Chief Investment Strategist, The Freeport Society
Yesterday was not a good day for iconic lingerie maker Victoria’s Secret & Co. (VSCO). Sales were down 6% last quarter, worse than Wall Street expected, and the shares finished the trading session down close to 30%. It was the single worst market day in the company’s standalone publicly traded history.
Ouch.
Victoria’s Secret, the company that created the intimate apparel industry as we know it today, is dead. It’s no longer a relevant brand and probably never will be again.
Stick a fork in it. It’s done.
But why?
What happened to this once iconic company?
Sometimes it’s hard to pinpoint the reason a brand loses its mojo. But in the case of Victoria’s, it’s not exactly a… well… a secret.
A few years ago, in a moment of #metoo madness, the company had an identity crisis meltdown and decided to embrace “body positivity” with plus-sized and more realistic-looking models in its advertising.
That went about as badly as any reasonable person would have imagined it would. It murdered the brand. I wrote about this in The Freeport Navigator late last year:
The Victoria’s Secret models of old weren’t realistic representations of women. That was literally the entire point. Victoria’s Secret sold the unattainable. That’s what aspirational brands do.
And before we write this off as sexism or ageism, it’s equally true for men’s wear. Male underwear models look like they were chiseled out of marble. You don’t see many broken-down middle-aged men like me modeling boxer shorts. No one wants to see that, and they’re certainly not more likely to buy the underwear.
It’s probably too late for Victoria’s Secret to get its mojo back. Fashion brands generally don’t get second acts.
I stand by that comment today.
Focusing on diversity, equality, and inclusion (DEI) might make you a kind person or a good neighbor. The world might be a more pleasant place to live if people in general were more inclusive.
But that is NOT a marketing strategy.
Aspirational brands are, by definition, the opposite of inclusive.
They are exclusive.
The secret to their branding is making their products look like something that’s too good for the average schmuck. That’s literally the point. The exclusive vibe is what you’re buying.
Yet, in a moment of DEI insanity, Victoria’s Secret’s management forgot that. Shareholders are still paying the price.
So what now?
Don’t Try to Buy the Dip
Whenever I see a stock down 30% in a day, I’ll admit I get the itch to buy the dip. I’m just temperamentally programmed to be a value hunter.
Don’t do it.
Sure, the shares might enjoy at least a dead-cat bounce. But cheap stocks are often cheap for a reason, and Victoria’s Secret looks a lot more like a value trap than a legitimate value stock.
If you’re unfamiliar with the term, a value trap is a stock that appears to be cheap based on basic value metrics like the price-to-earnings ratio or price-to-sales ratio that just keeps getting cheaper because its underlying business fundamentals are deteriorating.
That’s exactly the situation Victoria’s Secret finds itself in today.
Don’t get caught in that trap.
Anti-Woke or Just Anti-Stupid?
I’m not woke… nor am I anti-woke. Frankly, I’m too busy to be bothered with any of that nonsense. And I hate labels.
What I am is anti-stupid.
I like companies that know their products and, more importantly, know their customers. If your business is selling vegan burgers or fair-trade cotton T-shirts, then yes, be woke. That’s what you’re selling. As they say in The Godfather, it’s just business.
But don’t be stupid. Don’t put politics in front of profit.
When it comes to my stock portfolio… and our Freeport Investor model portfolio… I like companies that avoid political minefields. I focus on quality businesses that have proven their ability to survive and thrive through boom, bust, and everything in between.
And today, that’s more important than ever because, as we barrel toward an unsavory presidential election, we’re likely to see many – many – more value traps open up as investors blindly believe the empty campaign promises that are already piling up. In this Age of Chaos, it’s critical that you tune out the noise and invest smartly. Our Freeport Society friend, Louis Navellier, explains how to do that here.
To life, liberty, and the pursuit of wealth.