(Filed Under wholesale Lingerie News). Wondering why it seems harder to sell lingerie than in previous years? Dealing with customers who want more for less? Considered the VSM effect.
As we all know, Victoria’s Secret and Pink have not been doing well recently. And parent company L Brands just sold its money-losing Canadian brand, La Senza. So you might think that if all those big lingerie brands are doing so bad, everyone else should be doing a little better, right?
Well, no, thanks to the VSM effect. This refers to what has been happening to Victoria’s Secret’s Margins (its merchandise margin rates) in the U.S. and Canada. Those rates (including Pink’s) have been falling for three years in a row. And that has affected everyone.
Consider: for every individual month in 2016, Victoria’s Secret and Pink reported their combined merchandise margin rates were down to the same months the year before. The same was true, of course for the entire fiscal year 2016. The merchandise margin rates were down for half of the individual months in 2017, as well as for the entire fiscal year. And again in 2018 the merchandise margin rates for Victoria’s Secret and Pink were down again, to every month in the previous year.
As a matter of course, Victoria’s Secret and Pink report sales results and margin rates every month so the decline has been easy to track. For the past three years (and almost every individual month) the reports were the same: “the merchandise margin rate was down” to the same month the year before. Sometimes the decline was described as “primarily due to promotional events to drive trial in key categories and proactively manage inventory,” as was the case in November 2016. Sometimes it was because of “promotional events to drive traffic and the impact of exiting non-core businesses,” as it was in March 2017. And sometimes it was because it was harder to move out merchandise, as in June, 2018 when “we extended the sale time period versus last year by about two weeks and reduced pricing to drive traffic and clear inventory, which resulted in merchandise rates down significantly to last year.”
Why would a lingerie company be willing to sell its lingerie at increasingly lower margins, year after year, for three years in a row? Because VS has an unbending policy of aggressively clearing out product as quickly as possible.
How can a company afford to keep doing that? Because L Brands, which also includes Bath & Body Works, is profitable overall, and has been so for the past three years.
So, the VSM effect. Billions of dollars worth and millions of pieces of lingerie, sold at lower and lower margins, for three years in a row all over the U.S. and Canada. In other words, for everyone else, competing with a vast quantity of pretty nice lingerie sold for less than was intended.
Despite some closures in recent years, Victoria’s Secret and Pink still have (as of January 5th) 1164 stores, doing around $6 billion in sales, plus another approximately $1.5 billion in direct business. So, a big impact on just about every place and almost every wholesaler, retailer and consumer.
Trouble selling your lingerie? Wondering why everyone seems to be expecting more for less? The VSM effect. — NM
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