Victoria’s Secret UK and the Angels of Administration

Victoria’s Secret is an American lingerie company loved by teenagers and young women worldwide. The Victoria’s Secret ‘Angels’ are an iconic symbol, pinning the brand as one of the most popular High Street lingerie retailers.

However, it seems that on this side of the pond, the Angels have fallen into administration…

The ‘A’ Word…

Administration.

Big word, right? Luckily, the concept is pretty straightforward.

Administration is the process of ‘rescuing’ a company that is severely struggling financially.

The process will begin with the appointment of an administrator. The administrator will then fully take control over the company from the directors, and attempt to rescue the company from insolvency. Below are some traditional methods available to administrators:

Restructure the company
Sell company assets/property (but this depends on the type of charge over the property and is a topic for another day)
Persuade creditors to become shareholders
Raise new equity
Enter into contracts with third parties

If administration fails, then the company will go into liquidation. This means that the company will be ‘wound up’ and the company’s assets will be sold to pay off the creditors. However, liquidation is always a last resort.

The Definitions:

Director: under s.172 Companies Act 2006, the directors owe a duty to promote the success of the company. Directors are, therefore, the people who manage the company and exercise all the powers of the company. In other words, they are the big dogs at the top of the company hierarchy and make all the important decisions. A private company must have at least one director.
Creditor: a creditor is a person or institution that the company owes money to. This can be a bank, individual or another business. There are different types of creditors (eg; secured vs unsecured), but this article is just a brief overview of the administration process and the topic may be covered in greater depth in another article.
Insolvency: unlike administration and liquidation, insolvency is a state, not a procedure. Although quite a broad term, insolvency is generally understood as when a company can’t pay its debts as they fall due. Insolvency can also be interpreted as when the company’s liabilities (debts) outweigh their assets.
Liquidation: this is simply the process of converting assets into capital (money). The liquidator will sell off the company assets (thus turning them into capital) and use it to pay off the company’s creditors. Although the liquidator replaces the company directors, he doesn’t have the same management powers as them because the company is too far gone down the line to be rescued. The goal of the liquidator is to pay off the creditors and ensure that the winding up of the company is conducted fairly, not to promote the success of the company.

Back To The Story:

At it’s peak, Victoria’s Secret was one of the most successful lingerie brands with a ‘cult’ following of young women worldwide.

All image rights belong to According To A Law Student.

Where did it all go wrong?

While there are a number of factors that caused Victoria’s Secret to go pear-shaped, we shall focus on three in particular.

Let’s call these the 3 C’s: controversy, competition, and coronavirus.

As you can see, there is no ‘one big reason’ for the Victoria’s Secret administration. More often than not, the downfall of a company is caused by a number of short-term and long-term factors which are often interrelated. However, some factors play a bigger role than others and it also largely depends on the nature of the market that the brand operates in.

We can see this from the 3 C’s. For example, the controversy of Victoria’s Secret lack of diversity exposed a gap in the market which was quickly filled by competitors such as Savage X Fenty. The coronavirus made matters worse by further driving consumers away from Victoria’s Secret High Street stores, which are the main focus of the brand’s business strategy.

Back to the ‘A’ word:

Deloitte has been appointed as the administrator of the UK’s branch of Victoria’s Secret (remember, only the UK branch is going into administration so the other global stores will not be affected by this).

According to several news reports, Deloitte has stated that it will take a ‘light touch’ to administration. This means that the administrators will pursue ‘softer’ solutions for now such as re-negotiating rents for the High Street stores and trying to find a buyer for purchase the company’s assets.

*EXTRA COMMERCIAL AWARENESS*: It is also worth nothing that the Victoria’s Secret website will not be included in the administration process as it is not owned by the company’s UK arm. Therefore, online trading will continue as normal, which will give the administrator some extra time to sell off the assets and reduce the rents.

Food for thought…

We have already viewed the Victoria’s Secret UK administration from the perspectives of the consumer and the company itself. However, it is also worth looking at this issue from the perspective of the administrator.

As previously mentioned, Deloitte has two potential options for now: re-negotiating the rents and/or finding a buyer to purchase the company’s assets.

Let’s first consider option 1.

The High Street has been put on pause, but the rent contracts have not. Given the current state of our economy, do you think landlords will be willing to delay the rent payments for the High Street stores?

If not, what else could Deloitte do to resolve the issue of the piling rents? Negotiate with landlords to lower the rent price? Permanently close some UK stores? How likely is Deloitte to pursue these options?

The second strategy is slightly more complex.

A little history is useful here. Victoria’s Secret was founded to make lingerie shopping easier for men, not women (Google it if you don’t believe me!). However, competitors such as Savage x Fenty have shifted the consumer focus to lingerie that appeals to the end user, not the purchaser.

Given the controversy around Victoria’s Secret lack of diversity as well as it’s decreasing popularity with consumers, do you think that potential investors will be lining up to purchase the company’s assets? In other words, if you was an investor, would you believe that it would be a good business decision to associate with a brand with such a controversial reputation? Why? Why not?

The administration of Victoria’s Secret will definitely not be a (cat)walk in the park. There is no doubt that Victoria’s Secret was once a successful company. However, the real question is whether the brand’s strategy is attractive to investors and sustainable.

These are all questions that you need to consider in an interview. Knowing the facts is great, but to show an employer that you have a deeper understanding of the issue, you must engage with the information that you have.

Further Resources:

If you would like to read more about the administration of the Victoria’s Secret UK branch, take a look at these articles: