Limited shifts its focus to grooming

COLUMBUS, Ohio -- Never heard of triple rose water? The sales associate in the white lab coat can tick off its benefits. Or try something more modern, like a green-tea inspired cleanser developed by a Beverly Hills plastic surgeon.

It's first thing in the morning at C.O. Bigelow Apothecaries, and the conversation you're overhearing could be part of a staff training session or just a casual conversation -- people at this store are serious about grooming products.

That attitude is shared by Limited Brands chairman Leslie Wexner, who says the future of a company he built on women's apparel now lies in beauty products and underwear. Those items are less prone than apparel to seasonal changes in customer taste, are more driven by brand loyalty and offer predictable profit growth.

"We've reinvented ourselves completely. We are now predominantly a personal care, beauty and lingerie company," Wexner said in his annual letter to shareholders of Limited Brands, the parent of Victoria's Secret and Bath & Body Works.

Besides C.O. Bigelow, which opened its first store last October near Limited Brands' Columbus headquarters, the company is also testing a new concept for lingerie stores and expanding the department store brand Henri Bendel into stores that sell home and beauty products.

Personal care products accounted for 30 percent of the company's 2004 revenue, up from 4 percent a decade earlier. During the same period, apparel sales shrank from 71 percent of the company's business to 29 percent, while lingerie grew from 25 percent to 41 percent. Limited Brands wouldn't make its top executives available to discuss the overall company's change in strategy.

Analysts have applauded the company's efforts. They note that a growing number of specialty clothing chains are carving the market into increasingly smaller segments, while the cosmetics market is relatively less crowded.

The experts also note personal care products are purchased more frequently -- people tend to use up hand lotion faster than they wear out jeans -- and customers are often more loyal to grooming products than clothing brands.

What's hot in fashion changes from season to season, making it harder to earn money at selling clothes, say experts.

"You come out with a new line and the consumer just shrugs her shoulders and goes past that," said Kurt Barnard, president of Barnard's Retail Consulting Group in Nutley, N.J. "It's like playing Russian roulette."

It's a game Limited Brands has been losing. Figures show that two- thirds of its $9.4 billion in sales and nearly all of its profit in 2004 came from Victoria's Secret and Bath & Body Works, while the apparel division has been a drag on profits. In the most recent quarter, a $68 million operating loss in apparel helped drag down profits, while operating profits at the personal care and lingerie chains grew over the year-ago period.

Founded in 1963, Limited Brands developed and acquired brands to fit nearly every nook and cranny of the clothing market. As recently as the mid-1990s, it was the country's largest specialty clothing retailer; Gap Inc. now has higher revenues.

But the company lost customers to other merchants who offered more casual, classic clothes and lower prices.

Since 1996, it has whittled a lineup of seven clothing chains down to two -- The Limited and Express -- by selling, spinning off or consolidating stores, including Lane Bryant and Abercrombie & Fitch. The company also spun off a portion of its non-apparel division -- which included Victoria's Secret and Bath and Body Works -- under the name Intimate Brands in 1995, and then bought it back in 2002 as part of a plan to simplify the company's operations.

Limited Brands' stock has been on a roller coaster ride the past few years, falling twice from prices above $20 a share to about $10. It has been climbing since 2003, reaching a high of $27.89 before falling back to about $21 recently.

Limited Brands is far ahead of its traditional rivals in developing stand-alone toiletries stores, but experts say the competition is catching up. Rival Gap announced in January that it was opening 11 Gapbody outlets, which sell lingerie, perfume and cosmetics.

"Others are experimenting with the category with the goal of increasing share of wallet from customers as they walk in the door," said Lois Huff, senior vice president for Retail Forward, a Columbus firm that researches retailers.

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