It’s too early to say what shape they’re in but mainland lingerie firm Cosmo Lady Industrial Co. Ltd. and material supplier Chaoying Group reportedly filed listing applications with Hong Kong Exchanges and Clearing Ltd. (00388.HK) before the Lunar New Year. The move prompted Hong Kong Economic Journal’s investor diary column to look under the covers to see the industry’s varied marketing strategies and profit patterns.
Cosmo Lady, for one, uses top Taiwanese model Lin Chi-ling to promote its brands and runs businesses all along the supply chain from research and development to logistics and sales. Chaoying, meanwhile, doesn’t seem to have any retail operation and mainly derives its sales from supplying lingerie materials to clients, including Victoria’s Secret.
So how well do their industry peers do?
Contract manufacturers barely make a decent profit and can rack up losses if they fail to keep a grip on their operating costs. Contract lingerie maker Top Form International Ltd. (00333.HK), for example, posted a loss of HK$4.3 million in the year to June.
In stark contrast, Embry Holdings Ltd. (01388.HK), which owns its brands and retail network, made a HK$184 million (US$23.72 million) profit in 2012 and held operating profit margins at between 9.77 percent and 14.26 percent in the five years to 2012.
It may be no hard sell to get women to spend on lingerie but there’s no guarantee a company will profit from it. The key is in marketing.
Take a look at leading retailer Victoria’s Secret. The brand’s two major lines, Victoria’s Secret and PINK, were second and third last year on the Teen Vogue-Goldman Sachs Brand Affinity Index, which gauges the most popular brands among American women born between 1980 and 2000.
Victoria’s Secret booked a US$1 billion operational profit, or 16 percent margin, in 2012. Its US$6.12 billion in sales accounted for over 60 percent of the total for parent company L Brands that year.
The company’s not-so-secret weapon is to create rather than enlist superstars like Tyra Banks and Candice Swanepoel to endorse its products, ensuring the spotlight is on the underwear rather than models wearing them.
Other brands resort to different strategies. AdoreMe uses direct sales to keep its prices at half of the Victoria’s Secret equivalent. IntiMint sends monthly catalogs tailored to each customer’s response to an online survey, while True mails five new bras monthly to long-term customers on a pay-after-use or return-for-free basis.
From a few dollars to a few hundred dollars, there is wide spectrum of lingerie products on the market. But if there is any secret to Victoria’s success, it’s probably its decision to take the brand from mass to upmarket. Its strong brand appeal is reflected in its annual fashion show, which since 1996 has been one of the major catwalk events in the fashion world.