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Is the Lingerie Market on the Verge of Another Disruption?

Niche brands are invading the mass market for lingerie, challenging the dominance of Victoria's Secret. Now, Amazon is preparing its private label.
Source: Aerie
  • Chantal Fernandez

NEW YORK, United States — Inside the Aerie pop-up shop in Soho, the body positive, post-Victoria's Secret message that has become the brand's calling card since it released its first photoshop-free campaign in early 2014 is perfectly packaged up and displayed on walls covered in bralettes or one-piece bathing suits. "No Retouching. No Makeup. No Problems," reads one sign, next to a cushion-covered banquette. There's a yoga studio in the back next to the changing rooms. By the checkout counter, pins reading "Keep it Real!" and "Can't Retouch This" fill colourful buckets. They are free to shoppers who donate to the National Eating Disorders Association.

Aerie, just a small slice of parent company American Eagle’s overall business, is resonating with a consumer base that’s growing tired of traditional, sexy lingerie brands like Victoria’s Secret. Aerie grew sales revenue by 20 percent year-over-year in 2015 and 23 percent year-over-year in 2016. (American Eagle saw net revenue decrease 1 percent to $1.10 billion in 2016.)

Meanwhile, Victoria’s Secret — the goliath which still dominates the lingerie market, worth at least $12 billion in the US alone — has struggled to maintain momentum. Sales decreased 13 percent in March, year-over-year, as the company continues to feel the impact of discontinuing its non-athletic apparel and swimwear ranges in 2016. (The business has since been reorganised around three buckets — lingerie, the Gen Z-targeted Pink range and beauty — and pulled back on promotions).

As Victoria's Secret has stumbled, a series of disruptive niche lingerie brands — such as Lively, Naja, Negative Underwear and Third Love — have also entered the playing field, peddling a new kind of inclusive, female-centric identity that's more about the wearer and less about who might be looking at her. They also offer a broader swath of nude shades — serving a wider range of ethnicities — and aim to undercut competitors on price with direct-to-consumer distribution. Mass market brands like Aerie and Madewell, which launched intimates in February, have taken notice. In March, Phillips Van Heusen acquired True & Co, a vertically integrated online brand that prides itself on fit, for an undisclosed amount.

“The category has been so overlooked for so long,” says Michelle Cordeiro Grant, founder of direct-to-consumer niche brand Lively, who previously worked at Victoria’s Secret. “It still is run by old-school retailers.”

Now, Amazon is entering the market with a private label lingerie brand. The line, called Iris & Lilly has already launched in the UK with a limited assortment of sizes and colours.

Amazon has several advantages. The sophistication level of its data operation allows the company to birth and swiftly iterate its private labels in response to market feedback. And once a label gets traction, Amazon's scale means it can negotiate the lowest prices from suppliers. Indeed, the company is already offering bras costing as low as $8. (By contrast, Target’s offerings average about $15, while Victoria’s Secret’s average around $40.)

Amazon also has an estimated 63 million registered Prime member households, according to the firm Consumer Intelligence Retail Partners, a group dominated by households earning over $112,000 a year, according to Piper Jaffray, meaning its lines have the potential to gain market share fast.

“Our goal is to make Amazon the best place to buy fashion online," said a spokesperson from Amazon in a statement. "It’s important that our customers can find exactly what they're looking for so we're constantly exploring and testing ways to do just that. Creating products for specific categories enables us to increase the overall assortment available to Amazon customers.”

The question becomes: will Amazon disrupt lingerie's disruptors before they have a chance to reach significant scale? And what are they doing to defend themselves?

“It’s something we talk about every day,” says Aerie global brand president Jennifer Foyle. “The Aerie Real platform has certainly set us apart and there are so many ways to utilise that platform.” For one, Aerie is doubling down on physical stores, aiming to have a total of 200 standalone locations by the end of the year as a way to further differentiate itself from online-only players — including Amazon. Still, 40 percent of Aerie's sales take place online. “I think what's important today is to really leverage this omni-channel customer… The nice thing about a fit intensive category, like intimates, is that a lot of women do want to go into the store and get the experience,” says Foyle.

Fit is just one of the many challenges of both making and selling lingerie, specifically bras — the more structured of which can have anywhere from 18 to 25 components. “It’s probably the hardest product that I’ve ever had the opportunity to work on,” says Cordeiro Grant, the founder and chief executive of Lively.

It's probably the hardest product that I've ever had the opportunity to work on.

“There are very few manufacturers in the world… and that causes there to be very high minimums orders,” explains Catalina Girald, chief executive and co-founder of Naja, a lingerie label launched in 2013 to “empower both the wearer and the maker of the product” and is also focused on the environmental impact of production.

Girald says typical minimums at factories in Asia range from 3,000 to 10,000 pieces per style. “It makes it harder to have broad diversity in fashion and print as well as the sizes and colours,” she says. Naja carries between 22 and 32 sizes in each bra, and special patterns are needed for larger sizes, especially if the bra cups are molded. Cordeiro Grant agrees: “It’s very SKU intensive."

“Because lingerie is such a technical product… you can’t just take a mold from a size 36D and scale it up and think that it's going to hold,” explains Girald. Predicting demand across the range is another challenge. “We would love to carry a broader range of sizes, but from an inventory management perspective… the capital costs of carrying that much investors at once are prohibitive,” she says.

Naja owns its own factory in Colombia and controls 80 percent of the supply chain, which has allowed Girald to keep prices on market without sacrificing the brand values that attract customers in the first place. (Naja pays its workers above market wages, and covers their children's school uniforms and meals, among other initiatives.) But Girald says the company has faced significant pressure to lower prices. "We were looking to capture the market of the non-discount Victoria's Secret [shopper], but what we found is that the millennial consumer is starting to push prices down," she says. "Those are our customers so we have to make sure we are not too far out… We're seeing that the retailers are feeling that push as well."

As a result, Naja lowered the price on its bralettes, which range from $38 to $65. “We have found a way to do fewer pieces of clothing at great margins,” says Girald, adding that Naja’s margins are between 75 and 88 percent. “At our volume that’s pretty impressive.”

The popularity of bralettes has come at a great time for lingerie retailers looking to appease price-conscious shoppers. For one, they often come in traditional sizes of small, medium, large, reducing complexity. “They are a more value-oriented product, sort of cheap and cheerful, fun fashion,” says Aerie’s Foyle, who adds that the company also invested in lightly-lined bras without expensive molded cups. “We really forecasted that the pushup category was looking old,” she says. “We dominated [with bralettes] first and because of that, we were able to balance out our [average unit retail] strategy very nicely.” Cordeiro Grant says the bralette category is here to stay, but that current growth will plateau at some point. “Skinny jeans are a mainstay, not a trend,” she says. “I think bralettes are the same way.”

People do tend to want a level of service or insight or knowledge or instruction around lingerie.

“I think there’s a lot of accessibility now in this category, especially with bralettes and so forth, in terms of price, and that’s kind of why we play where we are,” says Cordeiro Grant, adding that most of Lively’s bras cost the customer somewhere in the mid-$20s. “As we continue to move into more and more sizes, it becomes more complicated and more expensive.”

Amazon has a history of tackling complicated and expensive categories, but will the particular challenges of lingerie prove tricky?

“People do tend to want a level of service or insight or knowledge or instruction around lingerie,” says Kit Yarrow, a consumer psychologist and professor at Golden Gate University in San Francisco. “It has a lot to do with age and body type. I think a mature person or someone with a full bust line would just laugh [at an $8 bra] — ‘There’s no way that could be constructed in a way that could take care of me.’”

That more mature customer might feel better served by Soma Intimates, the lingerie retailer known for its wide range of sizes which saw sales of $345 million in 2016. "Women are willing to pay for solutions that are comfortable and are going to last with quality," says senior vice president of marketing Kimberly Grabel. The retailer, which carried third-party brands and private label, is parent company Chico's healthiest business.

“Aerie is a brand that we’re proud of, and when you think about Amazon, they probably couldn’t have an Aerie Real campaign and stand for something,” adds Foyle. “I think if we can offer an expression and an experience that’s different, then we’ll still win.”

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