Sycamore will acquire a 55 percent stake in Victoria’s Secret for about $525 million, while L Brands will retain the remaining 45 percent. According to a news release, L Brands will use the money from the deal, along with roughly $500 million in excess balance sheet cash, to cut down on debt.
Bath & Body Works, which was responsible for the vast majority of L Brands’ 2019 operating income, will become a stand-alone public company. Wexner will remain a member of the board as chairman emeritus.
“We believe the separation of Victoria’s Secret Lingerie, Victoria’s Secret Beauty and PINK into a privately held company provides the best path to restoring these businesses to their historic levels of profitability and growth,” Wexner said in a statement. “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, 82, has come under fire for his personal ties to Epstein, the financier who committed suicide in a New York jail in August while awaiting trial on charges of child sex trafficking.
The son of Russian immigrants, Wexner founded the Limited in a Columbus, Ohio, shopping center in 1963 and took it public six years later. He purchased Victoria’s Secret in 1982 for $1 million before buying a number of other specialty chains including Lane Bryant, Henri Bendel and Abercrombie & Fitch.
In the 1980s and ’90s, Wexner forged lucrative deals with developers as they built hundreds of shopping malls around the country.
“He’d go in and say, ‘We’ll put three stores — the Limited, Express and Victoria’s Secret — in every one of your malls and we’ll only pay this much in rent,’” said Lee Peterson, an executive vice president at WD Partners who worked as a merchant for L Brands between 1980 and 1991.
The plan worked: All three chains ballooned into household names. By the time L Brands opened the first Bath & Body Works store in 1990, the company was bringing in more than $5 billion a year in sales.
But by the 2000s, Peterson says, it became clear that consumer habits were shifting. More people began shopping online, and the malls Wexner had staked his fortune on became less relevant.
“You look at what it takes to reach customers now and it is just not the same ballgame that it used to be,” Peterson said. “We’re talking about social influencers, Gen Z, e-commerce — there are so many different methods now to promote a brand and it doesn’t have a whole lot to do with stores. To be in a mall right now is like being in a prison.”
L Brands has sold or spun off many of its businesses in recent years, leaving it with just three chains: Victoria’s Secret, Pink and Bath & Body Works. It had $13.2 billion in sales last year.
“Les Wexner created specialty retail as we know it,” said Simeon Siegel, an analyst for BMO Capital Markets. “He had this idea that selling clothing is inherently about selling a fantasy. But today’s customer doesn’t need — or want — to be told what their fantasy should be.”
Analysts say they are skeptical about whether the sale will be enough to lift L Brands or Victoria’s Secret. Sycamore owns number of well-known retailers, including Talbots, Staples and Belk department stores. In 2017, it purchased the Limited’s online business intellectual property in a bankruptcy auction from another private-equity firm, Sun Capital.
“A partial sale and this low price won’t help the company’s massive debt load and shows just how desperate [L Brands] has become to try to unload [Victoria’s Secret],” Randal Konik, an analyst for Jefferies said in a note to clients Thursday. The lingerie company, he added, “isn’t even worth much. Profits are evaporating. The brand has lost its way.”
L Brands has stumbled in recent years in its struggle to shore up sales at Victoria’s Secret. The lingerie brand known for its push-up bras and sexualized advertising has posted sales declines for 12 of the past 13 quarters, and recently laid off about 15 percent of its corporate employees. Analysts said the brand’s provocative messaging and over-the-top fashion shows have failed to resonate with today’s shoppers, who value comfort over corsets.
“There’s been a real shift in how people, especially young women, think about beauty and desire,” said Kalinda Ukanwa, a marketing professor at the University of Southern California Marshall School of Business. “We’re in the age of #MeToo. Ideals are changing, and people want diversity and representation, ethnically and racially, but also in terms of shape and body type.”
Online start-ups like ThirdLove, True & Co. and Rihanna’s Savage X Fenty line — all founded by women — have emerged as formidable competitors by marketing their bras and underwear as comfortable and practical alternatives to Victoria’s Secret. They also offer a broader range of sizes, and emphasize diversity and inclusion, which analysts say Victoria’s Secret has largely failed to do.
The company got blowback in 2018 after former chief marketing officer Ed Razek said he did not want to cast “transsexual” models in the company’s annual fashion show “because the show is a fantasy.” Razek stepped down in August, around the same time that the company hired its first transgender model, Valentina Sampaio.
In November, L Brands announced it was ending its fashion show — a televised spectacle of gemstone-encrusted bras and bedazzled angel wings — in an effort to “evolve the marketing of Victoria’s Secret.”
The company has also sought to distance itself from Epstein, who managed Wexner’s billions and was closely involved with his charitable foundation for more than a decade. In July, L Brands said it had hired an outside law firm to review its relationship with the disgraced financier. It has not publicly shared the results of that investigation. An L Brands spokesman said the two had parted ways in 2007, and called Epstein’s alleged crimes “abhorrent.”
“We do not believe he was ever employed by nor served as an authorized representative of the company,” the company said in July.
In addition to his role as a money manager, Epstein was also a trustee for the Wexner Foundation, as well as two other family trusts, including one named for Wexner’s four children, according to documents filed with the U.S. Securities and Exchange Commission. Epstein’s Upper East Side mansion, which authorities have seized, was originally owned by Wexner.
“Being taken advantage of by someone who was so sick, so cunning, so depraved is something that I am embarrassed that I was even close to, but that is in the past,” Wexner told investors in September.
Wexner has a net worth in excess of $7 billion, according to the Bloomberg Billionaires Index.