Limited Brands (NYSE: LTD) is one of the largest specialty retailers in the United States, operating 2,968 stores throughout North America. Two well-known brands, Bath & Body Works and Victoria's Secret, are LTD's strongest businesses, bringing in a total of 84% of LTD's net sales.
LTD is expanding its international reach with the acquisition of Canadian retailer La Senza and the opening of Bath & Body Works and Victoria Secret stores in Canada. Outside of Canada LTD is researching potential markets in Europe and Japan. Bath & Body Works, one of the main revenue sources for Limited, is also exploring an industry trend of "ethical skin care." This means there is a surging popularity of products that claim to have not been animal-tested and contains sustainable materials. This moral component to the products serve as an extra incentive to consumers, which is very important now that customers are more reluctant to shop than they have been previously.
Limited Brands currently reports sales through three segments: Victoria's Secret, Bath & Body Works and Other.
The Victoria's Secret segment includes results from Victoria's Secret stores and online operations as well as operations of the La Senza brand.
The Other segment includes results from corporate functions, Mast (an apparel production and sourcing company that serves Victoria's Secret, La Senza and third-party customers), Beauty Avenues (a personal care sourcing company serving both Victoria's Secret and Bath & Body Works) and Henri Bendel. Henri Bendel is the only component of the Other segment that operates its own stores.
Henri Bendel is an upscale brand founded in 1896 and later acquired by the Limited Brands. These stores sell personal care products and accessories at a higher price point. Bendel used to sell apparel as well but due to slumping sales Limited has decided to end the apparel business and focus on accesories.
In the summer of 2007, Limited Brands shed its underperforming women's and men's apparel businesses, Express and The Limited,, selling each brand to a different private equity firm, in order to focus more on its higher-profit Victoria's Secret and Bath & Body Works chains. LTD gained $302 million from the sale of Express to Golden Gate Capital, while it lost $72 million on the sale of The Limited to Sun Capital Partners. LTD divested 75% of its ownership interest in each of the two brands, meaning that it still owns 25% of each brands and thus reports results from the two brands as "Other Income (Loss)".
As the Victoria's Secret and Bath & Body Works reach their full potential in the U.S. market, Limited Brands is eyeing international expansion for their two major brands. This process began with the acquisition of La Senza, a specialty lingerie retailer based in Canada. La Senza is now a part of the Victoria's Secret business, with branded merchandise shared between stores in the U.S. and Canada. . LTD's expansion abroad continued with the launch of Bath & Body Works in Canada and franchise locations in the Middle East. Through the La Senza brand and the Canadian Bath & Body Works stores, Limited Brands plans on gaining experience and knowledge in the retailing market abroad, which will help it in its efforts to expand into other international markets. Apart from Canada, it is currently researching other international markets, including Europe and Japan, and looking for partners with experience in these markets to join in launching the Victoria's Secret and Bath & Body Works brands abroad.
Individuals and entire corporations have become more conscious of the effects the products they use and produce have on the environment at large and there is an increased focus on sustainable materials and products that have not been tested on animals. In addition to environmental consciousness, more products are being formulated without potentially harmful ingredients such as parabens and petroleum. This trend of "ethical products" presents a new marketing opportunity for cosmetics and skin care companies. Consumers like feeling that they are helping the environment and promoting sustainable resources. Originally the domain of niche brands, ethical, fair-trade products have become more popular in lines such as Clarins, Bath & Body Works and Jack Black. Bath & Body Works is one retailer that has taken advantage of ethical products by making the idea part of its ethos. LTD does not test its products on animals and uses natural ingredients such as jojoba and tea tree oil, avoiding synthetic products.
Cotton consumption exceeded cotton production for the fifth year in the row, making cotton prices increase by 80.5% from last year.  Natural disasters also severely damaged crops in many large cotton producer countries, such as China, India, and Pakistan. This led to decreases in cotton exports from these countries and increases in cotton imports as these countries sought to supplement their supply of cotton.  With limited cotton supplies and rising prices, retailers will either have to absorb these higher material costs, restructure the composition of their clothing to have less cotton, or pass these higher costs to its consumers. Higher clothing prices or lower quality clothing could discourage consumer spending, resulting in decreased net sales. However, adult or teen clothing retailers may not be too adversely affected as their clothing (which is usually 30-40% cotton based) has more flexibility in their composition and thus, costs. In addition, raising commodity prices in other areas will also raise costs for retailers. While premium price and established brands may be able to pass their higher costs to their consumers, value based companies may not fare as well and may suffer from lower profit margins.
Due to the diversity of its holdings, Limited Brands competes with a variety of other retailers and fashion companies. Few companies own brands and operations in both lingerie/intimate apparel and home and beauty care retailing, but one such competitor exists in luxury conglomerate LVMH Moet Hennessy L.V. (LVMUY), which has operations in wines and other alcoholic drinks, apparel, cosmetics, retailing, and jewelry. LVMH Moet Hennessy L.V. (LVMUY) is primarily a source of competition for Limited Brands because it owns fashion lines such as DKNY that compete with Victoria's Secret as well as the beauty care chain Sephora which competes with Bath & Body Works. However, it is difficult to compare Limited Brands to LVMH Moet Hennessy L.V. (LVMUY) because the former doesn't break out their sales for their fashion lines and retail chains, such as Sephora. Sephora is a beauty-retail chain that sells both third-party and private label brands of beauty care products ranging from makeup and haircare to bath products. Sephora operates over 986 stores in 23 countries throughout the world as of 2010, with 254 of those stores in North America, making its retail footprint significantly smaller than Limited Brands' Bath & Body Works brand.
Beyond LVMH Moet Hennessy L.V. (LVMUY) each of Limited Brands' major operations competes with other apparel and retail companies.
In the Victoria's Secret brand Limited Brands owns the leading brand of lingerie in the U.S. Competitors include:
Companies that produce other brands of lingerie:
Victoria's Secret, specifically the Pink line, also faces competition from up-and-coming lingerie and loungewear brands:
The Bath & Body Works segment competes with a variety of retailers, from cosmetics boutiques to candle shops and home and bath care retailers: