Victoria's Secret wants you to think of its stores as more than a place to buy push-up bras.
As the bombshell brand works to extend its industry leadership beyond racy unmentionables — positioning itself as a formidable foe in sport bras and bottoms — it will need to convince shoppers that it's just as good at selling sweat as it is at selling sex appeal.
By cutting in half the price of certain athletic pants and sport bras, Victoria's Secret is trying to encourage customers to try its budding product lines. This tactic helped the brand ring up a record Black Friday — but it came at a cost. Although sales at its established stores rose 5 percent in November, Victoria's Secret's merchandise margin was "down significantly" over the prior year, management said.
This shift in its promotional strategy is just one of the issues plaguing Victoria's Secret. Shares of its parent company, L Brands, have dropped more than 20 percent this year, as the label leaves behind the stalled apparel and swimwear categories and does away with its catalog.
Meanwhile, a broader fashion movement away from traditional bras to unconstructed bralettes is pressuring the company's sales both internally and externally. Because these items have lower price tags, some investors are concerned VS is trading sales on more lucrative items for less expensive pieces. Also, since they're easier to construct, bralettes make it easier for competitors to muscle in on Victoria's Secret's turf.
While many on Wall Street expect Victoria's Secret to eventually overcome these challenges, they acknowledge the immediate future is likely to be choppy. That includes the critical holiday season, when L Brands generates more than one-third of its annual revenue.
"There are valid concerns," Cowen and Company analyst Oliver Chen, who has an "outperform" rating on the stock, told CNBC. "It's a good long-term position that could have near-term pain."
Lululemon's growth in the category accelerated in its recently ended quarter, rising more than 20 percent. It's been helped by a rejiggered lineup of looser-fitting tops, which easily pair with the brand's bras. Lululemon CEO Laurent Potdevin sees even more runway to grow the bra category, promising investors "fantastic innovation" in the category next year.
Known less for its athletic expertise than Lululemon, Victoria's Secret's efforts in the sport market is a work in progress, according to Chen. Yet IBISWorld analyst Anya Cohen noted the label has made strides in reworking its sports offerings since launching athletic bras a few years back, when they were more sexy than practical.
"It looks like they're going for function over cutesy a little bit more," she said. "That seems to be a trend that millennials are relating to — the more natural, more simple."
Indeed, that shift in consumer preference is one reason why American Eagle's Aerie brand has taken off. As a leader in the bralette category — a trend that, similar to sport bras, is shaking up the industry — Aerie's body-positive message has resonated with young shoppers.
Sales at that label have been growing at a consistent double-digit rate, helped by its leadership in bralettes. The brand grew its share of brick-and-mortar lingerie stores from 2.9 percent in 2015, to an estimated 3.1 percent in 2016, according to IBISWorld.
"They were early to [the trend] and they really own it," Chen said.