Victoria's Secret's latest ploys to attract customers could be a sign the brand is in trouble.
Victoria's Secret is making a bold bet on promotions and investors should be scared.
Parent company L Brands has regarded the PINK line as a primary growth engine for the lingerie retailer and therefore did not need to subject the brand to as many promotions as Victoria's Secret's lesser-known products. However, that has recently changed and it is alarming one retail analyst who believes the company is running out of options to retain its customers.
"With PINK being used as a main driver in many VS promos it's clear the company is down to its last carrot to keep customers from fleeing to competitors," Randal Konik, an equity analyst at Jefferies, wrote in a note to investors.
Konik said the promotions suggest PINK's strength with customers is fading and it will be only a matter of time before other companies like American Eagle Outfitters' Aerie grab market share.
Moreover, Victoria's panty prices are at 10-year lows, suggesting a loss of pricing power. Konik noted the company has experienced a recent 12.5% decrease in panty unit prices and a 10% decline in year-over-year prices. He said the low unit prices were due to Victoria's panty "bundles" model, which entices customers to buy multiple panties at a cheaper price. It was introduced nearly a decade ago to attract customers to the store and eventually entice them to buy its more expensive and more profitable bras.
Unit prices have dipped because the company is increasing the volume of panty products offered under this discount, further suggesting weakness in the brand. "Lower unit pricing is indicative of less response by consumers," Konik said.
As lower prices become a trend in the intimate apparels arena, this leaves more space for other competitors to enter the fray, the analyst said.
Konik's price target was $30 per share.