What’s Behind Limited Brands’ Growth?

Limited Brands (NYSE:LTD) enjoys a strong brand recognition in the U.S., led by two of its popular and well-known brands, Victoria’s Secrets and Bath & Body Works. Along with its strong brand identity, the retailer’s unique marketing strategy positions it well in the U.S. market. Additionally, product diversity has helped Limited Brands in revenue generation, and this is likely to remain one of the main strategies going forward.

While considering the positives, it is also important to note some potential risks that could hinder Limited Brand’s growth. Firstly, the retailer’s main brands lack significant international presence, resulting in lack of geographical risk diversification. Secondly, the increasing competition in the U.S. intimate apparel industry and personal care products poses a threat. In this analysis, we will discuss the factors that are likely to influence Limited Brands future growth.

See our complete analysis for Limited Brands

Strong Brand Identity

Victoria’s Secrets is the market leader in the U.S. lingerie market. It has limited competition for women’s mass market, high-end lingerie. In the more general category, Victoria’s Secrets’, is one of the leading underwear brands.

While most brands in the intimate apparel business stress comfort and fit, Victoria’s Secrets has emphasized glamor, which has helped the brand develop a unique image. Bath & Body Works is also a highly recognized brand in the U.S. Limited Brands can leverage its brand reputation to venture into new products as well as incubate new brands under Bath & Body Works in the future.

Successful Marketing

One of Victoria’s Secrets’ strengths is its very successful advertising strategy. In a business that sells image and lifestyle, advertising is of high importance. The retailer spends a substantial amount each year on advertising. Victoria Secrets’ fashion show is a big driver of sales and a key element of its advertising strategy. The retailer recently organized a successful holiday fashion show featuring celebrities such as Rihanna, Justin Bieber and Bruno Mars. ^[1]

Victoria’s Secrets’ supermodels as angels are one of the brand’s main campaigns. Through fashion shows and advertising, the retailer uses supermodels to associate the brand’s identity with beauty and desire.

Expansion Into New Product Categories And Wider Range Of Products

Victoria’s Secrets has introduced new lines of products such as swimwear, fragrances and beauty products. The brand has expanded beyond lingerie into other product categories like accessories, fragrances, shoes, sleepwear, handbags and luggage in the past, and has plans to roll out new initiatives in the future. Victoria’s Secrets recently launched new products such as angels fantasies bras, angel gold fragrance, flirt bra and vintage fleece. ^[1] These products have received good customer response, and led to 4% increase in comparable store sales in November 2012. ^[2]

Launching new products is a key growth strategy for Bath & Body Works as well. The company is particularly focused on introducing new fragrances and anti-bacterial products, which should result in an increase in the division’s revenue per square foot going forward. Following the success of Q3 fiscal 2012, Bath & Body Works’ signature collection, home fragrance and soap & sanitizer business continued performing well in November. ^[1]

Key Risk To Consider: Increasing Competition

Women’s intimate apparel industry in the U.S. has witnessed an increase in brands that have ventured into this business. Many retailers such as Kohl’s and JC Penney have added new lingerie lines and have started offering services such as bra fitters. Even established specialty retailers such American Eagle Outfitters (NYSE:AEO) and Abercrombie & Fitch (NYSE:ANF), have introduced new lingerie lines. The heightened competition has notably changed the market from what it was in the previous two decades, when Victoria’s Secrets largely had the market to itself.

Similarly, Bath & Body Works is facing increasing competition in the U.S. from brands such as Sephora and The Body Shop. Additionally, brand loyalty is low within the personal care industry as consumers are more concerned about better bargain. A brand’s success largely depends on its ability to market, innovate and introduce new products.

Small International Footprint: Highly Dependent On The U.S. Market

Despite its market leadership in the U.S. and strong brand awareness internationally, Limited Brands has not yet expanded its international business. Its international presence of its main brands is limited to 93 Victoria’s secrets and Bath & Body Works stores in Canada and two stores in the U.K.. ^[3] Compared to this, the retailer operates around 2,600 stores in the U.S.. ^[3] Although both brands enjoy high brand recognition in Canada and are expanding, their revenue contribution still remains low.

About 80% of Limited Brands’ revenues come from the U.S. market alone, but the sluggish economy in the country has had its toll. Hence, Limited Brands faces the risk of slower revenue growth if it doesn’t expand more aggressively into international markets.

Our price estimate for Limited Brands Stands at $50, which is roughly in line with the market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Limited Brands’ November Sales Transcript [↩] [↩] [↩]
2. Limited Brands Reports November 2012 Sales, Limited Brands, Nov 29 2012 [↩]
3. Limited Brands’ SEC filings [↩] [↩]