Value chain analysis of victoria's secret

8/18/2019 Value chain analysis of victoria's secret

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OLUWABUSAYO ONOME OYETUNJI | OPERATIONS MANAGEMENT | January 11, 2016

THE VALUE CHAIN ANALYSIS OF THE BIGGEST LINGERIE BRAND IN THE

UNITED STATES2463 WORDS (EXCLUDING, TABLE OF CONTENTS, SECTIONHEADINGS, IN-TEXT CITATIONS, APPENDIX AND REFRENCES)


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TABLE OF CONTENTS

1. Introduction 2

1.1 Aim of the report 2

1.2 Background information on Victoria’s Secret 21.3 Victoria Secret Business Model 3

1.4 Industry Overview: Intimate apparel Industry USA 3

1.5 Key aspects of Victoria ’s Secret competitive Value chain 3

2. Literature Review: Michael Porters Value Chain for Competitive Advantage 4

2.1 Introduction 4

2.2 Analyzing the value chain for apparel designed in United states and Manufactured

Overseas 4

3. Analysis of Victoria’s Secret Value Chain 5

3.1 Introduction 5

3.2 Victoria’s Secret: Concept to Market 5

3.3 Victoria’s Secret Value Chain 6

3.4 Victoria’s Secret Competitive advantage over its main competitor (Fredrick’s of

Hollywood) 8

4. Conclusion 9

4.1 Final remarks 9

4.2 Difficulties encountered during the research 9

4.3 Limitations of the report 10

5. Appendix 12

6. References 14

7. Bibliography 16


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1. Introduction

1.1 Aim of the Report

It could be said that Victoria’s Secret (VS) Lingerie line is inarguable the biggest

lingerie brand in the United States. This report will be analysing key aspects of the brand

value chain that gives it a competitive advantage in the United States intimate apparel

industry. Porter’s value chain theory for competitive advantage will be used in analyzing

the value chain. This paper will be focusing on the primary activities of the value chain,

especially the Lingerie line marketing and sales.

1.2 Background Information on Victoria’s Secret

Victoria ’s Secret is an American retailer and the largest subsidiary of Limitedbrands. It specializes in women lingerie and beauty products. It was founded by Roy

Raymond in 1977. He started Victoria ’s secret because of the embarrassment he felt

while purchasing lingerie for his wife in a department store. He sold the company five

years later to Limited brands. (Market line, 2015)

Limited Brands rapidly expanded the Victoria ’s secret product line, offering a

wide range of products like beauty products, night wear, swim wear, shoes. In 2007, the

Limited sold 75 percent of its clothing chain to focus on Victoria ’s secret because of itshigh earning power. Victoria Secret accounted for 72 percent of Limited brands revenue

in 2006 (Clark & Lutz-Tveite n.d.)

According to Harrington (2015), Victoria ’s secret accounts for between 35-60

percent of the market share of the US lingerie market and they are inarguable the most

famous lingerie brand in the United States. Lutz (2013) believes that Victoria ’s Secret has

been able to stay ahead of the competition by defying the challenges affecting the intimate

apparel industry. The brand has been able to accomplish this through years of expensiveand flawless marketing. Later on in the report, we will be looking closely at their

marketing and sales activities which is a very important part of their value chain.


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1.3 Victoria ’s Secret Business Model

According to Al (2005), there are two major ways Victoria Secret creates value

for its customers:

Products: The Company offers top notch innovative items at fair prices. Theproducts are basic like the push up design while others aspiration (fashion items), items

linked to the Victoria ’s secret fashion show.

Experience: This is the quality experience that customer enjoy when they shop

in the Victoria ’s Secret physical stores or online stores. Shopping for intimates become

an enjoyable experience with Victoria ’s Secret.

1.4 Industry Overview: Intimate Apparel in the USA

Victoria ’s secret is a premium lingerie brand and it operates in the intimate

apparel industry. It could be said that it is influenced by the operational characteristics of

the industry.

What are the operational characteristics of the intimate apparel industry in the

United States?

• Geographical scope: Within the United states and International (Nguyen n.d.)

• Market Segment: Majority female, aged 16-49 years, middle to high income earners

(Nguyen n.d.) Sales Channels: Physical stores, catalog and online stores (Kumar, 2005)

Product life Cycle: Companies used to carry apparel months before they are in

season style, they cannot do this anymore because customers are now buying items

closer to when they need it. Companies now have to shorten their concept to market

times to cope with this trend (Nguyen n.d.)

1.5 Key Aspects of Victoria’s Secret Value Chain

The following activities are what makes Victoria ’s Secret value chain unique. We will address them in more detail later on in the report;

• Two supply chains

• Sales and Distribution: Multichannel strategy,

• Marketing: Victoria ’s secret fashion show, V ictoria’s secret angels, store ambiance


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2. Literature Review Michael Porter’s Value Chain for Competitive Advantage

2.1 Introduction

This section will review key related concepts associ ated with Porter’s value chain

which will be used in analysing the value chain of Victoria’s secret lingerie line .

Value chain analysis evaluates the value each activity adds to a company’s

products or services. Porter believes that the ability of a company to perform its activities

and manage the relationships between them gives it a competitive advantage (Recklies,

2001) Porter divides value chain into two groups: primary (direct) activities and support

(indirect) activities (Recklies, 2001).

The primary activities include; inbound logistics, operations, outbound logistics,

marketing and sales and services. While the support activities include; procurement,

technology development, human resources management and firm infrastructure. (IMA,

1996).

2.2 Analyzing the Value Chain for Apparel Designed In the USA and Manufactured

Overseas

According to Hester (n.d.) the value chain for a company like Victoria ’s secret

adds a twist to porter’s value chain. Its value chain includes an additional activity, product

design.

• Product design : According to global purchasing groups, when designing a

product the companies ask themselves the following questions, what is our target market?

What is our selling point? What retailers fit our market? And what is your niche? The

key is to follow the money trail, since every brand is in the business to make money. The

goal is to give the product a strong competitive advantage in the target market.

• Inbound logistics : This involves physically transporting finished products

from overseas manufacturing centers to the company’s distribution cen ters. It also

involves managing or providing technology to coordinate a company’s supply chain

(Fernandez-Stark et al)


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• Operations : Most of the company operations take place in the United States.

Activities are coordinated between the company Headquarters and offices around the

world.

• Out bound logistics : This involves all activities concerning the transportation

of goods from the distribution centers to the retail stores (Kumar, 2005).

• Marketing and sales : According to Howard (2015) companies leading in the

apparel industry do not only recognize changes in fashion trends but also in how

customers like to shop. Furthermore, the apparel industry relies heavily on technologies

and multi channeling to market and sell their products.

According to Tayabali (2008) Multi channeling means multiple ways companies

offers sales and support to customers. It could be through physical stores, mail, telephone

and catalogues.

3. Analysis of Victoria’s Secret Competitive Value chain

3.1 Introduction

Victoria ’s secret has a very robust value chain. After the products are designed, they go

through a number of test to see how customers feel about it. Products will continually beadjusted until they are approved for mass production and distribution through their

physical stores, website and mail channels. To help manage this complexity the company

has become almost fully vertically integrated (Santos et al n.d.).

Victoria ’s Secret strategy

Improve customer experience: goal is to create a shopping experience that depicts

Victoria ’s secret life style: sophisticated, sexy, and modern (Chang, Lin & Mak 2004)

3.2 Victoria’s Secret Concept to Market

According to Duggan (2015) Victoria ’s secret is getting into fast fashion and is also cutting

down its speed to market lead times. The brand previously used to design items twelve

months before it hits the shelve but they have taken it down to eight months and they


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are looking at taking it further down to six months. This allows them to compete with

fast fashion brand like Forever 21.

3.3 Victoria’s Secret Competitive Value Chain

This paper will analyse Victoria’s Secret product design, inbound activities,

outbound activities, marketing and Sales.

Product design : The value chain of Victoria ’s secret lingerie starts from the design

studios. The designs are created in line with their target market preferences. According

to Kumar (2005), there are at least four pathways to innovation for the Victoria ’s secret

brand

1. Victoria ’s secret design studios located in New York; this was where the concept of

“body by Victoria ” was created

2. The limited design studio; this was where the brand “PINK” was created in 2004

3. Getting inspiration from third party

4. Open commercialization: travelling around the world for inspiration

Inbound Logistics : According to Kumar (2005), Mast a subsidiary under Limited

Brands does about 80% of the merchandise sourcing and manufacturing for the

subsidiary brands under Limited brands with Victoria ’s Secret being no exception. Thesourcing of materials for Victoria ’s secret is done keeping in mind the overall strategy of

the Limited company. The items are manufactured in 50 factories around the world,

which includes but not limited to China, India, and Sri Lanka.

Once the products are produced, Limited logistics services (LLS) another brand

under the limited brand company takes over Victoria ’s secret value chain activities. They

are responsible for; getting the goods from the factory to the retail selling points and they

are also responsible for the purchase of non-merchandise products for the enterprise which includes bags, boxes etc. (Kumar 2005)


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Victoria ’s Secret two supply chains

LLS gets a 48 to 72 hour’s notification when the goods are ready to be picked up from

the factory (Kumar, 2005). They may decide to ship or air lift the goods, this decision is

made in collaboration with the brand. The goods that are shipped are the basic (lowmargin) goods while the fashion items are airlifted. Even though air transportation is

more expensive, the fashion item are high margin goods so the benefits of having it

available at peak season far outweighs the cost. V ictoria’s secret does this to maximize

their overall profit, increase satisfaction of the customers by ensuring the goods are

available when they are needed and also to meet their strategic goal of improving their

customer experience (Watson 2009).

The items are then transported to Limited brands Headquarters in Columbus, Ohio

which has seven distribution center and one of these centers is dedicated to Victoria ’s

secret (Kumar 2005).

Warehousing and distribution : The warehouse at the distribution center

performs some value added services before the transporting the items to the Victoria ’s

secret stores. The services include, tagging, re-ticketing, monogramming, steaming and

hanging. Productivity in the distribution center is measured by units per hour (Kumar,

2005)

Outbound Logistics : The Logistics limited service have relationships with

domestic carriers like Schneider who help deliver the boxes of items to 45 delivery

agents. This agents have to deliver these boxes to Victoria ’s Secret retail outlets within

two hours and they accomplish this goal 97 percent of the time (Kumar, 2005)

Sales : V ictoria’s Secret sells through it physical stores and direct stores (catalogues

and web stores). According to Baldwin, German and Le (n.d.), Victoria secret has over

1000 physical stores, the direct stores (web stores, catalogues) appeals to customers who

are not comfortable with buying their lingerie in public or customers who just want to

purchase replacement lingerie. Victoria’s secret and PINK brand most recent sales was

$6.6 billion, $1.6 billion of this amount came from websites and catalogs. The brand also

spends about $220 million annually on making and sending catalogs (Maheshwari, 2013)


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Victoria’s Secret Multi channel strategy: Victoria’s Secret was ahead of the

competition when it decided to embrace a multi-channel strategy in the 1990s. It

recognized the benefits went beyond additional sources of communication with retailers.

It also brought about increased customer experience and additional revenue fromretailers. The Vict oria’s Secret physical stores complemented the additional sales

channel. It gave customers the opportunity to come into store for the Victoria secret

experience, get measured by a staff, purchase lingerie and order replacement via the

online store or catalogue.

The online store has supported the brand helping it surpass its sales goals. An

investment in the online store of 5 million dollars brought in revenue of 200 million

dollars.

Victoria ’s secret integrated its distribution channel, this was part of the strategy to

support the brand and its store. For example a consumer can enter a products catalogue

number to find an item on the online store. Also, the database e-mail address for

customers that shop in their different distribution channel was merged together to build

a cross channel database. They use this in making advertising decisions, like what kind

of catalogue should be distributed to each customer (Kumar, 2005)

MARKETING : It could be said that this is the main value driving activity in

Victoria’s Secret value chain. Victoria’s Secret massive marketing campaign as put it

ahead of its competition. Victoria ’s secret Fashion show which features “Angels”

(supermodels who are ambassadors of the brand) and major music artists is Victoria’s

Secret major marketing campaign. The fashion show cost a lot of money, in 2011 it cost

$12 million dollars which is a lot higher than a typical fashion show which cost between

$200,000-$1,000,000 dollars (Robehmed, 2015). The fashion show does not directlypromote the products because the lingerie worn on stage by the models are never actually

worn by the customer. What it does is position the brand as a high fashion lingerie brand,

therefore increasing the demand for the product (Jenny 2014).


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3.4 Victoria’s Secr et Competitive advantage over Frederick’s of Hollywood

Strategy: Target Audience

They sell similar products through comparable channels and their target market is quite

similar. Fredericks markets itself as a racier brand which appeals to adult s while Victoria’ssecret targets both teenagers and adults. Victoria ’s secret ability to capture teenagers with

its PINK brand which is targeted to a younger demographic between the ages 16-29

creates a sense of brand loyalty, so teenagers do not switch to Frederick’s when they are

adults (Fowler, Garcia & Rosales n.d.). It could be said that b rand loyalty gives Victoria’s

secret their competitive advantage.

Marketing and Sales: Promotions

Victoria ’s secret is heavy on marketing and this truly sets them apart from their

competitors. Their marketing activities include, the Victoria ’s secret fashion which is

aired on CBS and viewed by millions of people around the world, Catalogues you can

easily get a hold off by providing your mailing address on the store website, in store

promotions, TV and print advertisement, PINK college ambassadors. (Chang, Lin &

Mak 2004). This methods of promotion persuades customers to purchase lingerie from

Victoria Secret instead of their competition. On the other hand, Fredrick’s promotion is

limited, advertising only to existing customers through emails (Fowler, Garcia & Rosalesn.d.).

Strategy: Value Proposition

Victoria ’s Secret value proposition follows the value of Limited Brand. This

includes top notch customer service, passion, inclusion and doing the right thing (Clark

& Lutz-Tveite n.d.). This means that they hire people who are passionate about the brand

so they can provide high quality service to the clients. By doing the right thing, The

Company ensures the factory workers are well taken care off and they are offered healthand educational programs (Kumar, 2005).

Fredrick’s of Hollywood main value proposition is making sexy lingerie available in plus

sizes for women who are overweight. This is something Victoria’s secret does not do

(Fowler, Garcia & Rosales n.d.). However it could be said that customers feel more


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accepting of Victoria ’s secret brand because of the values it upholds in the conduct of its

operations.

4. Conclusion

4.1 Final Remarks

In summary, it could be said that Victoria ’s secret Lingerie line success is

influenced by three major things. First, Its vertically integrated value chain, second, its

well-integrated multi-channel strategy and third, its intense marketing campaign.

However, the brand still faces some limitations in its value chain. According to Santos et

al (n.d.), though the president of the V ictoria’s secret stores and the president of the

Victoria’s secret direct (webstore and catalogue) work closely together, their profit and

loss accounts are different. This means there is a limit to which they can bring major

changes to brand especially in the area of promotion which is the soul of the business.

This means that Victoria’s secret multi-channel strategy possibilities has not been fully

explored.

4.2 Difficulties encountered during the research

Information Constraint: There are only a few research papers on Victoria’s secret

available on the internet. This led to the limitations listed below.

4.3 Limitations of the Report

Victoria ’s secret value chain is very complex and this report does not cover this

complexity in its entirety. However, this report describes Victoria’s secret value chain

with a lean structure that allows the reader fully understand V ictoria’s secret

competitive advantage.

It focuses on the intimate apparel industry in the United States. It does not compare

Victoria ’s Secret value chain to other world leading lingerie brands in the world like

Marks & Spencer a United Kingdom brand.

This paper does not compare V ictoria’s secret lingerie line inbound and outbound

activities to that of its competitors (Frederick of Hollywood and Aerie) because of

information constraint.


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A significant part of the information used in writing this report was from a research

paper written on Victoria ’s Secret supply chain by Sumit Kumar because of

information constraint.


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APPENDIX

Appendix A

Flow Chart summary of the Value Chain analysis for apparel designed in the United Statesbut Manufactured overseas

Out

Appendix B

ProductDesign

InboundLogistics

Operations

OutboundLogistics

Marketingand Sales

Coming up with Designs that align with taste of target market. This is usually doneat the company’s headquarters in the USA. This designs are taken to their overseasproduction sites.

All activities that has to do with moving the finished goods from overseasproduction site to the companies’ distribution center

Most of the company Operations take place in the United States. Activities arecoordinated between the company Headquarters and offices around the country

All activities that has to do with moving the items from the distribution centers to

the retail store

It includes Promotion activities like advertising and Distribution channels likephysical stores, webstores, catalogues


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Appendix B

Flow chart summary of Victoria Secret Value Chain

ProductDesign

InboundLogistics

OutboundLogistics

Marketingand Sales

This usually takes place in Victoria ’s Secret design studio in New York. The designs are thentaken to overseas manufacturing sites like Sri Lanka and India for production

Mast a subsidiary of Victoria ’s secret parent company, the limited, coordinates all activities that has todo with the production of the lingerie items. After production, limited logistics services a subsidiaryunder the limited which acts as a third party will make sure the items arrive safely to the Limitedbrand distribution centers in Columbus. They also coordinate the two supply chains of Victoria secret.

Limited logistics services contract out distribution of the goods to Victoria ’s secret retail storesthrough domestic carriers like Schneider

All activities that have to do with promotions and distribution of the goods. For example, the Victoria ’s secret fashion show and Multi-channel strategy (physical store, webstores and

catalogues)


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References

Anonymous (1996) Value Chain Analysis For Assessing Competitive Advantage. Instituteof Management Accountants.

Anonymous Global Purchasing group.

Al. (2015) Victoria's Secret to Success. 9th December. Available from:https://rctom.hbs.org/submission/victorias-secret-to-success/ [Accessed 26th December2015].

Baldwin, C., German, B. & Le, J. Victoria's Secret: A Brand Analysis.

Chang, C., Lin, A. & Mak, C. (2004) The Silky Strategy of Victoria’s Secret.

Clark, L. & Lutz-Tveite, M. (2011) Victoria's Secret.

Duggan, L. (2015) How Victoria's Secret is Copying Zara's Fast Fashion Strategy. 11th April. Available from: http://www.refinery29.com/2015/04/85436/victorias-secret-fast-fashion-brand [Accessed 24th December 2015].

Fernandez-Stark, K., Frederick, S. & Gereffi, G. The Apparel global Value Chain. Centeron Globalization, Governance & Competitiveness, Duke University.

Fowler, C., Garcia, G. & Rosales, A. (n.d.) Comparative Analysis of Victoria’s Secret andFrederick’s of Hollywood. Available from:https://christinadianefowler.files.wordpress.com/2014/10/vsandfohanalysis-1.pd [Accessed

24th December 2015].Harrington, C. (2015) Lingerie expert: Here's the problem with the Victoria's SecretFashion Show. 9th December. Available from: http://fusion.net/story/243216/lingerie-expert-victorias-secret-fashion-show-models/ [Accessed 26th December 2015].

Hester, S. (n.d.) Analyzing the Value Chain for Apparel Designed in the United States andManufactured Overseas.

Howard, J. (2015) Top 5 Trends In Apprael Retail for 2015. 27th February. Availablefrom: http://digitalmarketingmagazine.co.uk/digital-marketing-lead-generation/top-5-trends-in-apparel-retail-for-2015/1610 [Accessed 24th December 2015].

Kumar, S. (2005) Supply Chain Strategies in the Apparel Industry: The Case of Victoria'sSecret. Masters of Engineering in Logistics. Massachusetts Institute of Technology.

Lutz, A. (2013) How Victoria's Secret Became The Most Popular Apparel Brand in The World. 29th January. Available from: http://www.businessinsider.com/victorias-secret-is-the-top-brand-2013-1?IR=T [Accessed 25th December 2015].


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Maheshwari, S. (2013) The Numbers Behind Victoria's Secret And Its Iconic FashionShow. Available from: http://www.buzzfeed.com/sapna/the-numbers-behind-victorias-secret-and-its-iconic-fashion-s#.xqPvbMvJ5 [Accessed 9th January 2016].

Market Line. (2015) Company Profile: Victoria's Secret. London, United Kingdom,Market line.

Nguyen, V. (n.d.) Analysis of the Luxury Goods & Apparel and Footwear Industries.

Recklies, D. (2001) The Value Chain.

Robehmed, N. (2015) The Business of Victoria's Secret Fashion Show. Available from:http://www.forbes.com/sites/natalierobehmed/2015/12/08/the-business-of-the-victorias-secret-fashion-show/ [Accessed 9th January 2015].

Santos, E., O'Leary, K., Wright, A., Jeffrey, T. & Lin, J. (n.d.) The Innovation of Victoria'sSecret. Tuck School of Business at Dartmouth.

Tayabali, R. (2008) Multi-Channel Retail: Benefits, Challenges and Impacts.

Watson, M. (2009) Victoria's Secret Has Two Supply Chains. How Many Do You Have?26th May. Available from:https://www.ibm.com/developerworks/community/blogs/sca/entry/victoria%25e2%2580%2599ssecrethastwosupplychainshowmanydoyouhave?lang=en [Accessed 27th December2015].

Yan, J. (2014) Victoria's Not-So-Secret Marketing Strategy. 8th December. Available from:

http://www.financialbuzz.com/victoria-s-not-so-secret-marketing-strategy-fashion-191177[Accessed 26th December 2015].


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Bibliography

Gereffi, G. & Memedovic, O. (2003) The Global Apparel Value Chain: Whats Prospects

for Upgrading by Developing Countries. Vienna, United Nations Industrial

Development Organization.

Gustafson, A., Schmiesing-Korff, A. & Ng, S. (2004) A Time Efficicent Supply Chain

Model For An Apparel Company. MBA In International Business. Kristianstad

University.

Kaplinsky, R. & Morris, M. A Handbook For Value Chain Research.


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