insights in its sub-industries namely: (i) intimate apparel and (ii) personal care (Exhibit 2). According to a 2011 report from Data Monitor (Monitor, 2011), the global specialty retail grew by 1.5% in 2010 to reach a value of $7.159 million (Exhibit 3). The apparel retail segment accounts for 16.2% of the specialty retail industry and the Americas contribute 38.8% of the entire industry. Since 2010, the industry has grown by 23.8% with the corresponding value of $8,886.2 million. The compound annual growth rate (CAGR) is projected to be 4.4% (Exhibit 4). 3.1.1 Sub-ind ust ries: Intimate Ap parel and Perso nal Care
As of 2014, the intimate apparel industry had a revenue of $32 billion with the US having 40% of the market share (Mayne, 2014). In 2014, the personal care (mainly bath and shower products) industry’s value growth was at 2%, accounting for US$7.4 billion and an expected CAGR of 2% to achieve US$8.1 billion in 2019 (International, Bath and Shower in the US, 2015).
3.2
Specialty Retail Apparel Industry Analysis
There are five major factors that impact the overall industry’s profitability and attractiveness. We will use Porter’s five forces to perform this analysis. I.
Rivalry among existing firms
Rivalry is high due to the continuing competition from other channels such as online retail platforms (internet and mobile sites) which results in the reduction of foot traffic in store-based specialist retailers. Growth from fast fashion retailers such as H&M and Zara, which also carry similar intimate apparel and personal care, has also contributed to this rivalry. As such, this causes a price competitive environment, possibly due to higher 4
supply than demand, which leads to retailers facing the challenge in maintaining profitable margins (International, Apparel and Footwear Specialist Retailers in the US: Category Briefing, 2015). II.
Threat of new entrants
This threat is high. Firstly, the capital requirements especially for online retail platforms can be as low as US$17,000 (refer to Exhibit 5 comparison of capital requirement between online and physical retail shops) as compared to US$67,300 for a physical retail shop. Hence there is an increase presence of online shops that raises the direct consumer transactions online as the main point of c ustomer contact. From 2009 to 2014, internet retail had grown by 67% from 6.9% retail value (retail selling price) to 11.5% respectively (International, Apparel and Footwear in the US: Industry Overview, 2015). In addition, the industry is also saturated with accessible suppliers hence, making it quite easy for a new entrant to access a supplier network at reasonable prices (Ryann Clarke, 2007). III.
Bargaining power of buyers
Since the overall industry is competitive, the bargaining power of buyers is considered high. Buyers and end-consumers are exposed to similar available options in the industry, thereby decreasing their switching costs. Hence, speciality industry retailers incorporate differentiation (e.g. brand image, brand reputation and product quality) as their main strategies to prevent price wars with competitors (International, Apparel and Footwear Specialist Retailers in the US: Category Briefing, 2015). Buyers are also able to take advantage of “reverse show-rooming” which enables online research of the product, before going to the actual retail store to buy the said product. Hence, this may
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increase their flexibility in switching brands (International, Apparel and Footwear Specialist Retailers in the US: Category Briefing, 2015). IV.
Bargaining power of suppliers
Firms have a wider reach to many suppliers, allowing them to spread their purchases and give them an advantage in decision making and contract negotiations. Hence, this lowers the bargaining power of suppliers. Typically, there might not be any switching costs that impact the retailer from changing the suppliers, possibly due to established contracts between these two parties (Ryann Clarke, 2007). V.
Threat of substitutes
As this category is very broad, the analysis will focus on its sub-industries. To define “substitutes” by their purpose, the threat for intimate apparel is rather low. For
example, even though items such as lingerie may have substitutes (e.g. a camisole instead of a bra), these are also essentially owned by L Brands under its Victor ia’s Secret and La Senza brands, which may reduce overall competition in this category (Exhibit 6). On the other hand, for the personal care (bath and shower), the threat is high as there are many competitors offering standardised products (e.g Unilever Home & Personal Care, The Dial Corp, Colgate-Palmolive Co) (International, Bath and Shower in the US, 2015) (Exhibit 7).
3.3
Industry Trends
The group has analysed the trends as follows: i.
Economical
Since 2009, an increase of 5% in consumer expense per household corresponds to US$94,806. Also in 2014, annual disposable income per household increased by 3.2%, 6
amounting to US$106,220. According to Bloomberg, if the economy remains strong with a 3% growth in the future, this will lead to a stronger job market and employability, thereby enhancing consumers’ general spending power in the retail market. (International,
Consumer Lifestyles in the US: Consumer Lifestyles, 2015) ii.
Social
There is also a rising influence of “young adults” who are also considered as “power millennials”, that are gradually over-taking the baby boomers. This group is usually the
trend-setter, that has high spending power from increasing ownership of financial cards and consists of well-informed active shoppers. According to Accenture, this group spends US$600 billion annually, which is projected to increase to US$1.4 trillion by 2020. More so, the spending power of women is also increasing due to more entering the workforce and being the key decision-maker in majority of purchases. Women account for 65% of global spending and more than 80% of US spending. By 2014, the W orld Bank had forecasted that the global income of women will increase by more than $5 trillion (Fabry, 2011). iii.
Technological
There are two key trends: (i) Growing online platforms and (ii) Increased use of radio-frequency identification (RFID). From 2008 to 2014, there has been a 375% increase in the sales of smartphones which has also changed the shopping behaviour from purchases from retail shops to higher mobile online shopping (International, Bath and Shower in the US, 2015) (Exhibit 8). RFID tags keep accurate track of inventory and helps the retailers in maintaining their stocks, according to volatile customer demands.
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3.4
Competitor Analysis
The top three competitors in specialty retail industry in the US are T he TJX Cos, Inc., Ross Stores, Inc. and The Gap, Inc. In 2014, its total retail company shares value was 20.9% and total brand shares value was 20.8% (International, Apparel and Footwear Specialist Retailers in the US: Category Briefing, 2015) (Exhibit 9). These competitors share several similarities (Exhibit 10). One of them is the adoption of a multi-brand strategy where each competitor owns several brands under the same company, by targeting different consumer profiles and increasing its customer base accordingly. For example, TJX operates Home Goods which sells home fashion, and Gap, Inc. targets students for its “Old Navy” brand while its “Banana Republic” brand targets its market towards professionals. These large players are also experiencing similar challenges: (i) Rise of e-commerce and (ii) price competition. All of them face the rise of online retail stores which affects the traffic, as well as increases the probability of cannibalising the sales in their respective retail stores. In terms of price competition, sales for Gap are affected due to the ability of its competitors to reduce prices, while Ross, Inc. is up against several discount retailers and department stores and TJX faces competition with national retailers (e.g. American Eagle Outfitters, Inc.) which has lower operator costs. The companies in this industry appear to face similar circumstances. As such, they will have to evolve in aligning their strategies to the respective changing trends of the industry.
4.
Company Analysis
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4.1
Resources and Capabilities
L Brands, Inc. develops its resources and capabilities to establish a competitive advantage and drive its profits. 4.1.1 Tangible Resourc es
i.
CEO (Leslie H. Wexner)
Leslie Wexner, the CEO of L Brands, Inc., expanded his business portfolio through invention and acquisition. Under his management, L Brands, Inc. has evolved from an apparel-based specialty retailer to an approximately US$12 billion segment leader focusing on lingerie, beauty and personal care product categories (L Brands, 2015). ii.
Financial assets
L Brands, Inc.’s net income has been steadily increasing over the past five years to US$1,042.00 million in September 2015 (L Brands, 2015). (Exhibit 11) This increase of 29.45% is much higher than the average net income of the specialty retail industry, 17.79% (New York University, 2015), showing that financial assets is indeed a tangible resource for L Brands, Inc. iii.
High end fashion designers
L Brands, Inc. is defined by its fashion. It works with respected stylists, designers and fashion editors to bring about the quality of its apparels. For an instance, Victoria’s Secret works with fashion designers and organizes the largest annual fashion show ever, which has grown into a blockbuster multi-media event. (Amed, 2011).
4.1.2 Intang ible Resourc es
i.
Brand recognition and brand association
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L Brands, Inc. has established itself as a leading retailer with Victoria’s Secret being ranked number one in the annual YouGov BrandIndex perception study of apparel brands (Lutz, How Victoria's Secret Became The Most Popular Apparel Brand In The World, 2013). L Brands Inc. invests heavily in advertising for brand promotion. Victoria’s Secret has brand loyalty among consumers. It even extended its brand into new categories such as swimwear and clothing. In addition, it engages in multiple brand building activities through the annual fashion show employing the same photography and promotions between its sales channels to ensure a consistent brand image. Brand loyalty has been growing ever since (Durbin, 2002). 4.1.3
i.
Capabilities
Innovation Capability
L Brands, Inc. believes in consistent new product introductions that make the stores seem renewed every time the customer walks into or passes by (Lutz, How Victoria's Secret Became The Most Popular Apparel Brand In The World, 2013). For instance, Victoria’s Secret has also come up with innovations such as the water bra, the air bra, and seamless products (Durbin, 2002). ii.
Inventory Control and operational efficiency
L Brands, Inc. specialises in its operational efficiency through inventory control by ensuring the season ends with minimum inventory. It does so by shifting its marketing strategy, when needed, to support early retail launches and incremental promotional offers and sales. Hence, L Brands, Inc. always has a reason to draw people i nto its store, either through big clearance sales or new products. This keeps inventories in check and balance sheets even (Lutz, Here's The Secret To Record Sales At Victoria's Secret, 2012).
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4.2 i.
Core Competencies Experienced management
The people in senior management at L Brands, Inc. have vast experience in the field of retail. They have worked with other retail giants such as Gap, Target, and etc. This gives them a deep understanding of retail business and an advantage over its peers. ii.
Innovative products According to Zack’s equity research (Zacks Investment Reseach, 2015), net sales of
L Brands, Inc. for September 2014 increased 9% to $853.5 million from $786 million in the prior-year period. The report states, “The company’s operational efficiencies and new and innovative collections augmented sales. The company’s innovation in merchandise and
exclusive assortments remains popular among consumers and sets it apart from its peers.” iii.
Effective customer service
According to The Columbus Dispatch (Feran, 2015), L Brands, Inc. scored 83 out of 100 points in the specialty retail category of the American Customer Satisfaction Index, putting it second behind Costco, which had 84 points. David VanAmburg, managing director of the customer satisfaction index says, “The customer-satisfaction index is important to retailers because it helps distinguish those companies that might expect more of bump from the strengthening job market and low gas prices.” iv.
Ability to market to segmented and targeted customer base
L Brands, Inc. uses a tool that has an inbuilt “Recency, Frequency, Monetary Value” (RFM) algorithm which decides the number of mailers to be sent to each customer depending upon how much they shop. This allows them to target each customer separately instead of as a bulk. 4.3
Value Chain Analysis
Horizontal Synergy
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L Brands, Inc.’s Victoria’s Secret and Bath & Body Works hold management synergy in which the company maintains multiple wholly owned divisions and wholly owned subsidiaries that focuses and serves on different aspects of the brands’ primary activities and
management throughout the company (Exhibit 12). L Brands, Inc. operates the management and employees throughout its brands, including Victoria’s Secret and Bath & Body Works. This synergy allows L Brands, Inc. to cut redundant jobs by linking the relevant activities of both brands. The linking of procurement, warehousing and outbound logistics through several subsidiaries and divisions between both Victoria’s Secret and Bath & Body Works also allows L Brands, Inc. to leverage a stronger bargaining power towards the suppliers by creating market power through merging both businesses’ activities, and effectively manage its inventories and product flow in the company. Figure 1: Value Chains of Victoria’s Secret (●) and Bath and Body Works ( ○)
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4.4
Company Performance over Time
After the acquisition of Victoria’s Secret, the company is going from strength to strength. Between 1985 and 1992, the company had an annual growth rate of 16.4%, and between 1992 and 1995, it grew at a rate of 4.4%. Net Company Revenues & Revenues by Segment Segment
FY 2014
Percentage Increase from FY2013
L Brands
$10,773 million
3%
Victoria’s Secret
$6,681 million
1.6%
Bath and Body Works
$2,932 million
1%
Others
$1,160 million
18%
Revenues by Geography US
Revenues by Geography
International
US : FY2014 Revenue was $9,561, an increase of 1.7% over FY2013.
11%
International : FY2014 Revenue was $1,212 million, an increase of 14.3% over FY2013. 89%
Growth of Stores The paper highlights that L Brands, Inc. is not only growing by sales, but also by the number of stores. At the end of Q2 of 2015, L Brands, Inc. had a total of 729 stores and they expect to open 92 new stores by the end of 2015 (L Brands Website). 13
Financial Performance YTD2015 As of Aug 2015, L Brands, Inc.’s net revenue is US$11,454 million, an increase of 6% over net revenue of FY2014. 4.5
i.
Important Issues Faced by L Brands, Inc. and Solutions Rising wages in US:
Bath & Body Works outsources its assembling to plants, such as The New Albany plant (The New Albany Company, n.d.), across US. The current rise in wages, will increase the cost of assembling for L Brands. Solution: Bath & Body Works can offshore its assembling to countries that have
comparatively inexpensive manufacturing plants and factories to reduce its costs of production. ii.
Cannibalisation by Victoria’s Secret Direct (VSD): The online store of Victoria’s Secret, VSD, is eating into its sales from the catalogue.
According to Sharen Turney (Tuck School of Business at Dartmouth), President of Victoria’s Secret Direct, Victoria’s Secret estimated cannibalization rates were as hi gh as 50-70%.
Solution: Victoria’s Secret Direct can reduce the availability of stock online for people
who have physical stores nearby and instead, direct the customers to those stores. Since the customer service at Victoria’s Secret is one of its competencies, there is a high chance that the customer will end up buying product from the store. Additionally, Victoria’s Secret can also increase the variety in stores so that they become more attractive to the customers. iii.
Victoria’s Secret complete dependence on offsite procurement:
As per MarketLine (MarketLine, 2014), “Victoria’s Secret is completely dependent on outside sources for its merchandise. As a result, the company does not have a direct control
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over the manufacturing process or the quality of the raw material being used. This makes L Brands, Inc. vulnerable to the risk of low product quality.” Solution: Victoria’s Secret can produce critical goods in neighbouring countries such
as Mexico, which will give it more control over the quality and transportation delays. iv.
Negative effects on brand image because of claims of child labour :
According to a report published in Bloomberg (Bloomberg L.P., 2011), the cotton-fields from where Victoria’s Secret gets its fabric, employ child labour. In the current times of customer awareness and interest in corporate social responsibility (CSR), this was a major hit to Victoria’s Secret’s image. Solution: Victoria’s Secret can ensure that its vendors are ethically responsible,
through a series of stringent checks as well as regular audits, and are not involved in socially irresponsible activities. Victoria Secret can also make a solid statement publically, by cutting off ties with such vendors, so as to signal a strong message to its consumers that they take CSR seriously. v.
Lacking real estate halts company growth : Victoria’s Secret CEO Sharen Turney noted that much of the current expansion is
driven by remodelling and making existing stores larger rather than by opening new stores (Eaton, 2015) and L Brands, Inc.’s Wexner said that department stores are irrelevant and that L Brands, Inc. will not expand to outlets (Moin, 2013). Solution: Franchising allows L Brands, Inc. to expand to alternative regions with
virtually no risk and no capital investment for L Brands, Inc. while having the abilit y to leverage local markets knowledge and facilitate adaptation. This can be achieved by providing the trainings needed to achieve the same customer satisfaction as of those provided by company-owned stores.
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Appendix Exhibit 1: Brands under L Brands, Inc. (L Brands, 2015) S/N
Brands
Main Functions
1
Victoria s Secret
Lingerie, Swimwear, Sportswear, Clothing
2
PINK
Lingerie, Swimwear, Apparels
3
Bath & Body Works
Personal Care and Beauty Products
4
La Senza
Lingerie
5
Henri Bendel
Designer Handbags
’
Exhibit 2: Specialty Retail Industry and its Sub-Industries
Exhibit 3: Global Specialty Retail Industry Value: $ million, 2006-2010
Exhibit 4
A. Category Segmentation of the Global Specialty Retail Industry
B. Market Segmentation of the Global Specialty Retail Industry
C. Global Specialty Retail Value Forecast
Exhibit 5 A. Capital requirement to open physical retailer shop (Business Planning, n.d.)
B. Capital requirement to open online retailer shop (StartupNation, 2006)
Exhibit 6: A wide availability of lingerie items from Victoria’s Secret (Victoriassecret.com,. 2015) and La Senza (Lasenza.com,. 2015) Victoris Secreat La Senza
Full / Perfect Coverage
Push Up
Perfect Shape
Lightly Lined
Strapless / Multi-Way
Front-Close
Demi
Bandeau & Bralettes
Wireless
Wireless
Padded
Unlined
Unlined
Halter
Lightly Lined
Crop Bustiers
Bralette
Brazilians & Cheekies
VS Sport
Bikinis
Push-Up
Garters
Racerback
Bustiers Babydolls Chemises Merrywidows Bodysuits Kimonos
Exhibit 7 Top Ten Personal Care (Bath and Shower) Companies
Exhibit 8 How Mobile Phone is changing the retail landscape
Shopping Behavior of Consumers (online vs physical stores) Product Information research
Prevalence of Smart phones 47% have used mobile 33% have used barcode phone to shop (compared scanning application for to the brick and mortar price comparisons stores)
31% have scanned a QR code in a newspaper, magazine, or billboard advertisement
42% have used phone to acquire product reviews and information while shopping at retail store
From a recent survey conducted by the US Federal Reserve
Exhibit 9 Market share for Specialty Retail Stores in the U.S.
A. Reported company % company retail value
B. Reported Brand shares of company
Exhibit 10 Competitor analysis for TJX, Ross Inc and Gap Inc Categories TJX Ross Inc (Group, Gap Inc 2013) Profile TJX Companies, Inc is Off the price retailLeading global retailer leading off-price apparel department store offering clothing, and home fashions chain. Its operation accessories and retailer. The company covers the following personal care products offers apparel, lamps, two brands: (1) Ross for men, women and footwear, hoem basics, Dress for Less Stores children. Key brands rugs, accent furniture, and (2) DD’s discount include Banana wall décor, giftware, stores. They carry Republic, Old Navy, seasonal marchandise, different designer, Athleta and Intermix decorative accessories, specialty store and brands. Gap Inc. decorative items and brand name products products are available in related accessories. The in apparel, footwear, more than 90 countries main goal of the and home fashions, at worldwide through about company is to create a discount prices. They 3,300 companysense of excitement and offer them in discount operated stores, almost urgency for our prices (off price 400 franchise stores, customers and apparel) and e-commerce sites. encourage frequent (Gap Inc Corporate customer visits. website, n.d.) Business Flexible Business Target market involves Multi-brand targeting model Model: off-price low to middle to price as well as fashionbusiness model moderate income conscious consumers households. Since across different profiles they believe in the from students (e.g. Old power of saving, they Navy Brand) and professionals (e.g. implement a “no frills” policy in its store. Banana Republic). There are no Numerous retail stores mannequins, fancy as well as online store decoration, and for accessibility (Traxler, fixtures. It’s merely 2013) focused on giving its customers a simple and easy shopping experience. To achieve this: (1) They don’t pick places in prime locations, (2) Limited number of stock per item, (3) Heavily relies on its distribution channels and supplier network for real time inventory management and
Strengths
Challenges
Inventory management: TJX offers a treasure hunt shopping experience and a rapid turn of inventories relative to traditional retailers. Low cost operations: Firstly, focused marketing on retail banner rather than individual product. Secondly, they do not spend heavily on store fixtures when designing its stores. Thridly, Effective business distribution: the company operates distribution centers encompassing approximately 13 million square feet in five countries (TJX.com, 2015). Growing Counterfeit Goods Market: TJX plays major role in the casual, athletic and fashion footwear domains faces significant challenges related to the huge entry and invasion of counterfeit products which causes negative impact to the company. Highly Competitive Market: TJX faces competition with national retailers which has low-cost operator (e.g. American Eagle Outfiters, Inc). Changing Consumer Preferences: The
operations (lower priced goods) Strong supply chain management system. Strong partnership with merchandise vendors for both of its brands (Ross Dress for Less
Strong product portfolio and brand recognition, high inventory turnover ratio (Data, 2015)
and DD’s discount
stores).
Faces challenge from direct competition from discount retailers and department stores, rising trend of the ecommerce platform
Challenges in overseas expansion (e.g. high economic and political risks in China) (Bogenrief, 2013), drop in sales due to other competitors offering lower prices, competition from ecommerce (Sacks, 2015)
business depends on the customer preferences, changing consumer demands and the changing trends. However, the trends is rapidly changing which the company has to be creative, innovative and up-to-date (Callisto.ggsrv.com, 2014).
Exhibit 11: L Brands Inc. Annual Cash Flow Statement (L Brands, 2015) Period Ended
01/31/15
2/1/2014
2/2/2013
01/28/12
01/29/11
9/9/2015
9/9/2015
03/24/15
10/15/13
10/15/13
1,042.00
903
753
850
805
Depreciation
438
407
389
391
394
Depreciation / Depletion
438
407
389
391
394
Deferred Taxes
50
18
11
-37
-24
Unusual Items
0
0
104
-112
-135
Other Non-Cash Items
7
10
-78
131
10
Non-Cash Items
7
10
26
19
-125
-9
-43
5
-152
-11
121
-168
-7
-27
9
90
1
-43
106
112
-17
74
139
13
73
64
46
78
103
51
249
-90
172
43
234
1,786.00
1,248.00
1,351.00
1,266.00
1,284.00
Purchase of Fixed Assets
-715
-691
-588
-426
-274
Capital Expenditures
-715
-691
-588
-426
-274
Sale of Business
--
0
0
124
32
Sale of Fixed Assets
--
--
11
0
0
16
36
46
76
136
16
36
57
200
168
-699
-655
-531
-226
-106
Other Financing Cash Flow
38
36
116
41
5
Financing Cash Flow Items
38
36
116
41
5
Cash Dividends Paid - Common
-691
-349
-1,449.00
-1,144.00
-1,488.00
Total Cash Dividends Paid Repurchase / Retirement of Common
-691
-349
-1,449.00
-1,144.00
-1,488.00
-87
-60
-629
-1,190.00
-207
-87
-60
-629
-1,190.00
-207
34
32
52
75
88
-53
-28
-577
-1,115.00
-119
5
290
--
--
--
Long Term Debt Reduction
-218
-290
-57
0
-645
Long Term Debt, Net
-213
495
928
981
-255
Issuance (Retirement) of Debt, Net
-213
495
928
981
-255
In millions of USD (except for per share items) Net Income / Starting Line
Accounts Receivable Inventories Payable / Accrued Taxes Payable Other Assets & Liabilities, Net Changes in Working Capital Cash from Operating Activities
Other Investing Cash Flow Other Investing Cash Flow Items, Total Cash from Investing Activities
Common Stock, Net Options Exercised Issuance (Retirement) of Stock, Net Long Term Debt Issued
-919
154
-982
-1,237.00
-1,857.00
-6
-1
0
2
5
162
746
-162
-195
-674
Net Cash - Beginning Balance
1,519.00
773
935
1,130.00
1,804.00
Net Cash - Ending Balance
1,681.00
1,519.00
773
935
1,130.00
Cash Interest Paid
300
300
276
225
209
Cash Taxes Paid
526
468
336
400
376
Cash from Financing Activities Foreign Exchange Effects Net Change in Cash
Exhibit 12 : L Brands, Inc Subsidiaries. (Canadean, 2014) L Brands, Inc. – Subsidiaries Intimate Brands, Inc. Bath & Body Works Direct, Inc. La Senza Corporation Victoria’s Secret Stores, Inc. Henri Bendel, Inc. Mast Global, Inc. Bath & Body Works, LLC Bath & Body Works Brand Management, Inc. L Brands Service Company, LLC beautyAvenues, LLC Victoria’s Secret Direct Brand Management, LLC L Brands Store Design & Construction, Inc. Mast Industries (Far East) Limited Victoria’s Secret UK Limited Intimate Brands Holding, LLC Limited Brands Logistics Services
References Amed, I. (2011, November 21). Addressing Fashion's Communications Conundrum. Retrieved from Business of Fashion: http://www.businessoffashion.com/articles/intelligence/addressing-fashionscommunications-conundrum#more-26875 Bloomberg L.P. (2011, December 15). Victoria’s Secret Revealed in Child Picking Burkina Faso Cotton. Retrieved October 04, 2015, from Bloomberg: http://www.bloomberg.com/news/articles/2011-12-15/victoria-s-secret-revealed-inchild-picking-burkina-faso-cotton Bogenrief, M. (2013, Feb 26). Don't Believe The Hype — The Gap Is Still Headed In The Wrong Direction. Retrieved from Business Insider: http://www.businessinsider.com/gap-inc-still-in-trouble-2013-2?IR=T& Business Planning. (n.d.). Specialty Clothing Retail Business Plan. Retrieved October 08, 2015, from Business Planning by Palo Alto Software, Inc.: http://www.bplans.com/specialty_clothing_retail_business_plan/company_summary_ fc.php Canadean. (2014). L Brands, Inc. Data, G. (2015). The Gap, Inc. - Financial and Strategic Analysis Review. Global Data. Durbin, T. (2002). Victoria’s Secret. Tuck School of Business at Dartmouth Glassmeyer/McNamee Centre for Digital Strategies. Eaton, D. (2015, February 26). Victoria’s Secret CEO: ‘I wish we could (grow) faster’ but real estate lacking . Retrieved October 04, 2015, from Columbus Business First: http://www.bizjournals.com/columbus/blog/2015/02/victoria-s-secret-ceo-i-wish-wecould-grow-faster.html Fabry, S. (2011, Apr 11). Women Dominate The Global Market Place: Here Are 5 Keys To Reaching Them. Retrieved from Fast Codesign: http://www.fastcodesign.com/1663594/women-dominate-the-global-market-placehere-are-5-keys-to-reaching-them Feran, T. (2015, Feb 18). L Brands strong in satisfaction survey . Retrieved Sep 15, 2015, from The Columbus Dispatch: http://www.dispatch.com/content/stories/business/2015/02/18/l-brands-strong-insatisfaction-survey.html Gap Inc Corporate website. (n.d.). Retrieved from Gap Inc Corporate website: http://www.gapinc.com/content/gapinc/html/aboutus.html Group, U. o. (2013). Ross Stores, Inc. University of Oregon Investment Group. International, E. (2015). Apparel and Footwear in the US: Industry Overview. Euromonitor International. International, E. (2015). Apparel and Footwear Specialist Retailers in the US: Category Briefing. Euromonitor International. International, E. (2015). Bath and Shower in the US. Euromonitor. International, E. (2015). Consumer Lifestyles in the US: Consumer Lifestyles. Euromonitor International. L Brands. (2015). Financials. Retrieved from L Brands: http://www.lb.com/investors/financial_information/financials.aspx L Brands. (2015). L Brands. Retrieved from Timeline: http://www.lb.com/ L Brands. (2015). Our Founder . Retrieved from L Brands: http://www.lb.com/our_company/about_us/our_founder.aspx Lutz, A. (2012, August 2012). Here's The Secret To Record Sales At Victoria's Secret . Retrieved from Business Insider: http://www.businessinsider.com/how-victoriassecret-drove-record-sales-2012-8?IR=T&
