Another L Brands Story: The Ingredients Behind The Sweet Smell Of Bath & Body Works’ Success
L Brands (NYSE:LB), the owner of Victoria’s Secret and Bath & Body Works, is one of the most successful stocks in the specialty retail category right now. L Brands’ stock has witnessed 30% growth over the last year when the stock price of most of its peers declined in value. Also, over the last five years, the company has consistently outperformed both the S&P 500 Index and the S&P Retail Composite Index. In this second part of a two-part analysis, we discuss the secrets behind the success of its Bath & Body Works brand. Previously, in the first part of the analysis, we’ve elucidated the successful strategies of the Victoria’s Secret brand.
Source: LB Form 10-K for fiscal year ended 2014
Out of L Brands’ $11.5 billion sales in 2014, Bath & Body Works (excluding international sales) contributed to around $3.5 billion, reflecting a 7% year-on-year growth. [1] L Brands is one of the few specialty retailers to have braved the American retail market slump and performed exceedingly well. We have already observed that Victoria’s Secret loves pampering its customers, making their lingerie a product that women aspire to own. Here we explore below, how even during an economic slowdown, Bath & Body Works’ products have sold well, primarily due to the chain’s adaptability and emotional connection with its customers.
Our price estimate for L Brands is at $87, marginally below the current market price.
See our complete analysis for L Brands
The Bath & Body Works Brand: How Sweet Does Success Smell?
Bath & Body Works is globally the largest specialty retail beauty brand with over 120 million transactions in 2014. It is the Number one brand in America for body lotion, shower gel, fine fragrance mist, liquid hand soap, hand sanitizer, spa, and aromatherapy. [2] Established in 1990, Bath & Body Works, has a tagline that says “straight from the heartland.” Currently, Bath & Body Works has over 1,600 stores in North America and another 85 (as of the end of 2014) spread across the Middle East, Latin America, Russia, Turkey, and Singapore. The company plans on opening 50 new stores internationally in 2015. The business of fragrance relies, to a great extent, on people’s sense of identification with the scent. A favorite perfume from childhood can trigger fond memories in a person’s mind. However, there are stories of both success and failure related to leveraging nostalgia for selling goods. Hence, how did Bath & Body Works achieve this level of success, when it doesn’t even spend on advertisements or depend on the approvals of fragrance connoisseurs? [3]
(Image Source: L Brands Investor Handouts)
Brand Evolution: From ‘Just Another Brand’ In A Store Shelf, To A Personalized, Friendly Transformation
Bath & Body Works was initially sold at Express, a store chain that was previously owned by L Brands. However when the brand was repositioned as a down-home style entity, the company created a fictional character called ‘Kate’ as its its founder. Each store is modeled like Kate’s house and customers are treated as her guests. Inside the store, an employee clad in a plaid apron greets the customer and explains the weekly promotional offers. The customer can check out samples of the products they are interested in. [3]
Adaptability: How Did The Brand Rise From Its Own Ashes?
After a couple of disappointing holiday seasons, the brand underwent a makeover towards the end of 2008, with new product packaging and fresh store designs. In the fourth quarters of 2006 and 2007, the lack of fresh products was the main reason for its lackluster demand. The signature line of Bath & Body Works products was reduced by 40% and the five lines of products in addition to the in-house brands to be kept were: 1) Aromatherapy; 2) True Blue Spa; 3) C.O. Bigelow lip care; 4) Dr. Patricia Wexler skin care; and, 5) Slatkin & Co.-branded home fragrance products. Shower gels, body washes, soaps, and lotions were also reformulated over the next couple of years. The lesson that the company has kept applying to remain on the top of its business was succinctly expressed by a former CEO of the company: “We learned that when we zero in on what she wants, we win . . . . Quality and sophistication will set us apart.” [4]
Gradual Introduction Of More Sophisticated Fragrances: From Strawberry Shortcakes To Eucalyptus Mint
Tom Knotek, a former fragrance, flavor, and sensory executive from Bath & Body Works, stated that one of the biggest transformations that he’d seen in his eight year tenure since 2005 was the evolution of the home fragrance category. Home fragrance was erstwhile not given that much of importance and Knotek wanted to gradually introduce more sophisticated fragrances in this department. Hence, starting from the old favorite strawberry shortcake, the customer was gradually introduced to a more sophisticated olfactory journey through scents like Eucalyptus Mint, Mahogany Teakwood, and Bergamot Woods. [3] Currently, Bath & Body Works stocks over 200 private label scents and they are a diverse portfolio of new and old perfumes, some as old as 15 years.
Emotional Connection: There’s One For Every Occasion And Mood
There are scents that are introduced seasonally, during Thanksgiving or Christmas, with strange names such as “A Thousand Wishes” and they sell heavily because of the seasonal appeal. The brand knows its consumers well, and hence, it creates old scents with which the customer connects emotionally through memories, as well as new fragrances for the user to experiment with. Bath & Body Works does not undertake traditional advertisement like Victoria’s Secret, other than paid placement on Facebook. The brand believes in a personal connection and with the help of phone numbers and email addresses it sends out new and promotional offer release news to its users.
(Image Source: Bath & Body Works Presentation, L Brands Investor Resources)
The Masstige Appeal: Pocket-Friendly Products With A Sophisticated Touch
The brand targets shoppers who love products that are more sophisticated than drugstore brands and yet who like their products to be pocket-friendly. This is another appealing factor about the brand. Neither does it directly compete with L’Oreal or Estee Lauder in the premium segment with high-priced products, nor does it sell low priced mass produced lotions or soaps. Also, unlike popular fragrance brands, it does not seek celebrity endorsements, but rather emphasizes on the homegrown aspect. American customers love identifying with this domestic appeal.
(Image Source: https://instagram.com/bathandbodyworks/)
Promotions: Personal Connections With Its Target Audience
Another striking aspect about Bath & Body Works is its promotions, or rather the lack of them. Instead of using traditional advertising, the company promotes to customers who already have visited its shops. Customers’ contact information is collected at checkout, and promotions and advertisements are done through emails and snail mail. The company tries zeroing in on its target customers and uses effective means to keep bringing them back to its stores. [3]
Focus On The Domestic Market: Is It Powerful Enough To Compete Abroad?
Even though Bath & Body Works is America’s Number 1 brand for lotions, gels, and aromatherapy, it is cautious with its international expansion. It expanded to Asia and Latin America only in 2014. The important question here is that since the brand is so America-centric, how much would it appeal to its international customers? In the long run, we can expect the company to come up with fragrances and flavors unique to different locations, along with its expansion.
(Image Source: L Brands Investor Handouts)
Just like Victoria’s Secret, Bath & Body Works has also tried to mold itself into one of the most desirable brands in the minds of its customers. The adaptability of the brand and the at-home feeling offered to its customers facilitate this. So does the subtle tugging at the chord of their hearts through smells of childhood, adolescence, or a happy period in their lives such as Christmas or Thanksgiving. In sum, this brand sells its products on the sheer impact of the ‘feel-good factor.’ However, let us not undermine the importance of emotional appeal. Many other brands try leveraging an emotional appeal but still fail. What sets L-Brands’ products apart is the fact that they seem able to suitably change according to varying taste and constantly upgrade themselves. The key, then, is to continue this dynamic.
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- LB Form 10-K for fiscal year ended 2014 [↩]
- L Brands Investor Handouts, L Brands, 2015 [↩]
- How Bath & Body Works Became America’s Biggest Mall Beauty Brand, Racked, December 3, 2014 [↩] [↩] [↩] [↩]
- Limited has high hopes for Bath & Body Works, Biz Journals, November 3, 2008 [↩]