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Missteps at L Brands' Victoria's Secret are opening up the door for other lingerie retailers to tap into an underserved market.
Today's female consumers are increasingly turned away by Victoria's Secret overtly sexy image. The brand was made famous for its brightly colored push-up bras, but shoppers are now in search of comfort and fit. A handful of bra and underwear upstarts are gaining ground by being more inclusive.
Victoria's Secret has long dismissed the idea of expanding its size range for bras to include more women. Its website only has a slightly broader assortment than its stores. In turn, new players ThirdLove and Adore Me are looking to scale their businesses, which are built around selling extended sizes of bras in softer, neutral colors.
Sales of women's bras in the U.S. held steady at nearly $7 billion last year, according to NPD Group. Full-figure sizes (38+), meanwhile, are a steadily growing segment but with not a lot of sellers, the retail tracking service found.
"The underserved full-figure and plus-size market continues to be one of retail's major merchandising mistakes," said Marshal Cohen of NPD Group. "With retailers focusing on assortment productivity, brands adding new styles become a harder sell, ... but size extensions are a straightforward way to expand on successful existing assortments."
There really couldn't be a better time to grow in the space. ThirdLove and Adore Me are taking advantage of that.
ThirdLove, a lingerie brand based in San Francisco, said Wednesday it's rolling out extended bra sizes this month to include bands ranging from size 28 to 48, and cups from AA to H. The online retailer said it did a beta test of the new options last year, and they sold out in a little more than a week. With the launch, ThirdLove will now offer more sizes than other rivals including Calvin Klein and American Eagle's Aerie.
"I do think there is no choice but to become more inclusive," ThirdLove CEO Heidi Zak told CNBC. "I think the [lingerie industry] is one of the most old-school industries in apparel that's out there."
Another up-and-coming player in the lingerie space, Adore Me, is planning to open hundreds of stores in the U.S. over the next few years, aiming at Victoria's Secret's real estate — its more than 1,100 shops in North America, many within suburban shopping malls.
Adore Me, which asks shoppers to take a style quiz online before browsing its website, just opened its first store at GGP's Staten Island Mall in New York last week.
"We don't have any images of ... retouched women that are typically not relatable," CEO Morgan Hermand-Waiche told CNBC. "Our store is very colorful when Victoria's Secret is very dark usually and it looks like you are going to the club."
As Victoria's Secret watches its sales dwindle and other players pick up momentum, one industry analyst thinks the brand is "over," with too much inventory on hand and not enough customers.
"What's clear here is the promotional posture keeps ramping up across the entire business," Jefferies' Randal Konik said. "Using promos to drive traffic weakens pricing power and brand equity."
Victoria's Secret's share of the women's underwear market, which is defined by Euromonitor to include bras and lingerie sets, dipped below 30 percent in 2017 to 28.8 percent. It was nearly 33 percent a year earlier, according to Euromonitor. While names like Fruit of the Loom and Hanes are still far behind, Victoria's Secret is slowly losing its dominance.
Some consumers and industry experts blame the retailer's failure to adapt as the conversations around women's bodies evolve. The #MeToo movement has made the Victoria's Secret brand seem even less appealing, some shoppers say. And a lack of size options makes the retailer even less relatable to a growing pool of women.
Still, on a recent conference call with analysts and investors, Victoria's Secret CEO Jan Singer said the company is looking for ways to "use strategic moments to promote, for sure, to bring new customers into the box. ... It's done at moments in time that we know that she's shopping. ... It's related to her shopping patterns in addition to our product launches."
Victoria's Secret also hinted it was considering getting back into apparel and swimsuits, a business that was dropped roughly two years ago in a bid to focus on underwear.
According to ThirdLove's Zak, the average American woman changes bra sizes about six times in her life, making the market one for repeat purchases and growing baskets.
"Change is being forced by more women, more companies," she said.
Referring to Zak's company, Lori Greeley, a former CEO of Victoria's Secret and now a board member at ThirdLove, said: "In all the years I've worked in the industry, I've never seen such dedication to inclusivity." Greeley worked at Victoria's Secret, first in merchandising and later in the C-suite, for more than two decades.
Another growing threat to Victoria's Secret is American Eagle's Aerie vision, which promotes its "body positivity" messaging and touch-up-free advertising to a younger cohort of shoppers today. Victoria's Secret's Pink business, which is aimed at the same age group, is still billed as flirtatious and provocative. Pink was once a bright spot within L Brands but lately has watched its same-store sales growth wane.
To be sure, the Pink team has said it must learn how to better resonate with millennials.
"There are distinctive differences between this generation and the generation that preceded it, and I would say we would be beholden to understand that," Pink CEO Denise Landman said on a recent call with analysts and investors.
"These consumers are now in their teens and beginning to make significant strides in their spend levels in the retail sector," she added.
Some industry experts don't see a turnaround happening so easily.
"A lot of people say they don't want that overt sexuality. That is what Victoria's Secret is founded on," Neil Saunders of GlobalData Retail told CNBC. "You walk past the windows and they do not represent the average woman. ... The brand hasn't moved on, and it looks increasingly out of step."
L Brands, which also owns Bath & Body Works, has watched its share price fall more than 35 percent, to around $37, this year. It has a market capitalization of a little more than $10 billion today.
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