Victoria’s Secret Acquires Adore Me for $400 Million
Adore Me has a new home — inside Victoria’s Secret.
The lingerie giant, which now goes by VS&Co., revealed Tuesday that it had signed a definitive agreement to acquire 100 percent of the New York-based, digital intimate apparel and sleepwear start-up Adore Me.
More from WWD
“I’m absolutely delighted to be announcing this transaction, welcoming Adore Me into the VS&Co. family,” Martin Waters, chief executive officer of Victoria’s Secret & Co., said in a statement. “Adore Me is a technology-led, digital-first innovator in the intimates category that will help us bring differentiated experiences to Victoria’s Secret and Pink customers. This acquisition will be a significant accelerant as we pivot toward growth and modernize the foundation of our company with an entrepreneurial mind-set that puts technology at the forefront of everything we do. In partnering with the incredible team at Adore Me, we will move to the future much faster.”
The acquisition allows VS to draw upon Adore Me’s digital savvy. (Adore Me was born online in 2011, before opening up brick-and-mortar stores in the physical world.) Adore Me also brings with it a cohort of shoppers who rely on the brand for its inclusive and sustainable assortment.
According to the company, Adore Me, which also sells swimwear and activewear, has 1.2 million active customers, is a certified B Corporation, and offers monthly subscription and home try-on options.
In return, Adore Me will walk away with $400 million.
“We have significantly grown our business over the past decade and are excited to bring our technology, purchase experiences, inclusive assortment, brand and team to join the next phase of Victoria’s Secret’s growth and customer journey transformation,” said Morgan Hermand, founder and CEO of Adore Me. He will continue to lead the business after the deal closes, and everything will be “business as usual” for the brand, according to a VS spokesperson.
The deal was unanimously approved by VS’s board and is expected to close in January 2023. VS said it plans to use cash on hand to finance the transaction, which includes the initial upfront $400 million cash payment, in addition to further cash consideration based on the performance of Adore Me over a two-year period.
Investors seemed unsure of what to make of the deal. Shares of Victoria’s Secret were down at the start of Tuesday’s session, after the news of the acquisition was revealed, ultimately closing up 3.19 percent to $38.80 apiece.
“We estimate that the deal could be accretive to [fiscal year] 2023 earnings by [roughly low-single digit] percentage,” Jonna Kim, an analyst at Cowen, wrote in a note. “Key risks from the deal may involve Adore Me’s inability to continue its growth given competitive dynamics, consumer sentiment waning, which may lead to prolonged muted growth and higher markdowns, and potential miss-execution as management integrates the business. Longer term, we believe Adore Me could achieve [more than] 20 percent revenue growth and EBITDA margin expansion to low to mid-teens.”
The investment firm rated the stock “market perform” and set a price target of $35.
Victoria’s Secret’s efforts to be more inclusive are just one part of the company’s transformation plans. In March, Victoria’s Secret dropped $18 million for a minority stake in Los Angeles, California-based swimwear brand Frankies Bikinis. Two months later, the retailer launched VS&Co-Lab, highlighting other brands on its platform.
Waters told WWD during last month’s investor day in Chicago that “Sometimes it makes sense for us to partner with a business, a brand, who brings a different customer, or operates in a different category, or somehow brings a halo to the Victoria’s Secret brand. And we’re very happy to partner with them on our website, giving them the benefit of the 500 million people who come to the site every year. In other cases, we may say, that brand is interesting and we should make a strategic investment in that brand. Not only do we want to partner with them to offer it to our customers, but we want to be part of their journey. And that’s typically where we think we can leverage our skill set and capability to help that business. So, are there more businesses that would benefit from our capabilities and resources and stores, running digital and manufacturing? I think so.
“But also if the brand that we’re talking to can bring something to us that we don’t currently do [we’ll partner with them],” he continued. “So, we’re not arrogant enough to think we’re perfect at everything. There are lots of areas where we could really benefit from some help. We like the idea of partnerships. So, in the old days we would do everything ourselves and invent everything ourselves. We don’t need to do that [now]. If other people are doing a really nice job, why wouldn’t we knock on their door and say, ‘Hey, would you like to partner with us?’”
As for the swimwear brand, Waters said, “Frankies Bikinis is a fantastic business. And it has a really strong followership in young fashion-forward women, particularly on the West Coast. And being associated with that brand, even as a small brand, is very, very positive for Victoria. And working with Francesca [Aiello], the founder [of Frankies], is just an honor and privilege, because she’s just brilliant, absolutely incredible. So working with talented people like her to help her scale her business, but also have her involved in our business. That’s a powerful combination.”
In addition to the shopping spree, the company has also been selling off unprofitable businesses, including La Senza and a majority stake in the U.K. business, for more lucrative opportunities, such as Israel and India.
In the case of the latter, where there are many highly educated people who need clothes, including intimates, Waters said: “India is a tough market. It’s been a closed market for a long time. And we just entered the Indian market with a fantastic new store opening that went incredibly well. India is easier to get to through a digital presence, because the penetration of digital is super high. There isn’t as much infrastructure in India as there is in other parts of the world with a large population. So probably, India is a relatively small number of stores and a really strong digital presence to serve a very large population. Do I think it will be in one of our top 10 markets in the world? No. I think it’s a good market, a market we should be in. But, it’s not outsized like Western Europe or China or North America or South America. It’s toward the lower end of the pole.”
Victoria’s Secret’s makeover began in 2017, after the company began falling out of favor with consumers over unrealistic body types, the #MeToo movement and L Brands’ founder Leslie H. Wexner’s mysterious relationship with registered sex offender Jeffrey Epstein. Following a disastrous interview between former L Brands’ chief marketing officer Ed Razek and Vogue in 2018, the retailer attempted to sell a majority stake of its lingerie, beauty and Pink division to private equity firm Sycamore Partners. But the deal fell through with the pandemic.
The company switched gears, instead branching off from Bath & Body Works (and what was once L Brands) to become its own publicly traded company in August 2021. Since then, Victoria’s Secret’s new look has included more inclusive marketing and product categories, an updated store fleet of and a new senior-leadership team, the introduction of tween brand Happy Nation and axing the high-gloss fashion show. Waters said a new version of the fashion show is coming, but wouldn’t give any further details.
Richard Kestenbaum, a partner at Triangle Capital, said Victoria’s Secret could potentially benefit from Adore Me’s subscription services.
“Subscription is an undeveloped channel and lingerie is only the beginning of what else can be sold by subscription,” he said. “When retailers make it easy to subscribe, to change the cadence of subscription and to return products, consumers respond. Subscription isn’t always a business of its own, but it can supplement sales in other channels for certain consumers.”
Neil Saunders, managing director of data analytics and consulting firm GlobalData, added: “Having lost an extensive amount of market and customer share over the past decade, Victoria’s Secret is now trying to claw it back. Part of this is being done through a reinvention of the core brand, with a focus on making it more inclusive. However, in a market where demand is tightening and where competition is intense, this strategy is taking time to deliver. Victoria’s Secret has made strides in reinventing itself, but it remains somewhat tarnished by its history and its directional positioning. Adore Me has a very different vibe and it is important the goodwill it has built with its customers is not corrupted by a larger entity.”
Even as it works to revamp the business, Victoria’s Secret logged $1.5 billion in revenues last quarter, despite the volatile macro environment. During the investor day, executives laid out plans to grow revenues to the range of $7.3 billion and $7.4 billion by 2025.
“We’re two years into what I consider to be a five-year journey of recovery,” Waters said.
