LIMITED BRANDS - Inc.

2003
Dustin Nadeau, Donatas Sumyla, David Deprey and Jaime Rodriguez Bus 411, April 2006

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 womens intimate apparel, personal care and beauty products, and womens and mens apparel 3 segments: Victorias Secret (womens 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 womens and mens apparel, sportswear, and accessories Limited stores, a mall-based specialty store retailer of sportswear for women

Limited Brands Overview

Limited Brands Overview

Limited Brands is committed to building a family of the worlds 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 (Victorias Secret and Bath & Body Works) Limited Brands in the past has:
1. Re-visioned the business 2. Sorted the portfolio of businesses, and 3. Re-thought its talent

Now they are:

1. Turning to offense, and 2. Applying its specialty retailing skills to deliver high-value, branded, consumer packaged goods through channels of distribution it controls stores and direct.

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 Bryant Integration of Structure into the Express brand as Express Mens 2002 Recombination of Intimate Brands and The Limited, Inc. The Limited, Inc. changes name to Limited Brands to further emphasize the Companys commitment to building a family of the worlds best fashion brands Sale of Lerner New York/New York & Company

2003 Sales of remaining interest in Alliance Data Systems Named 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, redchecked 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 dualgender 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 worlds best fashion brands

Vision Statement
Build a family of the worlds best fashion brands (Book, 2004) To build a Company of powerful and differentiated retail brands that maintain and strengthen our position as the worlds dominant specialty retailer (Website, 2006)

Company Values
What 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 womens 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 Inc GPS = 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 Victorias 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 Companys 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: - Environmental Stability: * X axis: - Competitive Advantage: - Industry Strength: +6 -2 -4 +5 => Y coordinate: => X coordinate: STRATEGY: AGRESSIVE STRATEGY: AGRESSIVE

BCG Matrix

Victoria's Secret

BCG MATRIX
40

Bath & Body Works

Question marks

Stars

30 20 10 0

0.8

0.6 -10 -20 -30

0.4

0.2

Cash-Cow
-40

Dogs

Relative Market Share (X)

Industry Sales Growth Rate (%) (Y)

IE Matrix

The Grand Strategy Matrix

Potential Strategies:
Market development Market penetration Product development Horizontal integration Divestiture

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 companys 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 Victorias 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
Apparels quarterly financial reports Sales and profits reports based on individual Apparel stores Frequent divestiture management teams 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 (Victorias Secret and Bath and Body Works) C.O. Bigelow rapidly becoming known as, The best specialty beauty store in the world. Victorias total U.S. sales is almost as large as the entire lingerie market 10 years ago. Victoria has 5 of the top 20 prestige womens 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 Victorias

2005:
Reorganization into three business groups: lingerie, beauty and personal care, and apparel. Victorias 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?