• cnbc

Victoria's Secret has a plan to upgrade its image for younger women

  • Shares of L Brands, the parent company to brands like Victoria's Secret, are down more than 40 percent year-to-date as U.S.-based women choose comfort and functionality over decorative undergarments.

  • Victoria's Secret is trying to attract younger women and regain former customers with new products.

  • Meanwhile, lingerie brands that focus on comfort and functionality are thriving.

Victoria's Secret is trying to attract younger women and win back former customers by focusing on core categories, such as apparel and lingerie.

Jan Singer, CEO of Victoria's Secret Lingerie said the company is doing this by understanding the needs of its clients.

"It's not a one size fits all," Singer said on Thursday morning's conference call. "She's in our store. She's in our site. We have that data."

On Wednesday, L Brands, the parent company to Victoria's Secret, Bath and Body Works and Pink, reported first-quarter earnings that were nearly half the size of the year-ago period. Overall sales rose 8 percent to $2.62 billion. But looking specifically at Victoria's Secret, same-store sales, a key retail metric, plummeted 14 percent, and the retailer cut its 2018 earnings forecast. The stock plunged more than 6 percent after hours Wednesday.

But the stock quickly reversed during Thursday morning's conference call, trading nearly 2 percent higher, as the company laid out its plan to attract a younger demographic and grow its lounge wear, sleepwear and sportswear collections.

Singer mentioned the Victoria's Secret Illusions Collection, bras that offer non-slip support, several times during the call as one of its most popular offerings.

Still, shares of the parent company L Brands are down about 40 percent year-to-date. The once dominant player in intimate apparel, Victoria's Secret has been steadily losing market share in the last few years with its collection overtly sexy lingerie and bedazzled panties that many women say are a turnoff.

Miri Gregory, a 34-year-old chef in San Diego, said she used to shop at Victoria's Secret for all her bras, but she stopped going because the selection got "horrible."

"I'm not a big froufrou kind of a person," Gregory said. "No lacy things for me."

Turns out these are common complaints.

Even the company's Pink line, once a growth driver for the company, is struggling as consumer preferences shift.

"When Victoria's Secret started putting all the words on the butt, it totally turned me off to the whole brand. I didn't even want to go into the place," said Christine Lord of Fort Collins, Colorado. "There was a time when I thought it was classier."

"Our view is simple: VS is broken, PINK is breaking … we question the sustainability of LB's regular dividend and believe a reduction here could be a wake up call for current holders," wrote Jefferies analyst Randal Konik, in a research note.

Konik anticipates more downward earnings revisions, and set a price target of $23 for the stock, which currently trades at about $35.

Consumers have favored athleisure garments that can be worn for both exercising and lounging, and the category continues to be a source of growth in the apparel market. U.S. sales of bralettes, or bras without wires or melt cups, increased more than 30 percent in both units and dollars in the period from March 2017 to March 2018, according to The NPD Group's Retail Tracking Service.

Marshal Cohen, chief industry advisor at The NPD Group, said the trend illustrates the consumers' desire for comfort and specialty products. But it's not just the emergence of increased casual wear that makes Victoria's Secret less appealing. The brand is also competing with online stores and a myriad of independent shops for customer attention — customers who often value convenience and who don't have the same brand loyalty of previous generations. In addition, women are craving models with more realistic body types, something that's hard to find among Victoria's Secret's tribe of airbrushed supermodels. In an email to CNBC, Neil Saunders, managing director of GlobalData Retail said he has issues with the brand's "tone and image." "The dark environment, the conspicuous sexuality of the offer and the brash marketing are increasingly out of step with what modern consumers want," he said.

Instead, brands that focus on comfort and functionality, offer more neutral colors that can be worn both day and night and have a variety of size options are thriving. Competitors include American Eagle-owned Aerie brand, Nike and Under Armour. ThirdLove, a popular underwear and apparel startup, offers "real women, realistic measurements," according to its website, including half sizes for women that fall in between standard industry cup sizes.

"There's a whole spectrum of women who need their underwear to serve them in all kinds of ways," said Lord, who works in real estate. "Victoria's Secret has kind of pigeon-holed themselves. They seem to be only focusing on one type of body."

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