Month: April 2015

Victoria’s Secret is that La Senza is the Future Future Shop    

Victoria’s Secret versus La Senza and why ‘when’ is a more valid question than ‘if’ the Canadian retailer will experience the same transition to VS as Future Shop has to Best Buy.

First, I must honestly admit my bias. I have been a fan of La Senza for quite some time. Their fun attitude, great store locations, premium products and fair prices kept me coming back for years. I still place orders online from time to time, though I no longer shop in-store since I no longer live close by.

I got the idea to write this post while shopping at a Victoria’s Secret location in the US. Looking around at the the pretty lacies, and the promises of perfect cleavage I couldn’t help but notice the similarity between Victoria’s Secret’s products and my favorite Canadian lingerie retailer, La Senza’s offerings. But there was a key difference: Where were all the sale signs? Where were the 5 for $25 panty bins? Where were the buy one get one 50% off bras? Victoria’s Secret was simply more expensive. Their sales were nearly nonexistent. “Panties 3/$33!,” one sign exclaimed. Uh, wait, what? Eleven dollar underwear? Hardly a deal, if you ask me. And thence my curiosity grew.

I started this article with one hypothesis: La Senza and Victoria’s Secret sell basically the same products, but La Senza is a lot cheaper. During the research that I did for this article, I developed a second hypothesis: L Brands intends to close all La Senza stores with Victoria’s Secret emerging as the brand of choice. I hope I can convince you that both of these statements are true, but please tell me what you think in the comments below!

Price Comparisons

Victoria’s Secret is more expensive than La Senza. Allow me to provide a few examples. The Victoria’s Secret Medallion Lace Trim Thong Panty is $10.50 retail or 5 for $27 ($5.40 each), while the suspiciously similar Remix Thong Panty at La Senza is $7.50 retail or 7 for $28 ($4.00 each). The difference between paying $5.40 for a pair of panties at VS and $4 at La Senza is 25.9%. Take also, for example, VS’s Bombshell Adds-Two-Cups Push-Up Bra $49.50 retail vs La Senza’s Hello Sugar Push-Up Bra  $42.50 retail, which also claims to double a woman’s cup size. Now you might be saying to yourself, “Well, $7 is not that big a difference even though they do look a lot alike.” You’re right, it’s not really that much, only about 15% or so, but La Senza also has way better sales than Victoria’s Secret. For example, as of this writing, these bras at Victoria’s Secret have a ‘free shipping (and returns)’ offer attached, while La Senza’s deal du jour is ‘buy one, get one for $15.’ So, in this case, two of these bras at VS cost $99, with shipping included, while two of these bras cost $57.50, plus $9 for shipping, coming out to a total of $66.5. If you buy two, the discount here would be 32.8%. As a little icing on the cake, my American readers can enjoy the fact that while the VS prices are quoted in US dollars, the La Senza prices are quoted in Canadian dollars. As of this writing, the US dollar enjoys a nearly 25% advantage over the Canadian dollar, and yes, that $9 shipping quote includes continental US destinations.

La Senza is cheaper, but don’t take my word for it, in late 2014, when describing La Senza versus Victoria’s Secret, L Brands CEO Leslie Wexner said that the La Senza brand would give consumers a lower priced product versus Victoria’s Secret and Pink.

How do these companies encourage customer loyalty?

Both companies have loyalty programs. La Senza’s requires a fee: pay $10 once, and get 10% off for a year, plus extra coupon savings. For only $10, you get 10% off every order, free standard shipping to Canada or the US with orders of over $100 (which is $9, so there’s your membership fee right there), and exclusive sales, coupons, etc…  Oh, and you don’t have to open a credit card account.

Victoria’s Secret loyalty benefits apply only to holders of the Victoria’s Secret Credit Card. It works out to about 4% savings. For every $250 spent, you get $10 back- except if you buy bras, double ‘points’ for bras, so that bumps it up to an effective 8% if you only ever buy bras.

Both cards have a ‘free birthday gift!’ Information I found online said that the gift from La Senza was a free pair of panties and an extra 30% off discount during your birthday month, while VS’s birthday gift is $10 off your purchase. I can’t say for sure if that discount and both gifts stay the same year over year, since the information I found was from 2014 and on a deal site, and not official communication from the company itself. The only thing that both companies say is “free gift,” so the best I can do, is speculate.

Manufacturing

When I noticed that La Senza’s product offerings were nearly identical to those sold by Victoria’s Secret I thought, surely they’re unique companies with their own separate supply and design chains. I did a little research and learned quite the opposite. This is particularly shocking to me because of the significant price difference between the two brands.

Which brings me back to my point: it’s the same quality of product, with at the very least similar, if not identical manufacturing and design streams. But don’t take my word for it, listen instead to a 2013 interview, with managing director of La Senza brand, David Pidgeon who said “By virtue of the fact we’re [La Senza] manufactured in the Victoria’s Secret factories, you have the same manufacturing processes you would get in a more expensive brand.” Except that it’s not more expensive, it’s “lower priced,” as CEO Leslie Wexner said in an interview cited also above.

So here we have high-level brand execs confirming my first hypothesis: La Senza and Victoria’s Secret are the same quality of products, manufactured in the same factories, and La Senza is less expensive, even though it is essentially the same.

The Future of La Senza

Financial Considerations

L Brands CEO Leslie Wexner said that he envisioned over 1,000 stores in the US one day, this is interesting, since L Brands has not opened any La Senza stores in the US since the acquisition of the brand in 2007 by L Brands for $628 million (USD).

In 2013, the leadership, including Martin Waters, the International President of L Brands, said that the company was planning to open 6 stores in the midwest. This location was chosen because it was the best place for a value-priced brand as opposed to somewhere more fashion forward like L.A.; and presumably where the lower prices would attract new customers and be less likely to erode Victoria’s Secret clientele. In reference to potential expansion of the La Senza brand, Waters even said that “It ought to be big. We wouldn’t do it if we thought it was just a couple of dozen.”  However, these plans were scrapped the following year due to a downturn in La Senza business the previous quarter. In order to understand this ‘downturn’ in business, I consulted the annual SEC filing for the year ended February 2014, which includes the final quarter or 2013. I saw a note about decreased sales at La Senza stores due to stores closing, which was a company decision, but overall, I saw positive numbers. Average sales per square foot increased from $438 to $516, and sales per individual store increased from $1,435,000 in 2012, to $1,653,000 in 2013. While I was unable to see where business dropped in the fourth quarter from the SEC filings, the problem I do see is that La Senza pales in comparison to VS. Even though profits seem to be increasing at La Senza, in reference to the numbers I cited above, the average square foot sales at VS stores is $824, while the average single store sales tops $4,969,000.

After reviewing many years of L Brands SEC filings, there exists an impressive difference in profits between the two brands. For example, in their most recent SEC Annual Filing, it was noted that “At Victoria’s Secret Stores, gross profit increased due to higher merchandise margin dollars as a result of the increase in net sales and less promotional activity.” What this means is that profits at VS increased because a) they sold more (“net sales”) and b) they had fewer sales (“less promotional activity”). While La Senza, it was noted “For 2014, gross profit decreased due to lower merchandise margin dollars at La Senza. The gross profit rate decrease was primarily driven by a decrease in the merchandise margin rate at La Senza, partially offset by a decrease in the buying and occupancy expense rate.” What this means is that there were fewer profits at La Senza because they sold items for lower prices (merchandise margin), but the good thing, as they note, is that they’re not ‘paying as much rent or buying as much stuff’ so that offsets the lower profit rate a little. So, basically, they don’t have as many locations to sell stuff at lower margins in anymore, so that helps reduce the degree to which they have lower profit margins. This is all written in financial jargon, so in summary, La Senza is profitable, but it is not as profitable as Victoria’s Secret where consumers are willing to spend more money. Therefore more money is made per square foot of retail and these higher profits make La Senza look like a mediocre investment.

This, however, is only based on what I can interpret by reading the SEC filings, I am sure that L Brands insiders have a much less tenuous grasp on the profitability of their investments than I do.

 

Retail Locations

In 2006, before the acquisition, La Senza had 318 stores in Canada and operated 327 stores in 34 countries. Currently, Canada has about 140 stores and operates 260 stores in 29 other countries. Slowly, L Brands has been closing La Senza stores and I fear that eventually, Victoria’s Secret will emerge to become the brand of preference and my favorite moderately-priced sleepwear and lingerie brand will cease to exist.

Here’s a chart I made by gathering data from L Brand’s Annual SEC filings. The red line shows the gradual decline in La Senza retail locations, while the blue line shows a slow increase in Victoria’s Secret locations in Canada.

La Senza & Victoria’s Secret Retail Locations in Canada

 

Before the acquisition, La Senza operated over 300 stores, less than a decade later, they now operate less than half as many. Meanwhile, Victoria’s Secret methodically moves in to scoop up the consumers abandoned by La Senza.  There is no mention in L Brand’s 2015 ICR Exchange Conference presentation about growing La Senza, or basically about La Senza at all.

The Inevitable Outcome

A pattern occurs every time a US brand acquires a Canadian company. That pattern is that the American brand absorbs, closes or rebrands the Canadian stores and moves on to operate normally in Canada. Famously, when Best Buy acquired Future Shop in 2001 people were shocked that the company allowed  both to operate simultaneously and some even suggested that it was good for business. Consider this  article  about La Senza and VS that espouses the benefits that Best Buy and Future Shop saw by keeping both brands alive. It even says that “top company insiders figured the Future Shop name would eventually disappear. Instead, it survived and thrived by serving a slightly different customer.” However, we can now see that the long-term goal was to allow Best Buy to become the leading electronics retailer in Canada when recently all Future Shop locations were suddenly closed down. Consider also this article from the Financial Post, in which a former La Senza executive says that “With the Best Buy acquisition of Future Shop being one notable exception, it is the fate of most Canadian retailers acquired by U.S. rivals in the same merchandise category to eventually be subsumed by the U.S. brand.” What I’m suggesting is that even if it takes years, the La Senza name is also doomed to extinction. This will occur when Victoria’s Secret has sufficiently captured the taste and trust of the average Canadian consumer in the same way that Best Buy was eventually able to do the same.

I think I’ll go place an order now, while I still can.