Business Insider/Mary Hanbury
- Victoria's Secret is cutting back on discounts and raising prices, according to a UBS report.
- The firm has been criticized for its constant promotions, which are thought to erode profit margins.
- Less discounting and higher prices are crucial for its turnaround effort, analysts say.
- See more stories on Insider's business page.
Victoria's Secret is cutting back on deals and raising prices, and Wall Street is on board.
In a note to clients this week, UBS analysts Jay Sole and Mauricio Serna reiterated their recommendation to buy L Brands stock (the parent company behind Victoria's Secret) and shared data that showed the level of promotions in Victoria's Secret stores - which includes its Pink brand - was "declining at a surprisingly fast rate."
UBS said the average price of an item listed on Victoria's Secret's website in May 2021 was $44, a huge 83% increase from May 2019.
It also found that a quarter of the products on its site were on sale in May 2021. This is still a substantial number but a notable improvement on the level of promotions over the past four years, which floated around the 40% to 60% mark.
"This boosts our confidence that the Victoria's Secret turnaround is real," these analysts said.
Read more: The rise and fall of Victoria's Secret, America's most famous lingerie retailer
Unsatisfied customers
Victoria's Secret has been strongly criticized by Wall Street in the past for constant promotions in stores. Analysts said these not only erode profit margins but also dampen the brand image and make it almost impossible to encourage customers to pay full price.
It wasn't uncommon to see 40%-off sale signs littered around its stores between 2018 and 2019, and underwear deals such as five pairs of panties for $28. And major discounts of this kind are usually a sign that retailers are looking to clear unwanted inventory.
In 2019, the company promised to cut back on these promotions and tighten inventory levels but shortly after, discounts began to creep back in. At the time, UBS analysts said that price increases could be putting off customers, causing Victoria's Secret to go back on its progress.
Victoria's Secret's price points have been a contentious subject as some shoppers previously said they felt the brand was still overpriced despite all the deals and discounts. And others said the quality of the clothing didn't match these price points.
But Victoria's Secret's growth over the past few quarters - same-store sales were up 9% in the first quarter of the year versus 2019 and operating income, a measure of profitability, increased by $213 million or 665% - indicates that consumers are becoming comfortable paying more for its apparel and lingerie and that it has a better handle on its inventory levels.
Gabriella Santaniello, analyst and founder of retail research firm A-Line Partners, told Insider that the pandemic enabled Victoria's Secret to have a "reset," and cut back on its inventory, which has facilitated more full-price sales, she said.
More inclusive marketing pays off
The company has made considerable changes to its marketing in the past year. And experts say efforts to update its brand image, which critics previously said was out-of-date and oversexualized, have also helped to boost sales.
The marketing is "more subtle and appropriate," Neil Saunders, managing director of GlobalData Retail, told Insider. It has "fewer sexual overtones and focuses more on more on celebrating women. That has resonated and has pulled some shoppers back to the brand," he said.
Mike Kemp/In Pictures via Getty Images
And it matches up to what's shown in stores, Santaniello said: "For example, they recently brought in plus-sized mannequins, which reflects their use of plus-sized models in their advertising."
Still, the company needs to keep this "360 focus" long-term, she said. "They need to make sure they do not waiver because it will come across as inauthentic and that's why they haven't really been successful with the turnaround over these past few years."
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