Victoria’s Secret Cuts Circ to Curb DC Woes
(Multichannel Merchant) Problems with its new distribution center continue to plague Victoria’s Secret Direct. Integration issues in the DC are keeping the women’s apparel merchant from meeting expected volume, and it is reducing catalog circulation to suppress demand. As a result, its sales could fall by as much as $150 million in the fourth quarter, according to officials of parent company Limited Brands.
The Reynoldsburg, OH-based DC, which opened in August, includes such bells and whistles as high-bay reserve storage capability, dynamic location picking systems, high-speed multiple staging conveyor systems, and hand-held and laser-reading scanning technology. But ramping up the facility to full capacity has taken longer than anticipated, and the business is suffering.
Sales at Victoria’s Secret Direct plunged 64% in August because of shipping delays. The division rebounded in September as revenue grew 27% and October sales rose 5%. But Limited Brands said October sales were driven by record-breaking redemptions of a $25 discount apology offer sent to customers who experienced problems due to the DC operational issues.
Tammy Roberts Myers, Limited Brands’ associate vice president of external communications, said the company has “taken steps to control demand in order to protect our customers’ experience with Victoria’s Secret Direct.” Those steps include reducing catalog and e-mail circulation; getting rid of shipping incentives; eliminating the November clearance Web window; and cutting other planned promotions and marketing related to Victoria’s Secret Direct business.
“We have not quantified our reductions externally,” Myers added. “The duration of these changes will depend on demand and our ability to take care of our customers going forward as we make improvements in our new distribution center.”
Limited Brands posted a 48% percent drop in its third-quarter profit as interest expense ate into the retailer’s bottom line. Company officials informed investors on Nov. 20 that they recorded earnings of $12.1 million, or 3 cents a share, in the quarter ended Nov. 3, compared with $23.5 million in the same period last year. Third-quarter sales fell 9%, to $1.92 billion, compared to $2.11 billion in the same period last year. Same-store sales decreased 3%.
Limited Brands’ executive vice president and chief accounting officer Martyn Redgrave said in a Nov. 20 conference call that “the hard change over of the new integrated processes, mechanical equipment, and IP systems is taking us longer than expected to stabilize. We appear to have hit a limit in how much we can process through the new center and we need to be able to substantially increase our throughput to serve the volumes that we expect for holiday in the January semi-annual sale.”
What exactly are the problems with the new DC? “The issue is the unique combination and integration of the systems and processes we are using in the new DC, against the high unit velocity, SKU diversity, and scale in our direct business,” Myers said. “No one has done it in exactly this way on this scale with this particular mix of applications.”
