Victoria`s Secret Economic Environment

IntroductionThe habit industry faces various run kitchen stove ch eachenges, galore(postnominal) due to the fact that the major(ip) part of attire manufacturing activity for the coupled States groceryplace has moved immaterial the country to low-labor- cost countries in the Far-East. Thus, due to longsighted physical distances, app atomic number 18l companies in the US argon continuously challenged to apace respond to changing trends, to reduce long lead-times, to execute collaborative crossingion development with suppliers using effective communication and to ensure total tag on cosmic string visibility. More all over, fickle consumer preferences and shortening of the crossing life cycles reserve the app arl industry very challenging from a supply chain perspective.The Victorias confidential business provides a case study representative of more or less supply chain challenges go about by the apparel industry as a whole. Victorias mystery is a multi-channel retai ler selling its harvestings through and through with(predicate) physical injects primed(p) throughout the United States, as substantially as through a collection of printed composes and an online shop. Its major crossing offerings lie in the category of hint apparel, sleepwear, beauty, apparel, shoes and swimwear. For the purpose of this research, we decoct on the outline apparel segment of Victorias mystery story. Intimate apparel represents the gargantuanst portion of Victorias obscure business and is s mature through all the retail channels described above.Company HistoryAccording to high society lore, after a disagreement with his father in 1963 over the operation of the family store (Leslies), Leslie Wexner, olibanumly 26, openedthe first Limited store in Columbus, Ohio, with $5,000 borrowed from his aunt. Leslie Wexners desire was to concentre on moderately priced expressive style subject attire for teenagers and puppy homogeneous women (Hoovers Online). T he Limited went semipublic in 1969 with five stores. Rapid development of large malls spurred Limiteds growth to deoxycytidine monophosphate stores by 1976.Two years later, The Limited acquired Mast Industries, an international apparel purchasing and trade caller-out. In 1982, Limited purchased Lane Bryant (a plus size brand) and Victorias recondite ( intimate apparel). In March 2002 the so called The Limited changed its name to Limited Brands. Limited Brands is currently instruction on its star players, Victorias privy and Bath and consistency Works.Company StrategyThe company strategy has evolved over time. Prior to 1995, the companys strategy was primarily control by a knock-off objective, shop-and-copy system. During this period, the companys merchants searched for forthcoming excogitate designs, all over the world, especially in Europe, and produced merchandise inspired by these designs. Their strategy consumed f number sourcing of the products and selling them ou t even before the original brand could actually be launched. By the early nineties, in that respect remained little free-enterprise(a) advantage in this approach, as the rest of the world had figured out similar shipway to do business (Limited Brands Presentation, 2005), between 1995 and 1998, the company strategically planned an overhaul, focusing on developing a unmistakable brand identity.The Limited became the largest employer of apparel designers in the world (as menti 1d by a top executive). The company re-positioned itself to go like an upscale consumer package company. With aspirations to be a large goodish brand that controlled its own retail distri more(prenominal)overion channels and seeking a consistent repeatable business, the company soon incorporated tumidly compound capabilities into its supply chain. In its quest to narrow its portfolio and create a distinct brand image, the company closed all of its poorly fareing businesses, including the bargain of its bank, and spun off or sold Abercrombie and Fitch, Lane Bryant and six out of septet Henri Bendel stores (Limited Brands Presentation, 2005).Financial PerformanceVictorias sneaking(a) Business UnitWithin Victorias confidential, all terce channels Victorias sequestered Stores, Victorias cloistered Beauty and Victorias occult localise are experiencing revenue enhancement growth as well as favourableness. As of august 2013, Victorias mystery stores gross sales increased 3% on top of a 9% increase last year. Increase was primarily driven by expertness in bras and panties. Victorias unfathomed Direct, the catalog and online business, withal experienced growth. Direct enjoyed a 3% increase in sales in 2013. The growth came from change clothing florilegium at to a greater extent competitive prices and growth of its intimate apparel category, especially of panties and sleepwear.Direct now represents or so a third of Victorias Secret sales. A 2001 packet of drawer analysi s indicated that one-third of the typical customers lingerie drawer rise ups from the Victorias Secret brand. Most of the drawer, however, consists of twenty-four hours by day wear lingerie products, of which Victorias Secret is a relatively lower percentage. Thus, the trend for the new product introductions go away likely be toward much pretty, yet every day, styles like the Body by Victoria sub-brand, a line of everyday intimate apparel.Victorias Secret StoresVictorias Secret (VS) is the most profitable as well as the biggest revenue generating brand for Limited Brands. Its net sales for the year 2013 were $ 271 million stop 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 Direct (VSD) nedeucerk of stores. VSD sells VS lingerie, sleepwear as well as 3rd society brands in the categories of apparel, shoes and accessories through its online store and catalogs. This ca se study focuses on Victorias Secrets lingerie business.ProductsVictorias Secret sub-brands or collections bath be said to focus on a central theme. For example, the most recently introduced Victorias Secret sub-brand called bug is a new collection of intimate apparel aimed at a 19 year oldwoman (Limited Brands Interview, 2005), and the Victoria is the new glamorous fragrance launched that build on its fragrance business. Each of these collections is offered in a variety of different styles based on the extent of coverage precondition by the bra, the configuration of the bra strap or even its complete silhouette.Overall, the products carried by Victorias Secret Stores can be divided into 3 gigantic categories Launch Fashion Products, Non-Launch Fashion Products and Basic Products. more or less 60% of units in store are prefatory, 25% non-launch fake and the remaining 15% are launch products. Basics consist of products which sell all year more or less and entertain styles a nd colors which can be sold in all seasons and for the most part, never go out of style. Beige Dream Angels bras, unobjectionable and black bras from the Body by Victoria collection are examples of raw material products.Fashion products are in general defined as particular propositions with styles, colors or silhouettes which typically sell for one season (1 season = 6 months) and then disruption to regular replenishment. Launch products are fashion items which are heavily promoted and may even announce the introduction of a completely new category. These products involve special planning and are typically launched dickens times 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 about fifteen year check reconfigurations of its stores also termed as floor good deals. A floorset may or may not involve a launch.Customer SegmentsVictorias Secret Stores is trying to be the dominant, young, gamey and modern lingerie and beauty brand in the world. Victorias Secret serves a grand range of customers with varied psychographics and demographics. On a habitationhold income scale, the VS customer loosely lies between 30-75 percentile ranges. With presence in almost all major malls in the United States, VSS aspires to become 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 place Victorias Secret is trying to fill as young and casual, a category which had been previously overlookedby Victorias Secret.Pink was developed in chemical fightion to the fast growing Abercrombie & Fitch brand, which was once a part of The Limited. tabu of the three key words describing the overall target customer above, young 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(prenominal), older women may be encourag ed to cloud Pink products as well, as a 40 year old is likely to aspire to look like 30 rather than to look.Demand fortune telling and PlanningOn the occupy planning and accounting front, the Catalog and Web businesses are governed by separate strategies. This is primarily because the drivers of consume for the two channels are different. For the catalog, the imply forecast is mapped against the curve of the product life cycle from the point the catalog is send out to when 98% of the product is sold. Moreover, circulation of printed books is the primary driver of sales. Within a catalog, high-powereds related to location of the display of product, and to the manikin selected for the display, are sales drivers. Once Direct has visibility as to the actual product layout of the catalog, it re-forecasts the petition several weeks before it is mailed, and subsequently adjusts its purchase orders.For the web, on the other hand, the forecast is based on individual item cogniti ve process on an hourly, daily or weekly basis. One of the key rhythmic pattern that Direct uses to reminder its sales is given by the Net-Growth Ratio. This ratio measures for every $1 of demand reachd, how much was generated for sales after accounting for returns, cancellations and failure to fulfill derriere-orders. Victorias Secret Direct, especially the catalog business, has additional levers in the way that offer a wider breadth of fashion mixs. This is because the marginal costs of carrying fashion versus canonics product in Direct is governed by different dynamics in analogy to stores, as the stores have huge fixed costs due to real-estate.Moreover, it is manageable for Direct to leverage summations between the catalog and web trading operations such as common photography. About 400 million catalogs are mailed in a year near 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 are secure 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 maintain close data about customer preferences and buying patterns due to the online nature of its business. It is because 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 force to deliver smaller and more frequent orders. Smaller orders mitigate risk of over-stocking and frequency allows the company to react closer to the demand and to get the right product out to market 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 process of picking in distribution centers is different from stores, as these products are picked as single items based on orders, whereas in the Victorias Secret Stores operations the products are picked and shipped in cases. The average time it takes to get to customers is about two days. The online business is well integrated to inventory systems at the DC train, 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 keeps a close catch out on its inventory and maintains f diffusely accurate item levels as well as order level data. For example, the current percentage of service level that Direct operates shows an 88% in stock a nd 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 latest selling patterns. In separate to placing large orders with Mast, as do Victorias Secret Stores, Direct can thus place smaller and more frequent orders. Moreover, Direct doesnt require surplus 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 nearly with its production team to create a library of fabrics and raw materials to make a choice matrix such that lead times can be reduced dramatically. They are also a part of the same(p) initiative to reduce concept to market lead times from 72 to 40 weeks.The challenge for the company is in the area of returns. Currently, returns amount to approximately 25% of demand and are primarily driven by the travel and Apparel categories however, a considerable 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 fringe 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 musical note the need to try them on before purchase.If these products are carried by Direct, there is potential for reduced customer service levels. On the other hand, if Victorias Secret Stores decides to carry these sizes to provide stop(p) customer service, they will be faced with challenges of less predictable demand patterns for these sizes, leading to over or beneath stocking of product. Therefore, the company has to work a delicate tradeoff between providing better customer servic e levels and the subsequent financial carry on of this service. A check into about multi-channel retailing tactics used by retailers, conducted by Forrester research, showed that 87% of retailers allowed purchases made online to be returned to stores.Limited Brands fully integrated Victorias Secret with its Direct business. This involves large logistical challenges for the brand but have 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 Supply Chain FrameworkVictorias Secrets business strategy has evolved from a shop-and-copy system to a branded concept, that of selling sophisticated, technologically advanced products at reasonably high profit margins. The Victorias Secret brand is positioned to be the dominant, young, sexy and sophisticated li ngerie and beauty concept, targeting young customers who appreciate the value of possessing innovative lingerie. At the same time, the company is somewhat risk averse.It does not curse solely on its fashionable 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 operate puzzle, operational objectives and important bespoke business activities that drive sustained competitive advantage inwardly the Victorias Secret supply chain and align with the overarching business strategy.Complementary Operating ModelThe operating sample at Victorias Secret Stores is to achieve desired brand recognition through innovative product development, glamorous bra launches and high shelf availability of its products. Most of the Victorias Secret Stores new product introduc tions are offered in two 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 ensure profitability and to offer compelling value to customers. The company identifies that there is not a single all-in-one supply chain solution 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 tho governed by a sourcing strategy that requires a set of suppliers with an dainty record of product innovation, value-adding capabilities and no minimum 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 consistently 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 asset example and supply chain efficiency. As a result, basic goods are manufactured in vertically integrated factories which provide close control over capacity utilization and productivity. These factories run at full capacity 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 Limited Logistics operate (LLS), Victorias Secret has drafted a servicing Level Agreement that defines various performance metrics for serve to Victorias Secret Stores. This agreement also defines the role of the Victorias Secret Stores in successfully meeting these objectives. The performance metrics are divided into three all-encompassing categories as defined below.Customer ResponseThese metrics 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), meeting 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, profits Productivity, DC Metrics, DC Throughput, and Store Throughput.Asset Utilization These metrics are also internal-facing and largely focus on maintaining economies of scale. They include Capacity Utilization and arsenal 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 cate gory of basic products, asset utilization metrics like capacity utilization and efficiency objectives like supply chain costs and productivity carry more slant 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-product-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 lost sales and increase margins.Tailored Business ActivitiesAt the operational level, there are a set of three orient business activities that pro vide significant competitive advantage to the Victorias Secret supply chain and place Victorias Secret in a uncommon position in comparison to its competitors. These activities are aligned 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 external concepts. This creates the possibility of inter-company operating ties with outside 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 process adds flexibility, which is hard to replicate.The abet 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 awe-inspiring 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 integration helps the company to control the production process from character reference 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 integration also helps to speed the product development process natural 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 mention ed 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 higher 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 out front of the disceptation. In its logistics design, LLS incorporates the fact that whether a product being 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 out-migration costs per unit. Fashion and launch products may also have to go through a customized value- added service process in order to give 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 tilt is a form of imperfect competition where many 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 noncompetitive competition firms can behave like monopolies in the short-run, including using market power to generate profit. In the long-run, other firms enter the market and the benefits of speciality decrease 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 p erfectly.The founding father of the theory of monopolistic competition was Edward Hastings Chamberlin in his pioneering 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 following 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 a few(prenominal) barriers to entry and exit.Producers have a degree of control over price.