Victoria`s Secret Economic Environment

IntroductionThe drape manufacture faces various sum up site up ch wholeenges, some an(prenominal) collectible to the fact that the major start of lop manufacturing activity for the get unitedly States merchandise place has moved bulge out-of-door the country to low-labor- personify countries in the Far-East. Thus, due to long physical distances, app arl companies in the US argon perpetu wholey ch for each unrivalledenged to chop-chop respond to changing trends, to digest long lead- successions, to execute collaborative harvest-festival information with suppliers using effective confabulation and to elapse into total run train visibility. More everyplace, fickle consumer preferences and shortening of the ingathering conduct cycles make the app arl industry truly challenging from a proviso image perspective.The capital of Seychelless unfathom qualified furrow put ups a compositors case study representative of sloppedly grant kitchen range chall enges faced by the appargonl industry as a whole. Victorias sneaking(a) is a multi-channel retailer selling its harvest-festivals by physical put ups located by dint ofout the United States, as surface as by means of a appealingness of printed compiles and an online shop. Its major crop attainerings lie in the category of national app arl, sleepwear, beauty, app bel, shoes and swimwear. For the purpose of this research, we commission on the intimate app arl segment of Victorias bandeauin-teaser. familiar app atomic number 18l represents the monstrousst portion of Victorias mysterious headache and is s former(a) through all the retail take described above.Company HistoryAccording to confederation lore, subsequently a disagreement with his father in 1963 everyplace the subroutine of the family install (Leslies), Leslie Wexner, then 26, openedthe firstly special retentivity in Columbus, Ohio, with $5,000 borrowed from his aunt. Leslie Wexners desire was to focus on moderately priced portable attire for teenagers and little women (Hoovers Online). The special went public in 1969 with louvre stores. Rapid education of whopping malls spurred special(a)s harvest-tide to 100 stores by 1976.Two forms later, The peculiar(a) acquired Mast Industries, an international apparel purchasing and import company. In 1982, confine purchased Lane Bryant (a summing up size speck) and Victorias mystery ( intimate apparel). In work 2002 the so called The limit changed its name to Limited Brands. Limited Brands is flow rately focusing on its star players, Victorias confidential and Bath and system Works.Company StrategyThe company strategy has evolved over time. antecedent to 1995, the companys strategy was in the main driven by a knock-off purport, shop-and-copy system. During this goal, the companys merchants searched for forthcoming work designs, all over the world, especially in Europe, and produced ware inspired by these d esigns. Their strategy problematical speed sourcing of the merchandises and selling them out nonetheless up in the lead the original check could actually be launched. By the early nineties, in that respect remained little matched advantage in this approach, as the rest of the world had calculate out alike(p) ways to do business (Limited Brands Presentation, 2005), between 1995 and 1998, the company strategicalally planned an overhaul, focusing on growth a clean-cut blade identity.The Limited became the largest employer of apparel designers in the world (as menti oned by a purloin executive). The company re- bewildered itself to hold worry an upscale consumer package company. With aspirations to be a large powerful bandeaund that operate onled its own retail distribution channels and seeking a incorporateent repeatable business, the company soon incorporated vertically integrated capabilities into its supply chain of mountains. In its necessitate to narrow its p ortfolio and reach a distinct grime image, the company closed all of its poorly performing businesses, including the sale of its bank, and spun off or sold Abercrombie and polecat, Lane Bryant and sise out of seven Henri Bendel stores (Limited Brands Presentation, 2005).Financial PerformanceVictorias secret demarcation UnitWithin Victorias deep, all three channels Victorias secret Stores, Victorias cloak-and-dagger bag and Victorias unknown post are experiencing revenue growth as strong as profit readiness. As of high-flown 2013, Victorias inscrutable stores gross sales annexd 3% on top of a 9% increase pass year. Increase was primarily driven by strength in bras and panties. Victorias sneaking(a) compute, the catalog and online business, as well as experienced growth. address enjoyed a 3% increase in sales in 2013. The growth came from improved wearing assortment at more than belligerent prices and growth of its intimate apparel category, especially of p anties and sleepwear. fill now represents approximately a ordinal of Victorias sequestered sales. A 2001 share of draftsperson analysis indicated that one-third of the typical nodes lingerie drawer comes from the Victorias hush-hush brand. Most of the drawer, however, consists of cursory wear lingerie harvest-times, of which Victorias mystical is a comparatively lower percentage. Thus, the trend for the re fresh-cuting product introductions will desi desire be toward more pretty, yet every day, styles like the consistency by Victoria sub-brand, a line of everyday intimate apparel.Victorias Secret StoresVictorias Secret (VS) is the approximately profitable as wholesome as the biggest revenue generating brand for Limited Brands. Its net sales for the year 2013 were $ 271 jillion correspond of 16.7% of the total % of sales. Victorias Secret comprises 3 sub-businesses Victorias Secret Stores (VSS), Victorias Secret Beauty (VSB) and Victorias Secret impart (VSD) ne cardina lrk of stores. VSD sells VS lingerie, sleepwear as good as 3rd party brands in the categories of apparel, shoes and accessories through its online store and catalogs. This case study focuses on Victorias Secrets lingerie business.ProductsVictorias Secret sub-brands or collections can be said to focus on a central theme. For example, the virtually recently introduced Victorias Secret sub-brand called Pink is a unsanded collection of intimate apparel aimed at a 19 year old woman (Limited Brands Interview, 2005), and the Victoria is the unfermented glamorous olfactory property launched that build on its fragrance business. separately of these collections is offered in a variety of diametrical styles found on the extent of coverage inclined by the bra, the configuration of the bra strap or even its undefiled silhouette.Overall, the products carried by Victorias Secret Stores can be divided into 3 broad categories debut Fashion Products, Non-Launch Fashion Products and Basi c Products. just about 60% of units in store are base, 25% non-launch expression and the remaining 15% are launch products. Basics consist of products which sell all year forget me drug and pack styles and colors which can be sold in all eras and for the most part, never go out of style. chromatic Dream Angels bras, white and black bras from the Body by Victoria collection are examples of raw material products.Fashion products are loosely delimit as spots with styles, colors or silhouettes which typically sell for one season (1 season = 6 months) and then shift to stock replenishment. Launch products are panache items which are heavily promoted and whitethorn even augur the introduction of a completely new category. These products involve special planning and are typically launched twain multiplication per year, in spring and fall. An example of a highly successful recently launched product is the new The Close-Up. The company also engages in only when round fiftee n annual reconfigurations of its stores also termed as stage stations. A floorset whitethorn or may not involve a launch.Customer SegmentsVictorias Secret Stores is trying to be the dominant, boyish, sexy and civilize lingerie and beauty brand in the world. Victorias Secret serves a wide prune of nodes with varied psychographics and demographics. On a folk income scale, the VS customer loosely lies between 30-75 percentile ranges. With heading in almost all major malls in the United States, VSS aspires to sour a destination brand, which means that a customer would be tempted to visit the malls just to see the VS store. With the Pink sub-brand, the space Victorias Secret is trying to fill as young and casual, a category which had been antecedently overlookedby Victorias Secret.Pink was developed in response to the fast growing Abercrombie & Fitch brand, which was once a part of The Limited. show up of the three key words describing the boilersuit target customer above, youn g is the most important. The goal is clearly to target a young demographic. Finally, the company sees VS as an aspirational brand, and as such, older women may be support to buy Pink products as well, as a 40 year old is likely to aspire to look like 30 rather than to look.Demand Forecasting and PlanningOn the prerequisite planning and heralding front, the Catalog and sack up businesses are governed by separate strategies. This is primarily because the drivers of directment for the 2 channels are incompatible. For the catalog, the accept forecast is mapped against the curve of the product life cycle from the point the catalog is mailed to when 98% of the product is sold. Moreover, circulation of printed books is the basal driver of sales. Within a catalog, drivings related to location of the display of product, and to the seat selected for the display, are sales drivers. Once localise has visibility as to the actual product layout of the catalog, it re-forecasts the ga ther up several weeks before it is mailed, and subsequently adjusts its purchase orders.For the web, on the some other hand, the forecast is based on individual item performance on an hourly, daily or weekly basis. One of the key poetic rhythm that come out uses to monitor its sales is given by the Net-Growth Ratio. This ratio measures for every $1 of demand induced, how oftentimes was generated for sales after accounting for establishs, cancellations and failure to fulfill ass-orders. Victorias Secret bespeak, especially the catalog business, has additional levers in the way that offer a wider largeness of behavior assortments. This is because the marginal costs of campaigning style versus basics product in Direct is governed by divers(prenominal) dynamics in comparison to stores, as the stores obtain vast fixed costs due to real-estate.Moreover, it is workable for Direct to leverage pluss between the catalog and web operations such as common photography. virtuall y 400 million catalogs are mailed in a year approximately one fresh book a week having anywhere between 60 to180 pages and including between 250 and 600 items. About 95-98% of the Direct products are sold in US. Semi-annual sales aretied together with Victorias Secret Stores and a sale period is comprised of 8 weeks, requiring approximately 8 mailings during this time (Limited Brands Interview, 2005). Last, but not the least, if a product doesnt perform well in one media, it is not introduced in the other.Sourcing and ProductionVictorias Secret Direct utilizes the Mast network, as do the Victorias Secret Stores. Direct is able to go on accurate info about customer preferences and buying patterns due to the online nature of its business. It is therefore able to quickly translate this information to its vendors, making it much more responsive to changing customer needs than the Victorias Secret Stores. This allows Mast to adopt a sourcing strategy based on the vendors office to d eliver small and more browse orders. Smaller orders mitigate risk of over-stocking and oftenness allows the company to react closer to the demand and to get the right product out to commercialise in time.Distribution and FulfillmentOn the distribution front, Direct uses its own distribution center in Columbus, Ohio, separate from the Victorias Secret Stores distribution center. both web and catalog share this DC. The suffice of picking in distribution centers is different from stores, as these products are picked as adept items based on orders, whereas in the Victorias Secret Stores operations the products are picked and shipped in cases. The middling time it takes to get to customers is about two days. The online business is well integrated to size up systems at the DC direct, but is not integrated with Victorias Secret Stores. With only about 15-20% of overlap in SKUs between the stores and Direct, this is not an immediate need (Limited Brands Interview, 2005).Direct kee ps a close watch on its inventory and maintains clean accurate item levels as well as order level entropy. For example, the current percentage of gain level that Direct operates shows an 88% in stock and 12% back-order at the item level. This level of data integrity allows Direct to be much more responsive than Victorias Secret Stores andas a result allows them to make dynamic changes to order quantities, pre-packs and size-curves based on a la mode(p) selling patterns. In contrast to placing large orders with Mast, as do Victorias Secret Stores, Direct can thus place smaller and more frequent orders. Moreover, Direct doesnt require excess inventory for the purpose of its floor and window displays as do Victorias Secret Stores.Goals and ChallengesAs a part of the INSIGHT project, Victorias Secret Direct is working closely with its business team to create a program library of fabrics and raw materials to make a survival of the fittest matrix such that lead times can be reduced dramatically. They are also a part of the aforesaid(prenominal) initiative to reduce concept to market lead times from 72 to 40 weeks.The challenge for the company is in the landing field of returns. Currently, returns amount to approximately 25% of demand and are primarily driven by the Swim and Apparel categories however, a sizeable part of returns are put back in stock. These are products which are in reasonable condition to be resold. The return rate for lingerie is negligible. One of the challenges that Victorias Secret faces overall is in the category of clap sizes. Fringe sizes are the ones which are on the tail-end of the demand curve and whose demand patterns are harder to predict. Customers looking to buy these sizes typically smell the need to try them on before purchase.If these products are carried by Direct, there is probable for reduced customer utility levels. On the other hand, if Victorias Secret Stores decides to move these sizes to come through better cu stomer process, they will be faced with challenges of less predictable demand patterns for these sizes, leading to over or on a lower floor stocking of product. Therefore, the company has to work a nice tradeoff between providing better customer service levels and the subsequent financial impingement of this service. A survey about multi-channel sell tactics used by retailers, conducted by Forrester research, showed that 87% of retailers allowed purchases make online to be returned to stores.Limited Brands richly integrated Victorias Secret with its Direct business. This involves large logistical challenges for the brand but wipe out apositive impact of customer satisfaction levels as the customers are able to return goods purchased online to Victorias Secret Stores, and are even able to order products in stores which they purchased online and have them delivered to their house with no additional cost.Victorias Secrets leave Chain FrameworkVictorias Secrets business strategy has evolved from a shop-and-copy system to a branded concept, that of selling groundbreaking, technologically advanced products at fair high profit margins. The Victorias Secret brand is positioned to be the dominant, young, sexy and sophisticated lingerie and beauty concept, targeting young customers who appreciate the measure out of possessing innovative lingerie. At the same time, the company is somewhat risk averse.It does not rely solely on its latest bra launches for all of its sales. It distributes risk by having a mixed assortment of fashion and basic goods. However, having this mixed assortment adds complexity, in that the brand has to operate two supply chains one for each of these types of products. Below I underlined the operating model, operating(a) objectives and important bespoke business activities that drive sustained competitive advantage within the Victorias Secret supply chain and align with the overarching business strategy.Complementary operate ModelThe operating model at Victorias Secret Stores is to achieve desired brand cite through innovative product development, glamorous bra launches and high shelf handiness of its products. Most of the Victorias Secret Stores new product introductions are offered in both fashion (items with less predictable demand) as well as basic (stable demand) styles. This mix of fashion and basic items helps Victorias Secret to distribute risk, to picture profitability and to offer compelling note value to customers. The company identifies that there is not a single all-in-one supply chain answer for both of these categories of products and therefore it maintains two different types of supply chains for each.The supply chain for Victorias Secrets fashion items is driven by Speed-to-Market to ensure responsiveness. This is reflected in the company-wide initiative to shorten its Concept-to-Market calendar. This supply chain is make headway governed by a sourcing strategy that requires a set of supp liers with an clear record of product intromission, value-adding capabilities and no minimal volume requirements. Due to the prioritization of speed over low labor cost, these items are made in the most capable factories in the world, wherever they may be, and are systematically air shipped to the companys distribution center in Columbus, Ohio.On the other hand, the supply chain for Victorias Secrets basic items is driven by factors like plus utilization and supply chain efficiency. As a result, basic goods are fabricate in vertically integrated factories which deliver the goods close control over faculty utilization and productivity. These factories run at safe readiness and provide economies of scale (Limited Brands Interview, 2005). Mast holdings have an equity stake in two of Limited Brands largest factories in India and Sri Lanka. This is a strategic decision in order to maintain tighter control and better supply chain visibility.Operational ObjectivesThe help of Limi ted Logistics assistances (LLS), Victorias Secret has drafted a Service Level contract that defines various performance inflection for work to Victorias Secret Stores. This agreement also defines the fictitious character of the Victorias Secret Stores in successfully encounter these objectives. The performance rhythmic pattern are divided into three broad categories as outlined below.Customer ResponseThese poetic rhythm are customer-focused and customer-facing. They include a set of distribution metrics as well metrics related to store performance such as responsiveness, floor-set, business priorities, new stores, Value Added Services (VAS), coming upon cadence, reporting, and air shipments.EfficiencyThese are internal metrics. They are productivity and cost-related and include a set of metrics at the manufacturing as well as distribution center level such as Auditing/Cycle Counts, Through- Put, profit Productivity, DC Metrics, DC Throughput, and Store Throughput.Asset wo rk These metrics are also internal-facing and more often than not focus on maintaining economies of scale. They include mental ability Utilization and Inventory Turns.Objectives Balancing FrameworkThe focus placed on each of the metrics mentioned, varies by whether the product is basic or fashion. For example, in the category of basic products, asset utilization metrics like capacity utilization and efficiency objectives like supply chain costs and productivity carry more tilt than responsiveness. The factories making these products run at full capacity with two shifts per day to efficiently deliver these products to market at minimum possible cost of production. These products generate moderate margins for the company in comparison to the fashion products.On the other hand, in high-margin product categories of fashion goods, particularly in highly promoted launch-related fashion goods, which are most often a result of innovative product development and have relatively short-produ ct-lifecycle of just one season, responsiveness metrics are seen to carry more weight overall. The focus in this model is to increase in-season product availability to reduce woolly sales and maximize margins.Tailored Business ActivitiesAt the operational level, there are a set of three bespoke business activities that provide significant competitive advantage to the Victorias Secret supply chain and place Victorias Secret in a unique position in comparison to its competitors. These activities are aline to the overarching strategy, which is to deliver an assortment of innovativefashion products and less risky basic products. The first tailored activity emanates from the company-wide open innovation model. The decentralized design culture within Victorias Secret adds unique capabilities to its supply chain design.Product Innovation can come from the supplier, from in-house development or through design inspirations from international concepts. This creates the possibility of inte r-company operating ties with impertinent suppliers. For example, if Limited Design Studios in New York initiates a design concept, it can go to a preferred supplier to be further developed and even changed. This relationship during the design solve adds flexibility, which is hard to replicate.The second tailored activity has to do with the sourcing model that Limited has adopted as a whole. The presence of Mast Industries as a wholly-owned subsidiary of Limited Brands is of tremendous value to the company. Mast carefully selects its vendors based on capabilities to manufacture and deliver fashion versus basic products. Mast works with a set of vertically integrated factories as well as raw material suppliers to create a product that is hard to replicate.Vertical desegregation helps the company to control the production process from fiber to garment. On one hand, this leads to greater manufacturing efficiency required for producing basic products, which generate relatively lesser profit margins than fashion items. On the other hand, vertical desegregation also helps to speed the product development process essential for new and fashionable products.Finally, the role of Limited Logistics Services (LLS) shared service model in the smooth operation of its supply chain is indispensable. As mentioned earlier, the Service Level Agreement with each of its brands, including Victorias Secret, not only defines the detailed performance metrics but also defines the role of each brand in order to carry out the objectives on time. LLS consistently benchmarks itself against outside logistics providers and has been able to provide high service levels to its brands at competitive costs. The dynamic ability of LLS to constantly evaluate and re-evaluate its performance against external agencies, helps VictoriasSecret to stay ahead of the contender. In its logistics design, LLS incorporates the fact that whether a product world delivered is fashion or basic.For example, in most cases, fashion lingerie is air-shipped from Asia to Columbus, OH and basic products are ocean-shipped. This is because the fashion products, which have relatively higher margins, are less expensive to deportation costs per unit. Fashion and launch products may also have to go through a customized value-added service process in order to cater to the requirements of the individual stores to which they are shipped. These value-added services are performed at the DC level and the company claims to perform them more cost effectively and efficiently than an outside third party logistics provider. MarketMonopolistic competition is a form of imperfect competition where some(prenominal) competing producers sell products that are differentiated from one another (that is, the products are substitutes, but, with differences such as branding, are not exactly alike). In monopolistic competition firms can carry like monopolies in the short-run, including using market power to generate pro fit. In the long-run, other firms enter the market and the benefits of differentiation hang with competition Textbook examples of industries with market structures similar to monopolistic competition include restaurants, cereal, clothing, shoes, and service industries in large cities, which the company Victorias Secret fit perfectly.The inception father of the theory of monopolistic competition was Edward Hastings Chamberlin in his initiateing book on the subject Theory of Monopolistic Competition. Joan Robinson also receives credit as an early pioneer on the concept. Monopolistically competitive markets have the pursuit characteristics There are many producers and many consumers in a given market, and no business has total control over the market price. Consumers perceive that there are non-price differences among the competitors products. There are few barriers to first appearance and exit.Producers have a degree of control over price.