L Brands is the latest retailer to outline workforce reductions as the industry has been left reeling from the Covid-19 pandemic, with the Victoria’s Secret-owner planning to cut its home office headcount by about 850 associates.
The move is part of the group’s bid to deliver about US$400m in annualised cost reductions. It expects to realise about $175m of savings in fiscal 2020 and to record pre-tax severance costs of about $75m in the second quarter of the same year related to the headcount reductions.
L Brands announced the news yesterday (28 July) in an update on its actions to drive long-term shareholder value and toward establishing Bath & Body Works as a pure-play public company and preparing Victoria’s Secret to operate as a separate, standalone company.
In addition to the 15% reduction of its corportate headcount, L Brands said the cost reductions will also be generated by working with suppliers to identify opportunities to reduce merchandise costs in order to increase merchandise margin rates at Victoria’s Secret. As a result of this effort already underway, spring inventory receipts for Victoria’s Secret were down about 45% compared to last year, and autumn receipts are expected to be down about 50%.
Other measures include reducing Victoria’s Secret store selling costs through changes in management structure and the labour model, and executing its previously announced plan to close 250 Victoria’s Secret stores in 2020, while also negotiating with landlords for ongoing rent relief.
L Brands CEO Andrew Meslow said the board and management remain committed to separating the Bath & Body Works and Victoria’s Secret businesses, as well as improving the profitability of Victoria’s Secret.
“During the second quarter, we made meaningful progress toward these goals. Decisions relating to our workforce are incredibly difficult and not taken lightly, but these actions are necessary to best position our company for the long-term.”
Most Bath & Body Works and Victoria’s Secret stores in North America have now reopened, with L Brands noting sales at both businesses have been strong and have exceeded company expectations.
Total company net sales for the second quarter are expected to be down about 20% compared to last year, including an increase of roughly 10% at Bath & Body Works and an approximate 40% decline at Victoria’s Secret. Total direct channel sales at both businesses are up significantly versus last year, offset by a decline in store sales, as stores were closed during the quarter due to the Covid-19 pandemic.
B.Riley analyst Susan Anderson notes: “L Brand’s management team continues to take the proper steps to separate Victoria’s Secret and Bath & Body Works and set Victoria’s Secret up for future success.”
L Brands will report its second quarter earnings results on 19 August.