Dustin Nadeau, Donatas Sumyla, David Deprey and Jaime Rodriguez

Bus 411, April 2006

LIMITED BRANDS - Inc.2003

Case-Study Overview• Existing Condition

– Limited Brands overview– Industry overview

• History, Key Facts, Goals and Objectives and Stock Information

• Limited Brands Proposed Vision and Mission

• External opportunities and threats– CPM– EFE

• Financial Ratios• Internal strengths and

weaknesses– IFE

• Analysis– SWOT Matrix– SPACE– BCG– IE matrix– Grand Strategy Matrix– QSPM

• Possible strategies: Matrix Analysis

• Decisions– Strategic implementation– Long-term and short-term

Actions• Evaluation Procedure• Current Update

Limited Brands Overview • Founded in 1963 by Leslie H. Wexner, Limited Brands, Inc. is a

specialty retail business in the U.S.• Headquartered in Columbus, Ohio• Sells women’s intimate apparel, personal care and beauty

products, and women’s and men’s apparel• 3 segments:

– Victoria’s Secret (women’s intimate and other apparel, beauty products, and accessories through retail stores, catalogue, and e-commerce)

– Bath & Body Works (personal, care, beauty, and home fragrance products)

– Apparel• Express stores, which offer women’s and men’s apparel,

sportswear, and accessories• Limited stores, a mall-based specialty store retailer of

sportswear for women

Limited Brands Overview

• Limited Brands is committed to building a family of the world’s best brands to create sustained growth of shareholder value by focusing its time, talent, and capital on the highest return opportunities.

• At first - a multi-divisional, largely apparel-based, popular-priced retailer• Over the past ten years Limited brands has reinvented itself completely,

becoming a predominantly a personal care, beauty and lingerie company (Victoria’s Secret and Bath & Body Works)

• Limited Brands in the past has:1. Re-visioned the business2. Sorted the portfolio of businesses, and3. Re-thought its talent

• Now they are:1. Turning to offense, and2. Applying its specialty retailing skills to deliver high-value, branded, consumer

packaged goods through channels of distribution it controls – stores and direct.

Limited Brands Overview

Key facts (2003)

• Sector: Services• Industry: Apparel Stores• Full Time Employees: 18,000 (2002)• 3,911 Stores (2003)• Net sales 2003 $8.934M• Operating income $963M

History• 1963 The Limited opens its first store in Kingsdale Mall in Columbus, Ohio• 1969 The Limited's first public stock offering is issued over-the-counter.

47,600 shares are offered at $7.25 per share• 1982 Victoria's Secret store and catalogue are purchased for $1 million.• 1985 One Henri Bendel store is acquired for $10M• 1988 25 Abercrombie & Fitch stores and one catalogue are acquired for $46

million• 1990 Bath & Body Works opens first store in Boston.• 1995 Initial Public Offering of Intimate Brands, Inc. establishes it as a fully

independent company.• 1998 50 Bath & Body Works Home stores are converted to The White Barn

Candle Co. stores to begin a home fragrance brand test.• 1998 The Limited, Inc. completes split-off of Abercrombie & Fitch.

Victoria's Secret launches e-commerce site www.victoriassecret.com which has been profitable since day one.

• 1999 The White Barn Candle Co. is launched by raising an old-fashioned barn in New York City's Bryant Park.

History• 2000 Intimate Beauty Corporation and Shiseido Co., Ltd. form joint venture

to develop, market and sell new lines of prestige beauty products for sale in free-standing stores.

• 2001 Sale of Lane BryantIntegration of Structure into the Express brand as Express Men’s

• 2002 Recombination of Intimate Brands and The Limited, Inc. The Limited, Inc. changes name to Limited Brands to further

emphasize the Company’s commitment to building a family of the world’s best fashion brands Sale of Lerner New York/New York & Company

• 2003 Sales of remaining interest in Alliance Data SystemsNamed the world's most admired specialty retailer by FORTUNE

magazine

Our Brands

• Victoria's Secret Stores

• Victoria's Secret Direct

(Catalogue/E-commerce)

• Victoria's Secret Beauty

• First six stores opened in 1990

• Remodeled in 2002 (wood shelving, red-checked fabric, country atmosphere)

• Website launched in 2002 (www.BathandBodyWorks.com)

• Two new brands in 2003 - "Aromatherapy" and "True Blue Spa"

• 1,639 stores

Apparel Division

Limited Stores– Flagship division of the organization

– No online presence (351 stores)

– Focuses on fashion-conscious women who want a “sexy, sophisticated style”

Express Stores

- Offers cutting-edge style

- Still making the transition to a dual- gender brand through remodeling

- 1,031 stores are located primarily in shopping malls

Other Retail Businesses

• Henri Bendel– Offers the best in clothing and accessories from international

designers

– Products for “higher income 30-something women”

– The only upscale LB store

• aura science– LB owns 51% with Japanese cosmetics company

Shiseido

– The product line consists

of different beauty products

Support Businesses

• Limited Logistics Services

• Limited Real Estate

• Limited Design Services

• Limited Brand and Creative Services

• Limited Technology Services

• Mast Industries

Limited Brands, Inc. Stock (LTD) Information

• Index Membership:– S&P 100– S&P 500– S&P 1500 Super Comp

• Company Type - Public (NYSE: LTD)• Fiscal Year-End – January• First IPO: 47,600 stocks @ $7.25 (1969)• Shares Outstanding: 523M (2003)• Stock Price:

– Dec. 2003: 18$– April 20th 2006: 25$

Stock Price Performance

Industry Overview: Outlet Centers

• The world's largest owner and operator of outlet centers is Baltimore-based Prime Retail Inc. With 50 centers in 26 states, the company operates outlet shopping space of nearly 14 million square feet.

• Among the most significant finding is the identification of this market as the fastest-growing segment of the retail industry.

• Nation's outlet centers generates close to $ 500 million in sales tax revenues every year.

• 65 percent of outlet shoppers are married and 74 percent are female.

• Baby boomers, ranging in age from 25 to 54, make up a large percentage of outlet center shoppers.

• Outlet shoppers:– 60 percent, report household income between $ 25,000 and $ 75,000 – 23 percent report incomes of less than $ 25,000– 16 percent boasted incomes of more than $ 75,000.

Stock Info compared to Industry

Compare to Industry (Nov 2002)

Annual Report Statements

“Our brands are about innovation - about next.”

Les Wexner (2002 Annual Report)“With every major initiative, I ask myself the

same question: ‘Is the light worth the candle?’ That is, are the potential rewards commensurate with the effort? Across a number of significant efforts this year, the light was very bright indeed.”

Les Wexner (2003 Annual Report)

Leslie Wexner, CEO and Chairman

Goals & Objectives

• Aggressively sort our portfolio and financially restructure our business through spins, splits, sell-offs, and store closings

• With obtained cash from above actions, continue building our brand recognition

• Our principle goal – increase shareholders value through a family of the world’s best fashion brands

Vision Statement

• Build a “family of the world’s best fashion brands” (Book, 2004)

• To build a Company of powerful and differentiated retail brands that maintain and strengthen our position

as the world’s dominant

specialty retailer

(Website, 2006)

Company ValuesWhat are the four company values?

– Doing What is Right for associates, customers and investors

– Being Inclusive in our thoughts and behaviors

– Working for the Greater Good of the enterprise and the communities in which we operate

– Pursuing Excellence in all we do

Mission Statement

• Create sustained growth of shareholder value by focusing its time, talent, and capital on the highest return opportunities (Book, 2004)

• Limited Brands is committed to building a family of the world's best fashion brands

offering captivating customer

experiences that drive long-term

loyalty and deliver sustained

growth for our shareholders

(Website, 2006)

External Opportunities and Threats

OPPORTUNITIES:- Current 31M of people ages 12-19 is expected to increase to a record 34M by 2010- Teens ages 12-19 spent approx. $200B in 2002 with 1/3 of this spending in fashion- Female baby boomers needs are not fully satisfied by retailers and manufacturers of women’s apparel- General e-commerce sales were up 25% in 2002 with spending at $35.9B, which indicates that shoppers are willing to make purchases online- Increase in time-conscious type of online consumers because of busy lifestyles- Increasing acceptance of the casual workplace trend- Federal tax cuts might encourage more consumer spending-Increase Internet advertising and sales

THREATS:- Large numbers of female baby boomer consumers began staying away from the stores entirely or purchasing fewer clothing items because of lack of products offered- Female baby boomers place retirement savings, college tuition, and mortgages at a higher priority than spending on apparel- Slow U.S. economy growth in 2003- Household debt increase to $9B by fall 2003- The gap between rich and poor continues to grow- Industry is risky because in order to gain competitive advantage you may have to take gambles (prediction of future trends)- Competitive sector nationally, regionally, and locally represented by the department and specialty stores and mail-order catalogue businesses-Disruption of foreign suppliers-Increasing transportation cost caused by escalating fuel prices

EFE Matrix

2006 Annual ranking of America's largest corporations:

Specialty Retailers

Direct Competitors Comparison (2006)

LTD = Limited Brands IncGPS = Gap Inc.TJX = TJX Companies Inc.Industry = Apparel Stores (Source: http://finance.yahoo.com)

Competitive Profile Matrix (CPM)

Internal strengths and weaknesses

STRENGTHS:• Defined company philosophy

which implies continuous innovations

• Strong brand recognition• Victoria’s Secret performance• Healthy financial position• Flexible changing strategies• Fast adaptation to emergent

trends, markets, and environments

• Brand building as a model• Location of distribution center• Effective computerized system

WEAKNESSES:• Increased debt results in lower

profits and decline in cash flow• Reduce in selling square footage

of Apparel business group• Large amount of suppliers (2,500)

which means difficulties to ensure consistent quality and time of delivery

• Uncertainty of consumer acceptance of the Company’s products

• Reliance on foreign sources of production

• Locating stores in close proximity in malls

IFE Matrix

Key Ratios Evolution (1999-2003)

Overall Key Ratios (2006)

SWOT Analysis

SPACE Matrix* Y axis: - Financial Strength: +6

- Environmental Stability: -2 => Y coordinate: STRATEGY: AGRESSIVE* X axis: - Competitive Advantage: - 4 => X coordinate:

- Industry Strength: + 5

* Y axis: - Financial Strength: +6 - Environmental Stability: -2 => Y coordinate: STRATEGY: AGRESSIVE

* X axis: - Competitive Advantage: - 4 => X coordinate: - Industry Strength: + 5

BCG Matrix

BCG MATRIX

-40

-30

-20

-10

0

10

20

30

40

00.20.40.60.81

Relative Market Share (X)

Indu

stry

Sal

es G

row

th R

ate

(%)

(Y)

Victoria's Secret

Bath & Body Works

Cash-Cow

Stars

Dogs

Question marks

IE Matrix

The Grand Strategy Matrix

Potential Strategies:

Market developmentMarket penetrationProduct developmentHorizontal integrationDivestiture

Matrix Analysis

QSPM

Decisions

• Primary: Long-term Divestiture of the Apparel business group

• Alternative: – Horizontal Integration by acquiring small and

emerging competitors in the lingerie and body care areas

– Product development by introducing new product lines based on best categories’ performance

Why Divestiture?

• Competition is fierce

• Industry is risky

• Our top two business groups show significantly better annual results and are gaining larger market share

• Apparel segment does not fit with the company’s philosophy

Implementation

Actions:– Short term: First year

• Shut down unprofitable Apparel stores• Establish closing-down sales in order to get rid of inventory• Use earned cash for product development and horizontal integration• Open up to 15 new Victoria’s Secrets and Bath & Body Works stores in most

profitable areas• Establish a management team which will focus especially on tracing the

divestiture process• Provide precise information to the media, stockholders, and customers with

the reasons of our decision and future procedures– Long-term: Next 5 years

• Look for potential buyers• Contact specialized companies which would professionally manage the

divestiture process• Use the generated cash to decrease debt and to carry out further

investments

Evaluations

• Apparel’s quarterly financial reports

• Sales and profits reports based on individual Apparel stores

• Frequent divestiture management team’s meetings

• Evaluation reports

• Annual survey to assure our brand image is not damaged

Update: 2004-2006• 2004

– Predominantly became a personal care, beauty, and lingerie company, over 70% of sales from these areas (Victoria’s Secret and Bath and Body Works)

– C.O. Bigelow rapidly becoming known as, “The best specialty beauty store in the world.”

– Victoria’s total U.S. sales is almost as large as the entire lingerie market 10 years ago.

– Victoria has 5 of the top 20 prestige women’s fragrances sold in the U.S.– New division of Victoria is introduced, “PINK.” Will become the second largest

lingerie brand in the U.S., behind Victoria’s• 2005:

– Reorganization into three business groups: lingerie, beauty and personal care, and apparel.

– Victoria’s introduces IPEX wireless bra which is claimed to be the most supportive ever, provides the most coverage, and minimal padding.

• 2006– Bath and Body Works is now open 24/7 to suit all of their customers’ needs.– Introduced the Infinity Edge push up bra which has become the most comfortable

push up bra offered.

References• http://finance.yahoo.com

• Limited Brands Inc. Annual Reports

• Annual ranking of America's largest corporations, Magazine: Fortune 500 (2006): cnn.money.com

• www.hoovers.com

• www.bigcharts.com

• www.limitedbrands (Investor Relations)

• www.businessweek.com

• Strategic Management Concepts and Cases; Fred R. David, 10th Ed.

Thank you!

• Questions?

• Comments?