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Will Product Innovation be Enough to Revamp Victoria’s Secret and Pink?

Victoria’s Secret has certainly seen better days, but company leaders seem to think product innovation is the answer to their woes.

Speaking at the L Brands Inc. Investor Day presentation Tuesday, John Mehas, the new chief executive officer of Victoria’s Secret Lingerie, said the struggling intimates brand lost its business in bras due to “lack of innovation” at its core franchise items. And a heavy focus on promotions didn’t help.

The CEO, who took on the role in May, said “everything is on the table” when it comes to revamping the business, and product will be the key focus as “nothing else matters.” Currently, the company is reviewing the Victoria’s Secret brand’s heritage and considering how best to enlist innovation and refresh the style.

Based on an early read of product that has started to flow into the stores, Mehas said the “newness is working where we have it. The customer is responding very strong.” The company is also taking steps in moving its product pipeline forward by aggressively going after what’s working for the brand.

First up was developing a ‘good, better, best strategy,’ according to Mehas, which given the range in store sizes, allows the brand to add depth, while cutting the selection down by 50 percent. That edit to a smaller range in options allows the marketing teams and store associates a better focus in the interaction with customers. One issue that got the intimates brand in the unfavorable position it’s presently in, according to Mehas, was how close Victoria’s Secret got to Pink—its more youthful line of panties and pajamas—in terms of pricing. “We found an opportunity to push the envelope in the better and best categories, particularly in our better locations,” he said.

According to Mehas, Customers are already noticing the change in the fall collection that hit stores a few weeks ago.

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The focus on brand positioning is to “lead with emotion, not promotion,” Mehas said, explaining that what’s important is the connection with the customer, as well as giving her the product she wants. That doesn’t mean, however, that promotions will entirely fall by the wayside. Given the year-ago promotional headwinds and year-over-year sales comparisons, Mehas said Victoria’s Secret will have to balance its promotional strategy to drive the business. But because of past promotions, he admitted the challenge ahead in getting customers to quickly pivot to full-price selling.

“This is the beginning of the beginning. We’ve made some progress in a short amount of time,” Mehas said.

Pink’s problems

When it comes to Pink, Amy Hauk, the segment’s CEO of Pink, said targeting was off.

While the filter for the brand is centered on the 19-year-old college student, it also includes teens starting at 14 years old. However, Pink products skewed older, and pricing was not accessible for Gen Z. That’s the demographic Hauk called the introductory halo to bring young adults into the brand, and have them stay until they can introduce them to the core Victoria’s Secret brand as they age up.

Pink is also using a good, better, best strategy, now to ensure price points are accessible in all categories. That also gives the brand the ability to test pricing.

“We are constantly looking at the competitive landscape to see where we are compared to everyone else, [and] where we are in terms of relevancy,” Hauk said. She gave one example of how the brand mines for price elasticity, noting that sports bra used to sell at two for $30, and now sell for two at $35. Its about receptivity and balancing acceleration in price with the retail metric that’s known as average unit retail, she explained.

As for product, the CEO said the focus for Pink is on innovation, functionality and fashion. While bras lead the way as a category, the sport category and bralettes have also seen success. Panties are key for Pink, too, since they tend to represent consumers’ first introduction to the brand. The biggest growth opportunity, according to Hauk, is the sport category, which she considers a sizable white space for Pink.

“Our core goal is to grow [the Sport category] to $1 billion by 2022,” she said.

As for connecting with its core customer, Hauk said the brand has expanded its outreach to college campuses, including using campus reps in its marketing, a move Hauk said means “real girls, real bodies and real experiences” connecting to the Pink brand. The brand will launch a new campaign next month, with a goal of half-a-million new customers and the generation of 600 million social media impressions.

Next for VS

L Brands’ chief financial officer Stuart Burgdoerfer did note that if the struggling Victoria’s Secret‘s operating results further deteriorate or fail to rebound, the company would manage the business conservatively.

“We have of history of managing through the Great Recession of 2008 and 2009. We will keep our eye on the business. We have healthy cash flow today,” he said, noting that the company also has a financing line it typically doesn’t use, but would have access to, if needed.

Randal J. Konik, analyst at Jefferies, has an “Underperform” rating on shares of L Brands, and thinks investors holding shares should sell. Following the day’s presentations, he issued a report in which he opined that the focus on product as the reason why both brands have suffered, is “flawed.”

“Pricing power is weak, which pressures sales/margins and growing competition doesn’t help,” Konik said, noting that while evolving marketing messages are a good start, consumer perceptions of brands can be hard to change. Adidas, he said as a point of reference, needed 20 years to improve brand perception in the U.S. market.

Another problem is how he perceives the Pink brand.

“Management discussed opportunity to grow Pink sport to $1 billion and other product changes to improve sales, but comps are down double-digit percent [range] for the last three quarters, and the brand is losing relevancy,” he said. “We see Pink sales down by 50 percent in the next 18 to 24 months.”