Victoria’s Secret, the lingerie brand known for its sexiness, has made a new move in the Chinese market.
Recently, the Hong Kong-listed company Virginie made an announcement that Victoria’s Secret signed a joint venture agreement with it to sell a 49% stake in its subsidiary, and after the acquisition is completed, Victoria’s Secret and Virginie will jointly operate Victoria’s Secret’s business in China. Virginie is a supplier of lingerie and sports products to a number of brands including Victoria’s Secret, Calvin Klein, Adidas and Champion. What is the significance of Victoria’s Secret’s “hand in hand” with a supplier it has worked with for years?
Public information shows that the size of China’s lingerie market has increased from 327.3 billion yuan in 2016 to 495.1 billion yuan in 2020, with huge consumption potential, but there are problems such as low industry concentration, many sizes and inconsistency. In recent years, the concept of “self-consciousness”, the main focus on no steel ring, no size of the new lingerie brand Ubras, Neiwai and Banana within the rapid rise, impact on the traditional consumer concept.
“Hand in hand” supplier for many years
On January 25, Victoria’s Secret disclosed an announcement that Victoria’s Secret and its indirect wholly-owned subsidiary, Virginie Fengying, entered into a joint venture agreement whereby Victoria’s Secret sold 49% of its subsidiary, VSCO Holdings, to Virginie Fengying at a price of $45 million, and upon completion of the transaction, VSCO Holdings will become a joint venture between Victoria’s Secret and Virginie to jointly operate Victoria’s Secret’s business in the China market.
It is understood that the relationship between Victoria’s Secret and Virginie has a long history. Back around 2000, Victoria’s Secret’s former parent company, L Brands, entered into a partnership with Virginie, which provides lingerie products to L Brands. “We are one of L Brands’ largest global suppliers of intimate apparel.” Virginie had said in the prospectus.
Founded in the late 1990s, Virginie is a global leader in intimate apparel manufacturing, not only as a supplier to Victoria’s Secret, but also as a supplier of lingerie or sports products to well-known brands such as Calvin Klein and Adidas. in 2015, Virginie was listed on the Hong Kong Stock Exchange, and as of Feb. 11, its share price closed at 6.12 HKD/share, with a total market value of $7.5 billion.
The financial report showed that for the six months ended Sept. 30, 2021, Virginie achieved revenue of HK$4.081 billion, up 62.1 percent year-on-year, and net profit turned around to a profit of HK$254 million. “During the reporting period, despite the recurrence of the pandemic, consumers and brand partners have adapted to the new normal in the post-pandemic period. Overall market demand has returned to pre-pandemic levels.” Virginie said.
Now, what is the meaning behind Victoria’s Secret’s strengthened cooperation with Virginie and the establishment of a joint venture between the two companies?
This reporter has written to Victoria’s Secret China on this issue, as of press time, the other party has not yet replied.
As for the acquisition and joint venture, Virginie said, “The investment in the joint venture will provide a good opportunity for the Group to leverage VS (Victoria’s Secret)’s brand leadership and retail market experience to capture the growth opportunities in the intimate apparel industry in China.”
Cheng Weixiong, an expert in brand management in the footwear industry and general manager of Shanghai Liangqi Brand Management Co., Ltd. analyzed, “International brands can find a local partner in the Chinese market to share the risk together and accelerate their familiarity with the local market; reducing operating costs.”
“It’s still more significant for Victoria’s Secret to set up a joint venture with a supplier. Compared to Victoria’s Secret, suppliers have a much better understanding and control of the Chinese market.” Apparel retail expert Min Guangya said that Victoria’s Secret’s performance has declined more seriously in recent years, and this cooperation with the supplier will strengthen both sides in terms of product development efforts as well as overall planning, and Victoria’s Secret China can also be enhanced.
As a world-renowned lingerie brand, Victoria’s Secret’s development in recent years is not optimistic, has experienced a series of impacts such as declining performance, store closures, pandemics, etc., and in the Chinese market, Victoria’s Secret is also full of challenges.
Victoria’s Secret is full of challenges
Victoria’s Secret was established in 1977, mainly in the business of women’s lingerie, since its establishment, Victoria’s Secret has been equated with “sexy” and led the fashion of women’s lingerie through Victoria’s Secret Show, which gathered many “angel faces and devil bodies”. At the height of the show, Victoria’s Secret’s broadcast rights alone sold for over $20 million.
Victoria’s Secret’s former parent company, L Brands, reported that in 2009, Victoria’s Secret had more than 1,300 stores worldwide and recorded record sales of $7.781 billion in 2016. Since then, however, Victoria’s Secret’s sales have fallen into a growth rut, dropping 5 percentage points year-over-year in 2017 and slightly in 2018, and by 2020, Victoria’s Secret sales were down 27.91% year-over-year to $5.412 billion.
At the same time, Victoria’s Secret canceled Victoria’s Secret Show in 2019, which had contributed to numerous topics and traffic for Victoria’s Secret. The fashion feast came to an end. Not only that, but Victoria’s Secret has been affected by the pandemic and other factors, and Victoria’s Secret is in a wave of store closures.
L Brands’ financial report shows that from February 2019 to January 2020, the number of Victoria’s Secret stores dropped from 1,222 to 1,181, closing 41 stores. And in the year from January 2020 to January 2021, the number of Victoria’s Secret closed stores increased significantly to 248. The U.S. is the market where Victoria’s Secret closed the most stores, with a combined total of 207 stores closed during the same period.
It is worth mentioning that, affected by the pandemic, Victoria’s Secret UK entered bankruptcy liquidation in 20206, and all 26 stores were in a state of closure, Victoria’s Secret “lost” the British market.
In the face of sluggish performance growth and other difficulties, Victoria’s Secret set its sights on the Chinese market, opening its first full-category flagship store in Shanghai in 2017 and entering the Tmall platform to develop its online business. In the same year, Victoria’s Secret also held its much-anticipated Victoria’s Secret show in Shanghai, and Victoria’s Secret’s earnings report showed that as of October 30, 2021, the company had 63 stores in Greater China.
However, since Victoria’s Secret launched in the Chinese market in 2017, the brand’s influence has been there, but the actual operation and development situation is somewhat “unconvincing”.
According to the announcement disclosed by Victoria’s Secret, the subject company VSCO Holdings’ China business will lose HK$669 million and HK$109 million in fiscal years 2020-2021, respectively. And for the six months ended July 31, 2021, the net assets of VSCO Holdings’ China business was approximately HK$ – 317 million.
In this regard, Cheng Weixiong said, “Victoria’s Secret’s losses in the China market are well documented, with physical store operations unsustainable and online businesses struggling to meet the needs of the Chinese people. Fundamentally, the core problem of Victoria’s Secret lies in the lack of strategic top-level design for the Chinese market, simply copying American products to the Chinese market, which does not meet the needs of the Chinese people, and there is a large deviation between the European and American market’s understanding of lingerie sexy and open and the local market’s understanding of lingerie relatively introverted and private.”
Min Guangya believes that Victoria’s Secret has its reasons for the loss in the Chinese market, the current lingerie market consumer mainstay is the local growth of a new generation of consumers, their demand for goods, brands, etc., has changed a lot, if foreign brands as well as local traditional brands can not keep up, can not meet these changing needs, there is no way to win the market, and thus by the impact of new brands.
How to Chineseize?
The report of the China Business Industry Research Institute shows that the market size of Chinese lingerie has increased from 327.3 billion yuan in 2016 to 495.1 billion yuan in 2020 and is expected to increase to 537.3 billion yuan in 2021.
However, compared with countries such as Europe and the United States, the concentration of China’s lingerie industry is low, and the leading edge is not obvious, which also leads to more intense competition among enterprises.
Euromonitor data show that in 2020, the concentration CR3 (market share of the top three companies in terms of business scale) of the Chinese ladies’ lingerie market was 5.5%, while the concentration CR3 of the markets in the United States, Japan, Italy and Germany were 49.5%, 30.6%, 24.9% and 16.8% respectively in the same period.
In this case, the Chinese lingerie market has become a track for all kinds of capital to chase, not only traditional lingerie brands such as Amour, Urban Beauty and Huijie, foreign brands such as Uniqlo, Victoria’s Secret and Calvin Klein, but also a number of emerging lingerie brands that focus on “comfort” and “no steel ring” in recent years, such as Banana, Ubras and so on.
In contrast, Victoria’s Secret, which officially launched in the Chinese market in 2017, seems to be one step slower.
“Women’s self-awareness awakened, no longer longing for ‘pleasing the opposite sex’ underwear brands, more concerned about their own comfort, the main ‘no size’ ‘no steel ring ‘ ‘No trace’ underwear triggers consumers’ curiosity, further stimulating consumers’ desire to buy.” Head Leopard Research Institute report points out.
Victoria’s Secret, which was once known for its “sexiness”, does not have an advantage in the consumer tide of the “self-pleasing” concept.
“Victoria’s Secret China is not simply to move the American Victoria’s Secret to China, but needs to clarify its own brand positioning and product tone.” Cheng Weixiong said that the previous era of marketing through a big show all-you-can-eat has passed, based on the DNA of Victoria’s Secret lingerie brand, there is still room to do well in high-grade lingerie, and the European and American lingerie culture has a certain appeal to female users in the first and second-tier markets, only in the version needs to focus more on Asian women.
In the Black Cat Complaints, Tmall Victoria’s Secret official flagship store and other platforms, many consumers claim that Victoria’s Secret underwear has different sizes, is uncomfortable to wear and other problems. Victoria’s Secret customer service responded, “Our goods are all U.S. sizes, due to the different styles and fits of each product, and the different fabric materials used in the goods, which may lead to differences in wearing feelings and effects.”
The “characteristics” of Victoria’s Secret lingerie also affect the purchase and use experience of consumers to a certain extent.
In addition, Cheng Weixiong believes that with the local users’ understanding of lingerie from the original casual to today’s diversified, especially female users for the comfort, functionality, fashion, scenarios, personalization and other needs of lingerie, promoting the rise and explosion of the lingerie market, for both local and international brands are pregnant with greater business opportunities.
In Cheng Weixiong’s view, the scene of lingerie wear needs to be not only home scene, but also work, sports and other diversified scenes, and there are differences between different ages, different city tiers and different body shapes, and lingerie brands should also respond to this consumer trend and adjust and update in time.
Min Guangya said that for Victoria’s Secret, the core lies in discovering that consumers and consumer needs have changed and shifting proactively according to these changes; also completing the change of mentality, which used to be brand-led and now is consumer-led; understanding the Chinese market better, being familiar with and knowing the needs and consumer preferences of Chinese consumers.
In fact, in the face of changes in the Chinese market, Victoria’s Secret is also constantly reforming: using Chinese celebrities to endorse, launching non-marking lingerie, nursing lingerie, launching a sports lingerie line, and now “tying up” with Chinese suppliers. But it remains to be seen how Victoria’s Secret’s series of reforms will turn out. Source