Victoria’s Secret’s DC woes mount

Jan 01, 2008 10:30 PM  By

Problems with its new distribution center continue to plague Victoria’s Secret Direct. Because integration issues in the DC are preventing the women’s apparel merchant from meeting expected volume, it is reducing catalog circulation to suppress demand.

As a result, its sales could fall by as much as $150 million in the fourth quarter, according to officials of parent company Limited Brands.

The Reynoldsburg, OH-based DC, which opened in August, includes such bells and whistles as high-bay reserve storage capability, dynamic location picking systems, high-speed multiple staging conveyor systems, and hand-held and laser-reading scanning technology.

But ramping up the facility to full capacity has taken longer than anticipated, and the business is suffering.

Sales at Victoria’s Secret Direct plunged 64% in August because of shipping delays. The division rebounded in September as revenue grew 27% and October sales rose 5%. But Limited Brands says October sales were driven by record-breaking redemptions of a $25 discount apology offer sent to customers who experienced problems due to the DC operational issues.

Tammy Roberts Myers, Limited Brands’ associate vice president of external communications, says the company has “taken steps to control demand in order to protect our customers’ experience with Victoria’s Secret Direct.”

Those steps include reducing catalog and e-mail circulation; getting rid of shipping incentives; eliminating the November clearance Web window; and cutting other planned promotions and marketing related to Victoria’s Secret Direct business.

“We have not quantified our reductions externally,” Myers adds. “The duration of these changes will depend on demand and our ability to take care of our customers going forward as we make improvements in our new distribution center.”

Limited Brands posted a 48% drop in its third-quarter profit as interest expense ate into the retailer’s bottom line. The company said on Nov. 20 that it recorded earnings of $12.1 million, or 3 cents a share, in the quarter ended Nov. 3, compared with $23.5 million in the same period last year. Third-quarter sales fell 9%, to $1.92 billion, compared to $2.11 billion in the same period last year. Same-store sales decreased 3%.

What exactly are the problems with the new DC? “The issue is the unique combination and integration of the systems and processes we are using in the new DC, against the high unit velocity, SKU diversity, and scale in our direct business,” Myers says. “No one has done it in exactly this way on this scale with this particular mix of applications.”