Victoria's Secret's new owner could bring dramatic changes to the struggling lingerie brand

One analyst said he expects Sycamore to revamp Victoria's Secret's product line to emphasize comfort and functionality over sexiness.
"With unmatched global brand awareness and customer loyalty, we believe there is a significant opportunity to reinvigorate growth and improve the profitability of Victoria's Secret," Sycamore Partners managing director Stefan Kaluzny said in a press release. The firm had no further comment on its plans.
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The private-equity firm Sycamore Partners plans to seize control of Victoria's Secret from its current owner, L Brands, in a deal that will take the lingerie brand private.

The deal, announced Thursday, could bring huge changes to the iconic lingerie brand and its various businesses, including Victoria's Secret Lingerie, Victoria's Secret Beauty, and PINK.

These changes could include store closings, brand spinoffs, and a shift in merchandise to focus more on comfort and functionality over sexiness, according to analysts and Sycamore's history of retail investments. Sycamore has not revealed specifics on its strategy for Victoria's Secret, and it said it had no comment on the deal beyond what was stated in a press release issued Thursday.

"In our view, Sycamore will be keen to maximize its investment and its closer involvement with the company will bring new thinking and ultimately a new positioning for the brand," Neil Saunders, managing director of GlobalData Retail, said in a note to clients on Thursday.

"We expect this to be more authentic, less sexualized, and more attuned to the way most consumers now think," Saunders said. "In product terms, we expect merchandise will still be fashionable and fun, but more emphasis will be placed on comfort, functionality, materials and making consumers feel good about themselves."

KeyBanc Capital Markets analyst Edward Yruma said the change in ownership could result in a "more aggressive turnaround strategy" at Victoria's Secret that could "drive meaningful upside when Sycamore (and L Brands shareholders) sell Victoria's Secret or more likely return it to public markets."

Under the deal, L Brands will retain a 45% share of Victoria's Secret.

A history of cost cuts and spinoffs

Victoria's Secret has been trying to execute a turnaround amid years of slumping sales. The company has been accused of losing touch with consumers over its over-sexualized marketing and lingerie.

Sycamore Partners managing director Stefan Kaluzny said in the press release Thursday that the firm has "long had great respect and admiration for L Brands and its success in building a world-class portfolio of lingerie and beauty brands."

"With unmatched global brand awareness and customer loyalty, we believe there is a significant opportunity to reinvigorate growth and improve the profitability of Victoria's Secret," he said. "We look forward to partnering with the leadership team to pursue these objectives."

The New York-based firm has a long history of investing in retail companies, such as Staples, Hot Topic, Belk, The Limited, and Talbots.

The company's investment strategy has, in some, cases involved aggressive cost cuts and spinoffs.

"The firm is known for its ruthless approach to its leveraged buyouts, which have often led to the firm separating companies like Staples and Hot Topic into different pieces and selling the most valuable ones, while draining whatever remains of most of its value, as in the case of Nine West Holdings," writes Chantal Fernandez in Business of Fashion.

A 2018 Wall Street Journal analysis of the company's investment strategy said it "made hundreds of millions of dollars in the struggling retail sector" and "managed to succeed where many others have failed." But "as Sycamore and its investors profit, bondholders and retail employees sometimes suffer" through store closures and cost cuts, according to the article.

Les Wexner, who announced Thursday that he would step down as CEO of L Brands, said the company's deal with Sycamore Partners is the "best path to restoring these businesses to their historic levels of profitability and growth."

"Sycamore, which has deep experience in the retail industry and a superior track record of success, will bring a fresh perspective and greater focus to the business," Wexner said. "We believe that, as a private company, Victoria's Secret will be better able to focus on longer-term results."

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