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VICTORIAs SECRET TO SUCCESS

MANAGEMENT OF CHANGE | GROUP 2

2012

Candice Swanepoel Victorias Secret Angel Victorias Secret Fashion Show 2011

Victorias Secret is an American retailer of lingerie, womens wear and beauty products. It is the largest subsidiary of Limited Brands with sales over 6 Billion USD. The brand has been very creative in keeping itself relevant to customers and redefining the category as such.

AAQUIB AL HOSSAIN ABHISHEK BHATIA AJITABH CHAUDHURI ANIKET PATKI

August 22, 2012

VICTORIAS SECRET TO SUCCESS


Victorias Secret Angels, who are usually among the top supermodels in the world and they have helped Victorias Secret earn a tremendous following from the American teenage girls and young women. Victorias Secret Facebook page has over 20 million users and its website has a very high Alexa ranking (one of the highest visited corporate sites.)

WHY
VICTORIAs SECRET?
Its amazing what they can do with a pair of bra and panties:Doutzen Kroes (Supermodel and Victorias Secret Angel)
On November 9, 2011 in New York City, the annual Victorias Secret Fashion Show was telecasted across America over the prime time channel CBS. The show, unofficially termed as the largest fashion event in the world was seen by over 10.3 million people. To understand the value of the number, one should know that the average number of viewers for one of the highest rated sitcoms aired over CBS, How I Met Your Mother, garners only around 6-7 million viewers in the prime time slot. Established only in 1977, Victorias Secret has blossomed over the last 3 decades to become the fastest growing subsidiary and largest contributor to its parent company Limited Brands with a revenue over 6 billion USD. Victorias Secret was initially a brand established for womens lingerie. With some innovative marketing, distribution and supply chain strategies, the company has currently the largest share in the lingerie market in US. The company has over 1000 stores across different parts of US. It is also renowned for its popular brand ambassadors famously termed as the
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Although enjoying a great status now, when Victorias Secret entered, the market was cluttered, and womens lingerie was just considered as an aide for comfort (or as Victorias Secret would term: Boring). To have grown in an industry which was not openly discussed, Victorias Secret has performed exceptionally well to change the way the category is perceived and also employ a strategy which differentiates itself significantly to keep it as the market leader.

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VICTORIAS SECRET TO SUCCESS UNDER LIMITED BRANDS


Leslie Wexner carried forward the Victorias Secret idea and invested money in the concept to create a power brand. More stores were built on similar lines with Victorian era design and wooden paneled walls to make the dcor inviting for men. Wexner also strongly believed in the catalog business of Victorias Secret. Wexner thus hired CYNTHIA FEDUS and made her the chief executive officer of the Victorias Secret Catalog operation. This was the genesis of the two separate divisions: The Catalog (Present Day Victorias Secret Direct) and The Stores (Present Day Victorias Secret Stores).

BREAKING
THE CLUTTER
ORIGIN OF A MULTI BILLION DOLLAR IDEA
The story of Victorias Secrets origin is an interesting one. Roy Raymond, a Stanford graduate found it highly embarrassing to shop for lingerie for his wife in austere surroundings. Raymond thus founded Victorias Secret in 1977 with the vision of creating an appealing shop with a welcoming stylish dcor inspired by the Victorian era. The shops design was meant to make men comfortable while shopping for lingerie with or in absence of their better half. The lingerie was also offered in a variety of designs and styles to provide choice to women while shopping and boost sales. Raymond also popularly introduced a mail order catalog in the following year to sell the lingerie under the Victorias Secret brand. The response to Raymonds idea had been positive and Victorias Secret had earned $500,000 in its first year of operations. It had 5 stores under its name and its 42 page mail order catalog was earning 6 million USD per year by 1982. It was at this time that Raymond sold the company for 4 million USD to Leslie Wexner, CEO of Limited Brands (Hoovers)

CYNTHIA FEDUS VISION FOR VICTORIAS SECRET CATALOG


Cynthia Fedus as the chief executive of Catalog Division pushed for Customer education and brand identity building. Popularity of the brand amongst men was high as Victorias Secret provided them a welcoming environment to buy and also educated them about lingerie and how to make a choice. Thus Fedus believed in importance of customer education and built a telephone operating team to cater primarily to embarrassed men who were attempting to purchase lingerie as gift items for their wife/ girlfriends. The catalogue telephone operators were trained to be patient and helpful to the male customers who formed a sizeable portion of the customers calling for help. However, this concept had not taken off with women although being a hit amongst men To develop the brand following amongst women, focus was shifted to building Brand identity, Fedus changed the focus in the catalog from steamy shots of men and women to that of women posing alone in romantic and seductive, yet socially acceptable settings. The change led to doubling of catalog sales within a year to a value exceeding a million USD.
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Victorias Secret. Nichols also appointed a person from Marks and Spencer for quality management.. The person was responsible for assuring quality work by suppliers as per the contractual agreements. Having obtained the right vendors, Nichols next step after laying the building blocks for private label creation was to create the image of Victorias Secret lingerie as an extension to wardrobe. Having developed the supplier database, Nichols pushed for increase in Stores and communicating the message. Nichols went on an average of creating 50 stores every year. Nichols achievements during her stint as an EVP took Victorias Secret in the top 10 apparel brands in the US.

Hence Fedus move to focus on women and increase revenues had paid off. In fact the same theme has carried onto present day catalogs.

GRACE NICHOLS: THE SAVIOUR


In the nineties, the Company had begun to face issues with quality. Victorias Secret was a premium lingerie brand and quality was one feature that could not be compromised upon. In the beginning stages, Victorias Secret had mostly made use of designs which were knockoffs from other popular brands. Later on, Victorias Secret sourced designs from various vendors. The marketing strategy had worked effectively to establish a premium image, however the quality did not back up the message Grace Nichols was the executive Vice President of Victorias Secret Stores and held the position from 1986 to 1992. When complaints regarding quality of the lingerie upon washing came under question, Mrs.Nichols known for her outgoing nature, took the problem head on. She identified two reasons for the lack of quality. The first being poor vendor choice and the second being lack of quality testing. These functionalities were weak in Victorias Secret as the two primary divisions were catalog and Stores whose prime responsibility and core competency was selling designs. Victorias Secret before Nichols had a 5 member team in the Stores division who were responsible for obtaining merchandise. To ensure quality, Nichols developed relations with reliable vendors such as Vanity Fair and Hanes. She convinced these major suppliers to remove their tags and name them as Victorias Secret by assuring them considerable sales, which although the suppliers were reluctant about, they were convinced later with the results. Nichols hence started the system of truly developing the quality private label of
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communication and customer service and generate lesser confusion. The division has become an essential part of the Direct Division and has a budget of over 10 million dollars annually with a size exceeding 40 members. The website has accomplished what it was established for and has grown to become a great interaction medium between the company and its customers. The e-commerce of Victorias Secret has been profitable too. Ken Weil attributes the success to his following moves Developing an in-house content

PIONEERS
OF THE INDUSTRY
Victorias Secret could not have become a 6 billion dollar brand just by having a clutter breaking concept. The company is known for its extensive innovative marketing and one of the best adopters of e-commerce in the industry. The key to Victorias Secret Success has been its adaptability and ability to set trend and make them traditions.

VICTORASSECRET.COM
THE ONLINE PIONEERS
Victorias Secret entered the online medium through www.victoriassecret.com in 1998. The web group was headed by KEN WEIL, a veteran from an Internet professional services firm (Proxicom). The website was launched with two goals Strengthen and support the Victorias

Secret brand Increase Sales goals.

Amazon.com was established in 1995 and Victorias Secret made its first online sale worth 39 dollars only three years later. The new web group was here to stay and it was directly incorporated into Victorias Secret Direct instead of being made into a different division. The company felt that this would ensure better
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management and database management capability called WENDI. The in-house system helped Victorias Secret in easier customization of its look and also enabling changes on a very short notice, thereby keeping the website interesting and dynamic. Ken was able to utilize the call centre support of Catalog division (now the Direct Sales Division) and he successfully digitized the catalog. He enabled live streaming of Victorias Secret fashion events in the mid-nineties, and the experience at that time was phenomenal for the customers. Victorias Secret parties and events had gained a great reputation, and since the customers werent able to gain access to the same, the online viewing made the site very popular. Development of the website also helped in a demographic and historic analysis of buyers. Customized e-mails were sent to cater to the customers as per their likes. The same could not have been imagined with mail catalogs.

The success of the online medium was truly phenomenal with sales increasing from near zero
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in 1998 to over 200 million USD in 2001. Infact, Victorias Secret in 2000 beat Amazon and Paypal to win many e-retailing awards. The web presence has also taken Victorias Secret directly to the customers. The importance of the medium for Victorias Secret can be gauged from Appendix F. Although webcasts are common now, its impact in 1998 is tough to gauge but was a remarkable feat which helped make the brand more popular

Develop the RFM (Recency, Frequency and Monetary Value System totrack customer behavior so as to mail catalogs accordingly in proportional volumes to more profitable buyers as mail catalogs costed more than web catalogs.

THE VICTORIAS SECRET FASHION SHOW


ED RAZEK: THE MAN BEHIND THE ANGELS
With the increasing contribution of Victorias Secret to Limited Brands revenue, it was deemed necessary to develop the brand with a unified marketing effort across the distribution channels. Hence in 1993, the marketing efforts of Victorias Secret were brought under the Chief marketing Officer of Limited Brands, Edward Razek (popularly called Ed Razek). Before this, the Direct Sales and Stores Division took their own marketing initiatives and this sometimes confused the customer as they were not always aligned. Ed Razek introduced two of the most innovative and unique features of Victorias Secret; they were the Angels and the Annual Fashion Show. Ed Razek is also popular for the eye-catching and creative Victorias Secret Commercials aired on TV. In 1995, Ed Razek organized the first Victorias Secret Fashion Show. The show was organized on a budget of 120,000 dollars and was in Razeks opinion, more of a learning experience as they had no idea of the future of the concept. However the show was termed by media as the lingerie event of the century and thus, a potential brand building tool was discovered. The show was since, held annually except in 2004.

PACIFYING CATALOG AND WEB


The web medium inspite of being a success was under the Direct Sales division whose Catalog Sales department had a proud legacy and had basically spearheaded its revenue up until now. Hence merging the two channels did bring up issues regarding resource allocation and appraisal calculations. The web was also blamed for cannibalization of sales from the other channels. Irrespective of a definite cost advantage over mail catalogs, the web still drew some flak as its returns and necessity of existence as additional brand builder tool was questioned. SHAREN TURNEY, the current CEO of Victorias Secret Megabrand was named Chief Executive Officer and President of Victorias Secret Direct, in May 2000. In midst of the problems mentioned, her thoughts were clear about the necessity of the catalog and e-commerce arms to exist together. With extensive experience in retail, her major actions to reduce the tension were Align incentives for the management with

perks and bonus dependent upon divisional performance rather than channel performance Not calculating Channel profitability but releasing Divisional sales and profitability to enhance collective responsibility.

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In 1999, the show was also featured through a live webcast which received viewership of almost 2 million. In 2000, the show was aired over television for the first time in the ABC network. Since 2001, the fashion show has aired on the prime time slot of CBS network. With the success of the fashion show, Ed Razek introduced the concept of Angels, where some of the top supermodels became the brand ambassadors for Victorias Secret, and famously walked in lingerie during the annual fashion show. The Angels initially introduced for the glamour factor were soon used to enhance the positioning and create role models for the target audience. The Fashion Shows and Angels have in the current day become unanimous with the brand and have resulted in huge popularity for the brand. Ed Razerk infact has a team of 200 people assisting him to manage a marketing budget of 250 million USD, one of the highest in the industry. The fashion shows now hire the best of the designers and have a much higher production value with the one in 2011 having a budget of 13 million USD. A still (left) from the Victorias Secret Fashion Show 2011. The Fashion Show had major star performances by Nicki Minaj, Kanye West, Jay Z and Maroon 5. The star value is an indicator of the high production value of this event

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PRODUCT DESIGN AND LAUNCH


Victorias Secret has its design office in New York (Victorias Secret Design: VSD). There is also an enterprise-wide design department called the Limited Design Studios (LDS) in New York. However the ideas for new products may come from third party designers too. The new products are market tested in the Henri Bendel store in New York to decide the positioning. Based upon the initial market test, Launch Strategies are devised by the marketing Team. MERCHANDISING PLANNING AND ALLOCATION The Chief Executive Officer (CEO) of the brand, the Executive Vice President (EVP) of Planning, and the General Merchandise Manager (GMM) together formulate a merchandise growth strategy creating a roadmap with a three year planning horizon. The goal of the effort was to come up with a multiple annual view of the growth of sub brands and categories within the sub-brands (Bras, Panties, Sleepwear) in cognizance with the merchandise growth strategy.. A design Ratio is determined in which the various different sub-brands would be chosen specifically depending upon their potential. The Merchandising Team thus has a Final Edit Meeting beyond which a Buy Meeting is organized. The Buy Meeting is organized to finalize upon the purchase orders The orders decided upon are passed by the Victorias Secret Production Group. The Merchandising group reports to the Finance Team. All brands including Victorias Secret go through a quarterly review process with the Chief Financial Officer to decide upon the value for the next buy period. Physical store inventory is done once a year in Victorias Secret..
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KEEPING
THE BASICS RIGHT
SUPPLY CHAIN: THE LIFELINE
Victoria's Secret consists of several sub-brands (PINK, Body etc) with each conveying a specific theme or targeting a specific audience. Each of these sub-brands is offered in various styles (push-up, lace etc) and various materials (cotton, satin etc). Forecasting and delivery of these goods in an efficient manner hence becomes a major factor for an excellent customer experience In terms of determining the ideal source, the products are classified into Launch Fashion, Non-Launch Fashion and Basic Products. About 60% of the products are basic (all year round). Fashion Products are those which are marketed for specific seasons and Launch items are those on whose introduction, a significant investment is made. Almost 25% are Non-Launch fashion and 15% are Launch fashion products. The critical processes that make up the Victoria's Secret's supply chain are: 1) Product Design and Product Launch; 2) Merchandise Planning, Allocation and Forecasting; 3) Production & Sourcing; 4) Logistics; and 5) Store Operations/Delivery. A design idea, from conceptualization to delivery is termed as "Concept-To-Market".
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PRODUCTION & SOURCING 80/, of the merchandise sourcing and manufacturing for The Limited Brands is handled by Mast, (a completely owned division of the Limited Brands). The CEO of Mast holds the title of Senior Vice President, Production & Sourcing. About a quarter of Masts revenue comes from non-Limited Brands transactions like Abercrombie and Fitch, Chicos and Triumph. Mast is the organization within Limited Brands used by all subsidiaries to efficiently source material. LOGISTICS The logistics of delivery to stores/ Direct Sales is handled by the Logistics division of Limited Brands, the Limited Logistics Service (LLS). The LLS acts as a third part when it comes to transactions as the model is similar to what it would be if the service was outsourced. This results in keeping a portion of the margins within Victorias Secret. The LLS operates on a Shared Service Model in which a service level agreement (SLA) is used as a contract between businesses and LLS. THE PROCESS MENTIONED HERE SHOWS THE COMPLICACY IN THE WORKING IN RESPECT TO THE ORGANIZATION STRUCTURE SHOWN IN APPENDIX B. APART FROM THE INNOVATIVE MARKETING AND WEB PRESENCE, EFFICIENT MANAGEMENT OF THE SUPPLY CHAIN BY MANAGING THE LIMITED AND VICTORIAS SECRET SIDE HAS BEEN THE MAJOR CRITERIA FOR VICTORIAS SECRETS SUCCESS

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APPENDIX A

KEY PEOPLE
LESLIE WEXNER CEO, LIMITED BRANDS
Majored in Business Administration from The Ohio State University. At the age of 74, he is the current CEO of Limited Brands. Wexner has popularly quoted Victorias Secret as not being a lingerie brand but more of an indulgence brand

GRACE NICHOLS NON-EXECUTIVE BOARD, LIMITED BRANDS


A graduate from UCLA. She was the Victorias Secret Direct Sales CEO from 1992 to 2007. She is however famous for her stint as EVP from 1986 to 1992 where she too significant measures build peoples trust in Victorias Secret as quality issues had been raised

EDWARD RAZEK CEO, LIMITED BRANDS


Mr. Razek joined Limited Brands in 1983, as Vice President, Marketing Limited Stores, and was one of the chief architects of the highly successful Forenza and Outback Red private label brands. In 1993, he was promoted to Vice President, Director of Marketing for Limited,

ROY RAYMOND FOUNDER, VICTORIAs SECRET


A graduate from Stanford, he founded Victorias Secret with a funding of 80,000 USD. After selling Victorias Secret, two years later, he started My Child's Destiny, a retail store for children. It went bankrupt in 1986. He committed suicide in 1987 from the Golden Gate Bridge

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APPENDIX B

ORGANIZATIONAL STRUCTURE

Updated 2002

The organizational structure illustrated above is updated as per 2002. However significant changes have undergone in the last 10 years. This is primarily due to emergence of Victorias Secret as a major subsidiary under Limited. Hence a lot of Limited Brands divisions work to support the Victorias Secret infrastructure. Victorias Secret has a single CEO now to whom the 3 major divisions report. The three divisions are shown above. The major marketing initiatives are under Limited Brands Control

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APPENDIX C

SUPPLY CHAIN STRUCTURE

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APPENDIX D

FINANCIAL PERFORMANCE
2011 Revenue (in Billion USD) Stores Sales per Average Sq.ft (USD) Sales per Avg. Store (1000 USD) Avg. Store Size (sq.ft) Operating Income (MUSD) Stores Revenue (BUSD) Direct Revenue (BUSD) Limited Brands Revenue (BUSD) 6.121 1028 754 2010 5.520 1040 663 2009 5.307 1043 581 2008 5.604 1020 620 2007 5.607 1003 694 2006 5.139 998 731

4463 5941 1081 4.564 1.557

3886 5892 889 4.018 1.502

3356 5830 868 3.919 1.388

3480 5727 589 4.081 1.523

3678 5489 1110 4.208 1.399

3698 5111 1176 3.723 1.416

10.364

9.613

8.632

9.043

--

--

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APPENDIX E

CURRENT VICTORIAS SECRET ANGELS

Adriana Lima (2000present) BRAZIL

Alessandra Ambrosio (2004present) BRAZIL

Miranda Kerr (2007present) AUSTRALIA

Doutzen Kroes (2008present) NETHERLA NDS

Lily Aldridge (2010present) UNITED STATES

Candice Swanepoel (2010present) SOUTH AFRICA

Erin Heatherton (2010present) UNITED STATES

Behati Prinsloo (2009present) NAMIBIA

Lindsay Ellingson (2011present) UNITED STATES

Chanel Iman (2010present) UNITED STATES

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APPENDIX F

ONLINE INTERACTION WITH CUSTOMERS

Source: Original Research MANAGEMENT OF CHANGE GROUP 2 REPORT Page 15

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REFERENCES
Limited Brands Annual Reports 2009-2012 Supply Chain Strategies in the Apparel Industry: The Case of Victorias Secret by Sumit Kumar (June 2005) Case #6-0014, Tuck School of Management (2002) Victorias Secret: Uncovered: Kristia Morabito The Silky Strategy of Victorias Secret: Chelsea Chi Chang, Alice Lin, Charlene Mak (28 May, 2004) Original Research: Ajitabh Chaudhuri under Prof. Krishanu Rakshit (Ongoing) Victorias Secret Fashion Show (2005 2012) Wikipedia www.victoriassecret.com www.limited brands.com .

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