Why Is Victoria’s Secret Undergoing Restructuring Changes?

Victoria’s Secret (VS) recently announced some major restructurings of its business.

• The VS business will be further categorized into Victoria’s Secret Lingerie, PINK, and Victoria’s Secret Beauty. Each of these divisions will be managed by separate executives who will report to the CEO.
• Also, the company had been repositioning its Beauty business since last year, given its weak performance. Beauty had been lagging behind for the last 3 years. Hence, the brand is trying to shift its focus from the fantasy beauty products to fine fragrance and high-end body care products.
• In an effort to increase VS’s profitability, the company will get rid of its non-core businesses such as swimwears, shoes, and accessories which were so far being sold through the digital channel. Though these businesses generated around $525 million in sales in 2015, the company feels that focusing on its core categories might lead to better growth opportunities in the future.
• The company has decided to reduce its promotional activities such as direct mail couponing, secret rewards, etc and will henceforth focus on brand marketing for the core categories.
• Victoria’s Secret had also reduced its total headcount by 290 recently (200 home office associates+90 contingent labor positions). Though VS and VS Direct displayed a strong topline performance, the brands faltered when it came to bottomline growth in 2015. We see below that though the revenues for both VS and VS Direct increased at a much higher rate in 2015 as compared against 2014. The EBITDA growth has declined substantially during the same period. We feel that these measures can help Victoria’s Secret in reviving its bottom line performance as well.

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