The Limited, Inc.

views updated

The Limited, Inc.

founded: 1963

Contact Information:

headquarters: 3 limited pky.
columbus, oh 48230 phone: (614)415-7000 fax: (614)479-7080 url: http://www.limited.com

OVERVIEW

With 1997 sales of $9.2 billion, The Limited, Inc. is one of the biggest specialty apparel retailers in the United States. With its corporate offices located in Columbus, Ohio, the company operates several chains nationwide, including The Limited, Limited Too, Express, Lane Bryant, Lerner New York, Henri Bendel, Galyan's Trading Company, Victoria's Secret, Structure, and Bath and Body Works. The Limited has acted progressively over the years to keep up with new trends and survive economic challenges and has competitors in many different markets. Due to its efficient operations and willingness to take chances, the company has often had the edge over its competition. The company is known to be aggressive in marketing and began expanding internationally into the United Kingdom.

At the same time, since 1995 it has downsized by closing unprofitable stores, including the 118-store Cacique chain of lingerie stores, and spinning off some of its most profitable chains as public companies. A 1995 public offering of stock in Intimate Brands (parent of Victoria's Secret and Bath and Body Works) left The Limited, Inc. with an 83-percent ownership in Intimate Brands. In 1998 it divested its interest in Brylane Inc., a catalog publisher that grossed $1.3 billion in 1997. Also in 1998, it completed its spin-off of Abercrombie and Fitch, a 156-store upscale casual clothier that had 1997 sales of $521.6 million. Overall, The Limited, Inc. reduced the number of stores it operated from 5,640 in 1997 to about 5,200 in 1998.

COMPANY FINANCES

For 1997 The Limited, Inc. reported net sales of $9.2 billion, up from $8.6 billion in 1996. The increase was due to sales from new stores, as comparable store sales were flat. Women's brands (Express, Lerner New York, Lane Bryant, The Limited, Henri Bendel) accounted for $3.9 billion in sales; Intimate Brands (Victoria's Secret Stores and Catalogue, Bath and Body Works, Cacique, and other) accounted for $3.6 billion in sales; emerging brands (Structure, Limited Too, Galyan's Trading Co., and other) accounted for $1.1 billion in sales; and Abercrombie and Fitch accounted for $522 million in sales.

For 1997, operating income fell to $480 million from $636 million in 1996, due in large part to a one-time charge of $187 million in 1997 for the closure of 5 of the 6 Henri Bendel stores and other charges. As a result, women's brands had an operating loss of $268 million, while the company's strongest performer, Intimate Brands, had an operating income of $505 million. Led by Limited Too, emerging brands reported an operating income of $159 million, and Abercrombie and Fitch was profitable with $84 million in operating income.

The company's stock price improved from trading in the $16-$20 range in early 1996 to a range of $23-$27 at the end of 1997. This change in price reflected Wall Street's approval of the company's restructuring efforts as well as the general strength of the retail sector during that period.

ANALYSTS' OPINIONS

Analysts have recommended The Limited sell some of its divisions and zero in on its target market, 20- to 40-year-olds. Some also believe the women's apparel division, including Limited, Limited Express, Lerner, Lane Bryant, and Henri Bendel should be sold. Others believe the company should drop only its budget apparel line, Lerner, and its plus sizes division, Lane Bryant. According to some critics, Structure stores for young men also have had declining sales and could be sold off.

Industry experts are also concerned because the company has expanded its product line extensively. Its "limited" product line led the company to success and gave it its market advantage in the past. Other critics claim the company has not been run as efficiently as it could have been, and that it has problems with product quality, concepts, and redundancy.

The Limited has also been criticized for lacking identity in a retail marketplace dominated by strong brands. One analyst asked, "Lerner, Limited, what do these stores stand for?"

HISTORY

Leslie Wexner started working at his father's clothing store in 1961. Disagreeing on how to run the business most effectively, Leslie tried to convince his father to focus on selling sportswear. Wexner's father urged him to open his own store and apply his marketing ideas. Taking his advice, he left his father's clothing business in 1963 and opened the first Limited store in Columbus, Ohio, using $5,000 of borrowed money. Named for its limited selection, The Limited offered mid-priced, fashionable clothing to young women. After the first year the store was such a success that a second store was opened in Columbus. In 1965, Wexner's parents closed their store and joined their son's rapidly growing company.

Sales topped $1 million by 1968 and, in 1969 The Limited's first public stock was issued. However, the company's earnings were collapsing due to its rapid growth, so Wexner improved its manufacturing and distribution systems' efficiency. By 1976 the company had 100 stores.

In the early 1980s, The Limited began segmenting the market, or branching off into other specific markets. Over the years the company has marketed many types of apparel and accessories to many types of people. Products sold through its different stores include women's casualwear and sportswear, men's sportswear, children's sportswear, lingerie, toiletries, and perfume.

In 1980 the company began segmenting its market by opening the first Limited Express store (later named Express). The new store was targeted toward teenagers, selling trendier fashions. By 1982 the Limited Express was so successful that it became a separate business.

In 1982 The Limited became a multidivisional company with the acquisition of Lane Bryant, a clothing store for larger women, and Victoria's Secret, a lingerie store and catalog operation. With the Lane Bryant acquisition, The Limited store discontinued selling its plus sizes and zeroed in on fashionable sportswear for younger women.

Acquisitions in 1985 included Lerner New York, mid-priced stores selling women's casualwear and sportswear, and targeted to a more budget-minded woman, and Henri Bendel, a New York-based company with six stores that specialized in haute couture. The Limited made Lerner lucrative within one year and opened the first Lerner Woman in 1986. Company sales for 1985 were $2.4 billion.

Limited Too, a children's fashion store, was opened in 1987 to capture the children's apparel market. Later, the Express store branched off by introducing the first men's line of fashions. The men's store name became Structure in 1987.

In 1988 The Limited acquired Abercrombie and Fitch, an upscale casual clothier, and introduced another lingerie store, Cacique, as sales reached the $4-billion level. Sales continued to grow in the early 1990s as the company introduced Bath and Body Works in 1990. By 1991 sales had reached $6.1 billion.

In 1995 The Limited purchased Galyan's Trading Company, a full-line sporting goods retailer with its own brands. That same year the company began restructuring to become more competitive, hiring away key executives from competitors such as J. Crew and Banana Republic, and downsizing by closing unprofitable stores. It made Intimate Brands (parent of Victoria's Secret and Bath and Body Works) a public company through an initial public offering of stock, but retained an 83-percent ownership. In 1996 Abercrombie and Fitch became a public company, and by 1998, The Limited planned to eliminate its ownership position in the 156-store chain through an exchange of stock.

In 1998 the company divested its interest in Brylane Inc., a catalog publisher, that grossed $1.3 billion in 1997, and closed the 118-store Cacique chain of lingerie stores. Overall, The Limited, Inc. reduced the number of stores it operated from 5,640 in 1997 to about 5,200 in 1998.

FAST FACTS: About The Limited, Inc.

Ownership: The Limited Inc. is a publicly owned company traded on the New York Stock Exchange and London Stock Exchange.

Ticker symbol: LTD

Officers: Leslie H. Wexner, Chmn., Pres. & CEO, 60, $2,861,560; Kenneth B. Gilman, VChmn. & Chief Administrative Officer, 51, $2,128,630; V. Ann Hailey, Exec. VP & CFO, 47, $463,152; Andrea Weiss, Exec. VP & Chief Stores Officer

Employees: 131,000 (1998)

Principal Subsidiary Companies: The Limited, Inc. owns and operates the following businesses: Galyan's Trading Co., Henri Bendel, Lane Bryant Inc., Lerner New York Inc., Limited Express, The Limited, Limited Too, Structure, and MAST Industries Inc. In addition, it owns 83 percent of Intimate Brands Inc., which includes Victoria's Secret Stores, Victoria's Secret Catalogue, and Bath and Body Works. It is in the process of divesting its ownership in Abercrombie and Fitch Co. through an exchange of stock.

Chief Competitors: The Limited, Inc. competes with other retailers of women's apparel, including: Banana Republic; Benetton; Body Shop; Charming Shopper; Clothestime; CML Group; Dayton Hudson; Dillard's; Dress Barn; Edison Brothers; Federated; The Gap; J. Crew; Lands' End; Levi Strauss; L.L. Bean; Marks and Spencer; May; Melville; Nieman Marcus; Nordstrom; Spiegel; TJX; and U.S. Shoe.

STRATEGY

The Limited has taken many steps over the years to reach its goal of becoming the largest and most profitable retailer of women's specialty clothing in the United States. One of the main reasons the company has been so strong in the marketplace is that it was the first store to offer affordable fashions catering to working women. It produced private-label lines, which were manufactured exclusively for its stores in Third World countries and sold at high profit margins. Higher margins could be maintained due to the desirable image The Limited's private-label lines projected.

Another reason The Limited has been able to keep its market share is its unique sourcing and distribution process. Starting in 1969, the company instituted a system to improve financial controls. Using point-of-purchase terminals, the company was able to monitor inventory from its headquarters. This system enabled The Limited to mark down slow-selling items and restock with a speed that provided an advantage over its competitors. Department stores could not be as flexible. Acquiring MAST Industries, an international apparel purchasing and importing company, was key to this distribution process as well. With The Limited's point-of-purchase terminals and MAST Industries' efficient buying and shipping operations, The Limited was able to restock its shelves with the latest and most popular fashions within a matter of weeks, while competing stores took months to reshelve.

The Limited was willing to be creative and take chances with its marketing ideas. In an effort to win back customer loyalty, The Limited introduced a radio advertising campaign in 1994 targeted at the younger generation, which was the first to be aired in 10 years. The company also started an Italian cafe, Papa Razzi Cucina, in Express stores to attract a larger crowd. Although customers could not shop while eating, the combination store was designed to be casual and convenient.

Since 1995 the company has been refocusing on its women's apparel chains, especially Limited and Express, and downsizing by closing underperforming stores. A new division, Limited Design Services, was formed to upgrade the company's product lines, and the former president of Banana Republic, Maria Holman-Rao, was hired to be in charge.

According to its 1997 annual report, The Limited is mainly interested in brands that are capable of producing $1 billion in annual sales. The company's recent strategy involves building its core brands and eliminating others. According to a "Most Recognized Brands" survey, in only two years the Victoria's Secret brand moved from twenty-sixth to ninth most recognized brand. In 1998 the company sold its Cacique chain of lingerie stores to focus its resources on building the Victoria's Secret brand even more. Overall, the company is seeking to have fewer, but stronger, brands.

INFLUENCES

When the company went public, business expanded astronomically, almost to the point of collapse. The Limited was able to survive by improving the efficiency of its manufacturing and distribution systems. Improving efficiency became the company's strategy and basis for strength in the market.

Economic challenges and the maturation of the company were obstacles for The Limited. In the early 1980s, the company grew at a phenomenal rate, but in 1984, a marketing mistake challenged The Limited. The company stocked its stores with career clothes, which did not sell very well. With the help of MAST Industries, The Limited quickly developed a new line of clothing and replaced career clothes with this more casual line within a few months, and avoided a possible catastrophe.

CHRONOLOGY: Key Dates for The Limited, Inc.

1963:: Leslie Wexner opens The Limited in Columbus, Ohio
1968:: Sales surpass $1 million for the first time
1969:: The Limited goes public
1978:: Purchases Mast Industries, a merchandise procurement firm
1980:: Launches The Limited Express targeting teenagers
1982:: Acquires Lane Bryant and Victoria's Secret
1985:: Acquires Lerner New York
1987:: Opens Limited Too, a children's clothing store
1988:: Acquires Abercrombie and Fitch
1995:: Makes Intimate Brands, parent Victoria's Secret, a public company with an initial public stock offering
1996:: Abercrombie and Fitch goes public
1998:: Announces plans to eliminate its ownership of Abercrombie and Fitch through an exchange of stock

All challenges The Limited faced were met with decisive action. In 1988, when stores experienced a slight decrease in business, the company combatted this by expanding its specialty stores with enlarged display windows to attract more customers. In the 1990s, though, impressive storefronts were not enough. Customers wanted fashion and more importantly, value. Comparable store sales declined.

In the move to create more value, The Limited decided to spin off Intimate Brands, which accounted for 17 percent of its best growth business, as a public company in 1995. The Limited kept an 83-percent majority interest in Intimate Brands, which included Victoria's Secret stores and catalog, Bath and Body Works (the personal care product stores), and Cacique (the lingerie stores). Revenue gained from the sale was used to buy back Limited stock and prevent other division stores from closing.

The success of its sourcing and distribution system caused problems for the company. With speedy delivery being the number one priority, quality became questionable and pricing problems developed. Items were being marked down the same day they were put on the shelf, which detracted from the brand's image. The Limited managed to fight these problems while continuing to expand.

CURRENT TRENDS

The Limited began reorganizing its many divisions in 1995 as part of its overall strategy to refocus on women's apparel and create more value for the company's shareholders. It eliminated entire businesses, sold off substantial assets, and strengthened its core brands. The company began closing underperforming stores in 1995 with 79 store closings, followed in 1996 by 135 closings, in 1997 with 186 closings, and in 1998 with a projected 280 closings. The closings affected Limited, Lerner, Express, and Lane Bryant Stores. In 1998 the company closed the 118-store Cacique chain of lingerie stores to focus on strengthening its Victoria's Secret brand.

Two of the company's most profitable divisions, Intimate Brands and Abercrombie and Fitch, were spun off as public companies. While The Limited retained an 83-percent interest in Intimate Brands, it announced in 1998 that it would eliminate its ownership position in Abercrombie and Fitch through an exchange of stock. With the company looking for brands capable of producing $1 billion in annual sales, it was possible other divisions could become publicly owned companies once their performance reached a certain level. Other streamlining measures included cutting back the exclusive Henri Bendel chain from six stores to a single store in New York City.

In order to focus on strengthening its brands, especially its women's apparel stores The Limited and Express, The Limited hired experienced executives away from its competitors and also promoted several executives from within. Rob Bernard, formerly president and chief operating officer at the J. Crew Group, was hired as president of The Limited Stores to reestablish it as a dominant brand. Marie Holman-Rao, former president of Banana Republic, was hired as president of Limited Design Services, a new position responsible for the overall design platform of each business. The position also oversees the quality of each individual business's design organization.

PRODUCTS

The company's products include its many different store chains and the branded merchandise it sells. Its most recent acquisition was Galyan's Trading Company, a retailer for sport and fitness enthusiasts. Other brands on which the company is focusing its resources include Victoria's Secret, which will be supported by a $50-million advertising budget in 1998. Limited Too, a specialty store for girls, is also considered a leader in its segment.

CORPORATE CITIZENSHIP

In 1993, The Limited offered to construct a new vocational center for the Columbus Public School District in Ohio in exchange for 28 acres owned by the Northeast Career Center. The land occupied by the current career center was next to land the company had acquired to build a shopping mall. The company also offered to pay for the building appraisal and travel expenses for school officials to collect ideas by visiting other career centers nationwide. CEO Leslie Wexner is also a major donor to Ohio State University.

GLOBAL PRESENCE

The Limited operates most of its stores within the United States. In 1994 and 1995, in partnership with British apparel retailer Next PLC, The Limited opened five Bath and Body Works stores in suburban London, England, and in Scotland. Next PLC withdrew from the venture in 1996, selling its stake back to The Limited. With those stores doing well, it would be possible for Bath and Body Works to expand into Europe.

Most of the merchandise sold by The Limited is purchased from some 4,000 manufacturers in foreign markets. In 1995, approximately 55 percent of the company's total goods purchased were from foreign outlets.

EMPLOYMENT

The Limited is dedicated to its employees and emphasizes teamwork. It describes its corporate culture as one emphasizing creativity, hard work, and high energy. It is looking for people who are smart, ambitious, outgoing, and interested in making a career with the company. The company promotes from within and has a creative incentive program for its workers.

Benefits vary depending on the level of employment. They include merchandise discounts, participation in a stock purchase plan, a savings and retirement plan, a full dental and medical package, life insurance, and disability income.