Roy Raymond needed a gift for his wife, and he wanted something sexy, so the Stanford MBA headed to a department store in search of a negligee. But once inside, he assumed the deer-in-the-headlights look of a man lost in the foreign world of women's undergarments. He bumbled around-so many styles, so many sizes-trying to make an intelligent purchase. Trained to serve women, the sales clerks weren't much help. As one version of his tale put it: "He left empty-handed, wondering how a shy guy like himself could buy a slip for his wife without feeling like a sexual deviant."
Raymond saw an opportunity. And in 1977, he opened Victoria's Secret, conceived as a new kind of underwear store. Located near San Francisco, it combined European elegance with a male-friendly environment. Raymond's creation has evolved dramatically since then, and along the way it has revolutionized the way America thinks about underwear. Victoria's Secret has also demonstrated how to use a novel distribution and marketing strategy to establish a strong brand in what was once essentially a commodity business.
To understand how Victoria's Secret transformed the $12 billion women's underwear market, let's begin with Undie History 101. Elaborate handmade undergarments found favor during the Victorian era, but those fancy, frilly skivvies gradually declined in popularity throughout the 20th century, driven out of fashion by factors from war (rationed silk went to parachutes, not camisoles) to social change (feminists began by doffing their corsets and later burned bras). By the '70s most Americans were wearing plain underwear. "It was cotton and it was white," says Martha Baker, a fashion historian at the University of Massachusetts. "It was almost a commodity item." While boutiques like Manhattan's La Perla continued selling European-style "lingerie," most women bought their unmentionables at department stores. By the end of the decade, specialty retailers like the Gap and the Limited had begun to steal sales from the big boys by selling a single private brand of apparel in mall stores. Victoria's Secret would take the same approach to underwear.
By 1982, Raymond had opened six stores and launched a modest catalog operation. He then sold Victoria's Secret for $4 million to Leslie Wexner, the man who would mastermind the chain's real growth. Wexner had already built a retailing empire in the Limited, the women's-apparel chain he'd started in 1963. He thought Victoria's Secret could be just as big. "Les Wexner saw the opportunity to take a category-called 'underwear' at the time-and make it into fashion," says Dan Finkelman, senior vice president at Intimate Brands, Victoria's Secret's parent company. "It was his insight that while women bought and wore underwear, they aspired to buy and wear lingerie."
One of Wexner's first moves was to jettison Raymond's vision of a haven for male buyers. Yes, men give sexy nightgowns as gifts, but since women buy more than 90 percent of intimate apparel, they became the sole focus of the chain's marketing. Says Finkelman: "We couldn't have cared less about men."
What they did-and do-care about is image. It started with the name Victoria, which conjures up 19th-century England. To further emphasize the veneer of European luxury, catalogs listed the company's headquarters in London, even though it was really in Ohio. And the products themselves stood apart from traditional department store offerings. "They did colors, patterns, styles-they gave it more allure and sexiness," says Katie Kretschmer, editor of Body Fashions Intimate Apparel, a trade publication. They positioned fashionable underwear as an affordable luxury, the same way Starbucks later sold $3 lattes as a self-indulgence. "If we gave women a chance to make themselves feel sexy in a wonderful, romantic environment, they'd prefer that to going to a mass merchant to buy a three-pack," says Finkelman. The chain does a nice business in sexy sleepwear, but the key to profits is the basics: bras and panties. Why? "There's a solid replacement market-people need to buy new ones because they wear out," says Lucy Effron, director of the apparel division at NPD Group, a market research firm.
Victoria's Secret also thrived by correctly answering a perilous question: When it comes to selling underwear, how sexy is too sexy? The nation's other big name in lingerie, Frederick's of Hollywood, consistently failed that quiz, and is now struggling. The company's problems meant Victoria's Secret continued to compete mostly against department stores-and geographic expansion fueled its growth, from 100 stores in 1985 to more than 400 by 1990. By 1995, the chain was successful enough to power the IPO of its parent company, Intimate Brands, which also owns Bath & Body Works and White Barn Candle. In 1999, Victoria's Secret still accounted for more than half of the company's $4.5 billion revenue.
Even with this success, Wexner saw room for improvement. Victoria's Secret's catalog and retail operations were run separately, offering different items, and the brand did no real advertising. And despite the chain's upscale image, it followed the lead of department stores by emphasizing price promotions. To build the brand, Wexner hired Finkelman, a Harvard MBA with 14 years of consulting experience at McKinsey & Co. Finkelman led the effort to integrate the catalog and retail operations, which now work in lockstep. The company began talking about Victoria's Secret as selling a lifestyle. "The lifestyle of Victoria's Secret is someone who likes and wants to feel and look glamorous, to look and feel sexy," Finkelman says. Accordingly, the chain extended into fragrances and makeup, now sold in nearly 500 Victoria's Secret Beauty Stores. An advertising and promotion blitz allowed Victoria's Secret to eliminate most discounting, and the company began earning a premium on its products. Example: Wexner boasts that in 1995, its average bra sold for $14.95. Today it goes for just under $30.
The chain's marketing prowess has also created buzz in this once-sleepy industry. "They have lingerie runway shows every spring, they have supermodels, they always have new products coming out," says Karen W. Bressler, co-author of A Century of Lingerie. Victoria's Secret has turned its new offerings-Miracle Bras, water- and gel-filled bras, seamless Body by Victoria panties-into events in the same way General Motors turned the annual "model change" into a ritual. The company's 1999 fashion-show Webcast was one of the most watched online events ever.
That promotional power was on display last December, when the company unveiled its single largest store, on Manhattan's Upper West Side. At 18,000 square feet, it's five times the size of the average store. To garner publicity, the event featured the supermodel Gisele, who wore a $15 million ruby-encrusted bra. The store even paid temp workers to cheer her on. (The New York Post dubbed the paid spectators "falsies.")
Many of the store's 900 existing locations will get makeovers, and they'll be joined by another 100 to 200 outlets. To keep same-store sales rising-a key indicator in the retailing biz-the company hopes to parlay some of its catalog hits into its stores. The catalog, 365 million copies of which are distributed annually, currently accounts for one-third of the company's revenue. But 53 percent of that revenue comes from traditional apparel and swimwear, which aren't sold in the retail stores. The chain is also mounting an offensive in hosiery. The brand's overall goal is to raise market share from 15 to 20 percent. It won't be easy, because the chain's own success is spawning imitation. "Frederick's is upscaling. GapBody has been introduced," says Finkelman. "From my standpoint the world is full of ferocious competitors who want to eat my lunch." And who knows what cantilevered contraption some mad underwear genius is devising to trump Victoria's offerings.
No matter who rules the category, they'll owe a debt to Roy Raymond for taking it out of the closet. Unfortunately, no one can pay him thanks. In 1993, despondent over the failure of the businesses he started after selling his lingerie chain, Raymond jumped off the Golden Gate Bridge. But his legacy lives on, close to the hearts of millions of women each day.
