The Man Who Changed How America Shops

At 77, he is the longest-serving CEO of a U.S. public company. He ranks No. 80 on Forbes’ list of the 400 richest people, boasting a net worth of $6.8 billion. His record of successful retail ventures includes, among others, The Limited, Express, Limited Too, Victoria’s Secret, Bath & Body Works, Pink and La Senza. In 2014, L Brands’ sales reached $11.4 billion.

“Wexner bought a failing lingerie store and turned it into a national phenomenon by understanding emotional appeal.”

What’s more, 99 percent of the company’s stores are cash-flow positive, with average dollar inventory turns at 3.9 times vs. just 2.8 five years ago. The company operates 2,942 specialty stores in the U.S., Canada and the UK. Its brands are sold in 600 additional, franchised locations worldwide.

Wexner opened his first store in 1963 at the age of 26. The experience, he recalls, was “like being shot out of a cannon with no helmet.” He had borrowed $5,000 from his aunt to start a rival store to his father’s. He called it “The Limited” because he offered a limited selection of shirts, blouses and pants. Ten years later, he had expanded to 41 stores, proving that a narrow focus was a winning strategy. The Limited went public in 1969, enabling the company to finance its expansion. By 1979, it was operating 318 stores and Wexner was thinking of branching out to new brands. In 1980, he launched Express, which targeted younger women with more forward-fashion clothes and dynamic colors.

The pivotal inflection point came when he snapped up a chain of lingerie shops he spotted in San Francisco called “Victoria’s Secret.” He confesses that he knew little about the business when he bought it in 1982, which proved just as well since its owner was facing bankruptcy. The shop’s merchandising was borderline salacious, geared toward a male point of view.

Wexner’s insight was to turn that around and offer merchandise that appealed to a women’s perspective. At the time, most women dreaded the bra-buying experience, which usually involved visiting an obscure area of a department store to sort through a dizzying array of similar-looking products. Wexner changed all that. He wasn’t the first to come up with a lingerie chain, but his natural curiosity about presenting fashion led to experimentation that, in turn, led to a marketing phenomenon. Today, the Victoria’s Secret Fashion Show is a television hit that attracts viewers interested in the celebrity models who showcase the brand.

By 2007, Wexner had exited the apparel business, selling a controlling interest in The Limited and Express to Golden Gate Capital, saying that he wanted to concentrate his business in lingerie and beauty. Walking into his outer conference room, one is surrounded by several hundred scent bottles, candles and perfumes.

The word “vanilla” appears on a generous number of them. In addition, L Brands has a significant $2 billion volume in direct-channel growth with more than 20 percent margins. According to Barclays retail analyst Matthew McClintock, the company’s international business “should reach at least $1 billion of revenue within five years (vs. $220 million today). On a gross-retail basis, international sales should surpass $3.7 billion by 2018 vs. an estimated $700 million today.”

However, what is most interesting about this retail mogul is that, on a personal level, he is quiet and introspective, not the theatrical impresario one might expect of an entrepreneur in fashion. An avid reader of historical biographies, Wexner sees the life and career of George Washington as instructive not just for himself but for all leaders. “This guy bootstrapped himself from a simple background where he was not formally educated,” he says, “and he’s able to hold his own with great minds like Thomas Jefferson, John Adams and Ben Franklin. Essentially, this is a farmer’s son who didn’t go to grade school and wasn’t raised in a big city. I find it inspiring that he could challenge the great minds, was open to learning and yet was humble at the same time.” Biographies of Robert E. Lee, FDR (“both fascinating”) and Douglas MacArthur (“don’t like him, but I find him interesting”) also figure in his private leadership reading.



The following are excerpts from Chief Executive’s visit with Wexner at his Columbus, Ohio headquarters.

To what degree have Internet or digital firms like Amazon, eBay and Zynga disrupted traditional retail or affected your business?
To the extent that the customer sees a product as a commodity, it changes behavior. If someone wants a wristwatch, he can go to the Internet to find the best deal because all Rolexes are created equal and you can buy them on the Internet. The same is true of, say, Levis and items where the product has limited variability. Ten years ago, we didn’t think that cameras or cars were commodities, but we know that most cars are shopped for first on the Internet.

“I might have enormous confidence in the ideas I am launching, but I still want to see how they work in the real world.”

Other things, such as scent or perfume have emotional content. If you know what perfume you want and you’re not curious about what the next new scent is, I can’t deliver that experience. However, if you are curious, I can. In retailing, there are always countervailing ideas. Today, people relish the opportunity to get in their cars and drive two miles to spend $3 for a cup of coffee at Starbucks. Nevermind that you can make the same cup of coffee at home using Starbucks coffee for about a dime a cup.

How do you differentiate successfully when market forces seem to conspire to make everything a commodity?
We amplify the emotional content. One could argue that all Ferris wheels are Ferris wheels; the emotional experience of an amusement park is much the same. So why do people travel 2,000 miles to go to Disney World? It’s the whole package. It’s the Disney experience. The best retailers—Bloomingdale’s, Marshall Fields, Selfridges—always understood that creating an emotional experience lay at the heart of their success. They have always understood this. One of the niftiest, emotional experiences in retailing today is Costco. It is tremendously entertaining to go there. Sometimes, I go there because I’m just curious about what’s going on and what the current deal is.

How does one explain the success of an Apple store? Everyone knows what the next phone looks like. It’s bigger than the last phone. I don’t really have to go there to see it.  My kids don’t have to go there this week because they bought one last week, but they want to go there anyway. They want to look around, soak up the atmosphere and see the people. Whether it’s Victoria’s Secret or Bath & Body Works, it’s about theater.

For much of your career, you were identified as a successful apparel retailer and the founder of The Limited stores. What changed?
The question is, “How do you define yourself?” I began thinking very early by defining myself as a merchant on broad terms. Understanding customers is a higher order of perception than whether I’m an expert in women’s apparel. I began to sense 15 years ago that there was less emotional content in apparel. The field was crowded. Stores were replicating themselves. It was the same stuff at multiple prices and multiple qualities. There was some advantage when production went offshore, but now everybody uses the same base of supply, so there’s no advantage. I told the board, “Let’s think about this.” I picked lingerie and beauty because I thought we could transfer our skills to different categories and carve out areas where we could be more dominant as specialists rather than one of 30 guys in a shopping center selling clothing to young women.

Some observers note that you follow a method that they describe as experimental—fail early and cheaply, learn and go forward. Assuming you agree, do you do this consciously or by instinct?
I am an entrepreneur, but I don’t jump out of airplanes without a parachute. Risk-taking doesn’t bother me, but the question is, “How do you test things and learn?” I might have enormous confidence in the ideas I am launching, but I still want to see how they work in the real world. A fashion retailer, who bats close to Babe Ruth’s average, say .333, belongs in the Hall of Fame. When this business was smaller, I could see how many mistakes I made. The question is, “How do you recover from mistakes?” Whether it is testing a color or a store size, we test close to our beliefs.

Fashion merchants have to constantly believe that what they are doing is obsolete. You’re constantly testing just to find your way into the future. This philosophy is so engrained in our company DNA that whopper mistakes become less likely. Some may think of me as stubborn, but I see it as having a deep keel that supports the ship in the face of headwinds, crosswinds and the like. The deepness of keel just means that there’s steadiness that may seem slow to some, but [it] allows me to take an interactive approach to risk in managing arguably the riskiest industry in business.

For example, when we bought Lane Bryant, we borrowed 50 percent more money than we had in net worth. [We] literally bet the ranch on an acquisition—and we paid back that debt in about three months. I was pretty confident that I knew what I was doing. If not, we would have been terminal. We’ve probably invented 30 businesses with $45 billion to $50 billion in market cap and spun them off. This represents hundreds of thousands of employed associates. This is one of our proudest accomplishments.

“I feel lucky because I work with the best people in the world. I can measure it not only by their performance in their jobs but how they live their lives, how they participate in their communities.”

In retailing, data is everywhere. In fact, there are mountains of it. Has data analytics changed how the industry deals with the customer to achieve, in your phrase, a “more truthful, bias-free environment?”
Our business is much like the movie business. There are some rascals like Steven Spielberg who know how to make movies, but the real skill is that he knows what movies to make. From E.T. to Schindler’s List, he has more of the high-grossing movies than anybody else. You can’t get that from data mining. Maybe you can project consumption of 12-ounce Coca-Cola, but how you get from Coke to Cherry Coke to Lemon Coke to 10-calorie Coke doesn’t come from data mining. Our skill as fashion merchants is to have a nose for finding latent demand and knowing what’s next. Sometimes market research is like giving radar to a hunting dog. It makes him dumb.

You appear to put a high value on employee engagement. What do you do to make this happen?
Whether it’s walking around, going to other people’s meetings, listening to the tone of things [or] going to stores, it’s all about encouraging people and expressing curiosity about their lives and their careers. People have selfish interests—and that’s perfectly normal. However, they also have involvement in various communities, which is something we encourage. For example, we support the James Comprehensive Cancer Center [at OSU]. People bike-ride and ask friends to sponsor them. They’ll ask friends to buy their cookies or have a bake sale to raise money.

Amazingly, people who work in stores as far away as Texas participate in the 50-mile bike ride event here in Columbus. People who are associated with the business in Hong Kong and in the Mideast not only ride the same day, but they’ll get up in the middle of the night because they want to ride at the same time [that] everybody else in Columbus is riding. This is extraordinary. I put a lot of stock in stuff like this. More stock than I do in the data. We didn’t ask them to do it. It’s a familial thing where children might mirror the behaviors or the standards of the parent.

I feel lucky because I work with the best people in the world. I can measure it not only by their performance in their jobs but how they live their lives, how they participate in their communities.

Conventional wisdom says that the U.S. is over-stored and that any real growth will have to come from international expansion. What’s your view?
I’ve always ignored that. I began hearing these statistics about American retailing 40 years ago. Yeah, America has more square footage per capita than any country in the world and we’re adding more every year. So what? If we’re over-stored with Kmarts or Sears, then we have some obsolete businesses. I go to Easton [Town Center in Columbus] and see people waiting in line. So it’s business-specific and it’s site-specific. There’s always been more retail space than was needed, yet some retailers need more. Costco and Starbucks absorb more retail space all the time. Yeah, some big-box retailers are struggling, and maybe there is an overall glut of square footage by a factor of two, but great retailers can’t get enough. Having said that, we are very enthusiastic about international retailing, in part because we’ve got great brands in the U.S.

It begins with whether one has proven momentum and success in the core business, in the core market. I look at retailers that are successful over time, whether it’s H&M in Sweden or Inditex in Spain. They continue to be successful in their own markets. Still, one must be sensitive to crosscurrents in international business. Just because Americans love chocolate chip cookies doesn’t mean Brits will. Oatsies don’t mean much to Americans, but they mean a lot to people in the UK. People told us to go to Brazil because everything is growing to the sky. Well, it’s a lot more complicated than that. Do people in these markets have a popular perception of your product? Can you perform and execute in that market? And can
you make money? We’ll expand our square-footage internationally.

By 2016 and beyond, we’ll expand North America by a magnitude of 5 or 6 percent. That’s on a very big base. Five years ago, we had virtually no stores outside the U.S., but we’ll expand our international stores about 35 percent next year on a base of 1,000. We’ve got a heavy concentration in Canada, England, the Mideast and Southeast Asia. In the next few months, we’ll be opening a number of stores in China, having tested stores in Hong Kong. We’ll expand our square-footage internationally.

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Three biographies Les Wexner Recommends:

  • Washington: A Life, by Ron Chernow
  • George Washington: 4 Volume Set, by James Thomas Flexner
  • George Washington: A Biography, by Washington Irving

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