Case Study: How Aerie won Gen Z and Victoria’s Secret’s market share

Notoriously, Victoria’s Secret has focused on thin models, most prominently in its annual Victoria’s Secret fashion show that ran until 2018. But the average American woman wears a size 16-18, with 25% wearing underwear size XL or XXL — far from Victoria’s Secret’s impossible body standards. According to retail analytics platform Edited, the majority of products stocked online cater to sizes 00-8. Only 22% of the products are above the average size, indicating a gap between the sizes women wear and the sizes brands carry. New DTC lingerie brands have been pushing the message of inclusive sizing after seeing the market opportunity. What’s more, brands have started hiring models over size 12 for runways, indicating progress in the market. 

Aerie first sensed this move toward authenticity and has made a statement by not retouching the models in its campaigns. It’s also placed an emphasis on styles that are made to fit and flatter — rather than transform — one’s shape. In doing so, Aerie tapped into an opportunity in the multi-billion-dollar lingerie market created by a cultural change that Victoria’s Secret is only now beginning to acknowledge.

The lingerie industry evolves

New lingerie brands are starting to include more sizes and styles that are in line with a consistent trend seen in consumer demand for inclusivity and comfort. Brands that are not keeping up with this demand are lagging behind and losing customers. Data for January 2019 to January 2021 shows that the number of styles for push-up bras arriving online in the U.S. and U.K. was around or below 300 per month. Meanwhile, more than 600 bralettes, a more comfort-focused style, entered the market per month. And sales of triangle bralettes grew 120% from December 2020 to February 2021, according to Edited. In the same period, sales of sports bras and stretch material underwear went up by 382%. Overall, there is a decline in interest in bras with wires, with push-up bras now sitting at third, after bralettes and sports bras, in Edited’s ranking of the most-popular bra styles, based on sales.

Aerie identified and acted on the comfort-focused trend early: “We launched bralettes in 2016-2017 and really owned that space,” said Stacey McCormick, Aerie’s svp of marketing. “‘Comfy-cozy’ has always been our space. And in 2020, that trend completely took off, with everyone working from home and staying at home, and wanting to be as comfortable as possible. So we answered that need in intimates.” 

With double-digit sales growth over the last 26 consecutive quarters, Aerie’s performance reflects the success of these early strategic decisions. Comparatively, Victoria’s Secret has seen an exponential decline in its operating income and customer demand since 2016, when it saw a drop of over 15% in its worldwide operating income. 

The following years have seen even more decline in its worldwide operating income, dropping 20% in 2017 and 50% in 2018. In 2019, it saw a massive loss of $729 million, or a 270% decline. In 2020, compared to 2019, Victoria’s Secret’s North America store sales were down 45%, or $2.3 billion, a result undoubtedly accelerated by the pandemic. Still, Victoria’s Secret’s overall sales decline indicates its loss of customers over time as it’s fallen out of step with consumer trends. 

More evidence for this can be seen in a historical lack of diversity in Victoria’s Secret’s advertising campaigns, which stands in stark contrast to campaigns focused on empowerment and inclusivity by competitors like Aerie. And Victoria’s Secret’s marketing decisions have heavily influenced the brand’s public perception. 

Reflective of that change, in 2018, YouGov reported that Victoria’s Secret’s brand perception and customer satisfaction score had hit an all-time low. Polls from a panel of more than 2 million individuals showed a low score of 30, on a 100-point scale. The retailer’s “buzz score” — compiled using a formula that combines marketing analysis, media sentiment and survey responses — dropped from 31 to 23 from 2016-2018. That was the result of the brand failing to evolve its marketing strategy after intense criticism, especially online. 

As early as 2014, a Victoria’s Secret ad campaign for its Body collection resulted in backlash. It featured its recurring models, or “Angels,” and the tagline “The Perfect ‘Body.’” Three women in the U.K. launched the online campaign #IAmPerfect and a Change.org petition, challenging Victoria’s Secret’s harmful messaging. This prompted Victoria’s Secret to change its tagline to “A Body for every body.” In another instance, Lane Bryant, which exclusively caters to women sizes 14-28, challenged the brand’s image in 2015 with its #ImNoAngel social media campaign. It featured its own, curvier models in the corresponding lingerie ads. 

The trend carried over to the Victoria’s Secret Fashion Show, when viewership saw a 30% year-over-year decline in November 2017. This was likely influenced by the corresponding timing of the #MeToo movement, with the show taking place one month after allegations of sexual harassment and assault were made against Harvey Weinstein. The brand has struggled to make a profit ever since. By December 2020, Victoria’s Secret’s market share had fallen to 19% in the U.S. women’s intimate clothing space, compared to 32% in 2015. While it still has a higher share than any other brand, the company has undoubtedly fallen from grace. 

These changes have opened the way for many new brands to enter the industry and for legacy brands to reinvest in lingerie with a focus on Gen-Z values and comfort. For example, Adidas announced this year that it will start selling women’s and men’s underwear globally. According to Adidas branded division president Victoria Vandagriff, comfort is the No. 1 thing consumers are looking for in underwear. The new line, which will be sold direct-to-consumer, is meant to compete directly with Victoria’s Secret and Aerie. 

How Aerie seized the Gen-Z moment on social

Despite being under the purview of an old-guard holding company, American Eagle Outfitters (AEO), Aerie’s positioning puts it in line with a wave of new underwear brands that have challenged Victoria’s Secret’s dated message. Brands like ThirdLove and Les Girls Les Boys have helped shift women’s lingerie marketing from sexy and impossible body standards to something more relatable to the everyday consumer. 

ThirdLove uses marketing tactics like quizzes and loyalty programs catered to a size-diverse customer set, while Les Girls Les Boys has built a more gender-fluid image for its brand. They actively challenge Victoria’s Secret’s dominance in the market and its narrow definition of beauty. “Industry-wide, it’s no longer about looking good for someone else, like it used to be — that male gaze. It’s about you feeling good about yourself,” said Aerie’s McCormick.

Aerie has launched a number of viral online campaigns focused on community, body positivity and authenticity, as part of its #AerieREAL marketing. Along with a commitment that it does not retouch any of its models, it also features women of different sizes and those with disabilities in its ads. 

“Our customer wanted to look up to more people than supermodels or people they saw in magazines,” said McCormick. “They felt the need to be seen, and they wanted to be seen in the brands they shopped. And then social media [took off] and fueled that shift. Authentic, real people were showing up in advertising and in real situations, and our customer base wanted to see that reality. So we said, ‘We’re going to forego retouching; we’re going to show up as real and authentic as we can. And we’re going to challenge others to do it, too.’” 

To keep up with trends, Aerie has heavily invested in social media platforms, particularly TikTok, which has a younger-skewing user base. A day after launching its TikTok account on April 15, 2020, Aerie kicked off the #AerieRealPositivity challenge prompting users to share how they express themselves or help others. The strategy showed tremendous results. Within two weeks, users posted 6,600 videos with the challenge hashtag, which were viewed 1.3 billion times. At the same time, Aerie earned more than 17,400 TikTok followers. The campaign also earned it 16,000 new Instagram followers, boosting its total followers by 1,000%. Meanwhile, the #AerieRealLife homepage saw 138,000 views in a single day. 

Aerie’s appeal to Gen Z resulted in another, in this case, organic viral post late last year, when 19-year old TikToker Hannah Schenkler bought a pair of Aerie’s crossover leggings and posted a video of herself dancing in them to Justin Beiber’s song “Drummer Boy.” The 30-second clip got 7.8 million views, 872,000 likes and over 10,000 comments, and was shared over 22,000 times. The comments heavily focused on the leggings, which led to the style selling out six times and seeing a long list of backorders. Aerie promptly partnered with Schenkler, making her the face of its crossover leggings. It’s since built out an entire crossover category consisting of styles beyond leggings. Its investments in social media allowed for Aerie to capitalize and move quickly on new trends appearing organically.

Google Search traffic also demonstrates a burst in online brand awareness. Data from Aerie’s launch year of 2006 until now shows that Aerie has enjoyed a consistent upward trajectory in Google searches. It hit its highest level of popularity in November 2020 — it was only half as popular two years prior, in November 2018. As seen in the chart below, while Victoria’s Secret has seen an overall higher average search volume since 2006, we clearly see a downward trend in Victoria’s Secret popularity and interest, based on brand searches. Between February 2017 and February 2018, Aerie began to slightly outpace Victoria’s Secret in search interest. Since then, it has left Victoria’s Secret far behind; in this proxy for popularity, it’s 25 points (indexed on a scale of 100) ahead of Victoria’s Secret today. This popularity is reflected in Aerie’s consistent revenue growth. 

Aerie, owned by 44-year-old AEO, is among the most notable competitors taking market share from Victoria’s Secret. Its revenue grew by more than 25% every year between 2015 and 2019. In fact, Aerie is becoming the holding company’s biggest asset, rivaling the original AEO brand. 

Aerie is becoming American Eagle Outfitters’ best asset

AEO has performed well over the past few years, particularly compared to some of its contemporaries. And 14-year old lingerie brand Aerie has driven much of its growth. In 2020, the brand’s merchandise accounted for 26% of AEO’s total net revenue, up from 16% in 2018. Aerie’s revenue of about $310 million in 2015 tripled by 2020 to nearly $1 billion. By Q2 2021, Aerie’s operating income increased 132% YoY, to $71 million. AEO’s overall operating income increased 234% YoY, to $199 million. Aerie’s growth in the AEO portfolio looks promising and reflects growing consumer interest in the brand. 

AEO plans to double Aerie’s revenue in the next two years, putting it on track to be a $2 billion brand by 2023 and inching it closer to the $3.5 billion AEO brand. In fact, by 2023, Aerie’s expected growth from 18% to 36% of AEO’s overall revenue would mean that very soon it will account for most of the parent company’s growth. This meteoric rise in sales shows that Aerie is giving consumers what they want. That’s especially online, where much of this growth is coming from. That online growth continued to trend this year.

During the pandemic, AEO’s online business surged, with growth of 36% to $1.7 billion in profitable revenue in 2020. Aerie saw online sales grow to 85% of its total revenue. Pre-covid, around 55% of sales were online versus 45% in store. By Q2 of this year, after store reopenings and the rollout of the Covid vaccine, Aerie’s online business represented greater than 50% of its sales. The brand’s online platform has garnered the majority of sales since it carries a wider assortment than stores, with upward of 500 styles including swimwear. Aerie has shown strong growth in both online and offline sales, while Victoria’s Secret has declined in both areas until Q4 2020 when it started seeing an increase in online sales. And yet, with an eye toward the future, Aerie has continued to aggressively open physical stores to gain ground as the shopping climate shifts again.

Across the lingerie market, brands are shutting down stores. But Aerie’s new store openings and increased sales show a promising future for its brick-and-mortar strategy. In comparison, Victoria’s Secret had 1,053 stores in the U.S. at the end of 2019 and permanently closed 241 stores in North America in 2020. Whereas, Aerie opened new stores for a total of 175 at the end of 2020, compared to 148 in 2019, showing steady growth. AEO is planning to reduce its American Eagle store fleet by around 200 stores and focus its attention on growing Aerie by opening over 100 stores this year, including 25-30 Offline stores. Offline is an Aerie sub-brand launched in 2020, offering a complete collection of activewear and accessories. Its target demo is Gen Z, and its marketing messaging is about “REAL movement and REAL comfort”. 

Who else is in the running?

Aerie is not the only brand giving Victoria’s Secret a run for its money. In fact, the last few years have seen a pool of DTC lingerie brands gaining consumer interest and Gen Z’s attention. Most of the new brands are focused on inclusivity and online sales, and interestingly, almost all of them are created or co-founded and run by women. Some of the notable brands are listed below:

ThirdLove

Thirdlove is an 8-year-old company, which was launched as an online-only brand. It focuses on inclusivity, with marketing featuring women of a full spectrum of ages, and comfort. It specializes in wireless bras, as well as a 24/7 T-Shirt bra that’s sold millions of units. In 2020, ThirdLove’s underwear sales doubled to make up 8% of its total sales. According to 2019 NPD data, ThirdLove is the third-largest e-commerce retailer of bras behind Victoria’s Secret and Aerie, based on sales. 

Parade

Parade, a relatively new Gen-Z-focused brand launched in October 2019, hit $10 million in revenue within its first year. In 2021, it raised $43 million in funding, including a $20 million Series B round in late September. Its current valuation is $140 million. The company, which specializes in bralettes, often features influencers and celebrities in its marketing on Instagram and TikTok. It also engages in on-the-ground direct marketing, as with its popsicle pop-up in May 2021. It’s planning to open its first physical store in Soho, NYC in November 2021. Parade represents a great example of the new, inclusive lingerie aesthetic. 

Savage x Fenty

Celebrity Rihanna’s lingerie brand Savage x Fenty is worth more than $1 billion, as of February 2021. The brand focuses on sexy but inclusive designs. (More on this brand below.)

Victoria’s Secret is playing catch-up

To prevent the loss of even more market share to these new and more innovative brands, Victoria’s Secret unveiled a rebranding strategy this year. The pivot sees them ditching the focus on its Angels and the unrealistic body types that have earned it criticism over the years. It’s now incorporating people of inclusive sizes and gender identities in its marketing. It’s also turning its attention to expanding its growing athletic wear and loungewear categories. But is it too late? 

By 2020, Victoria’s Secret no longer stood at the top of parent company L Brands’ portfolio. Last year, L Brands saw net income of $844 million, compared to a net loss of $366 million in 2019, but the profit was mostly driven by its Bath & Body Works store. For all of 2020, Victoria’s Secret’s comparable sales rose by only 1%. In the last quarter of 2020, the brand saw slight improvement, as sales in Victoria’s Secret’s digital channel grew 31% YoY, to $831 million. However, this was driven by its Pink brand and Beauty line, rather than its main lingerie line. 

This lackluster performance showed a clear need for business transformation. In August 2021, L Brands spun off Victoria’s Secret into an independent public company called Victoria’s Secret & Co., which includes Victoria’s Secret Lingerie, Pink and Victoria’s Secret Beauty. Throughout 2021, Victoria’s Secret has seen growth, with an increase in operating income of $213 million, or 665%, YoY, for the first quarter of 2021. It again saw a $202.7 million operating income in Q2 2021, compared to an operating loss of $243.3 million in Q2 2020.

In another move to improve profit margins, after years of running discounts and promotions to remain competitive with DTC brands’ lower prices, Victoria’s Secret has increased the prices on its website by an average of 83%, compared to May 2019, according to UBS. The average price of items listed on the website is now $44, higher than the majority of competing DTC brands. This price hike offered a response to criticism by Wall Street analysts that discounts were cutting profit margins and only accelerating Victoria’s Secret’s descent. 

The price change also shows a commitment to targeting more upscale consumers, possibly a move to distinguish itself from DTC brands like Aerie and Parade that offer more inclusive pricing. Parade’s wireless bras are priced at around $30. Notably, ThirdLove intentionally lowered its prices at one point offering “Buy 2, save $15,” to attract Victoria’s Secret’s customers. That serves as evidence that a war on price likely would not be in Victoria’s Secret’s favor. 

While there are many signs of decline in Victoria’s Secret’s performance, there is a glimmer of hope for the company. On an international level, Victoria’s Secret remains the most well-known lingerie brand with the largest global footprint, compared to other brands. In 2020, Victoria’s Secret International net sales were $395 million, which was 44% less than its International sales in 2019 of $704 million. The company actively plans to keep expanding internationally, focusing on promising regions like China. It has about 87 international stores in Canada, the U.K. and China, down from 128 in 2019.

And while AEO also has a large international footprint, apart from North America, Aerie operates international stores only in Mexico and Hong Kong. AEO and Aerie’s international net revenue from stores and e-commerce sales made up 12.3% of its total revenue in 2020. That was a slight decrease in foreign net revenue from 2019, when it made up 13.9% of total AEO revenue. And while AEO has licenses to operate around the world, Aerie’s international strategy remains capital light and digitally led as it focuses on Aerie’s growth within the U.S. marketplace. The West Coast will be a focus over the next few years. 

What’s next?

Victoria’s Secret’s fall from grace and Aerie’s rise in popularity illustrates a case where a behemoth brand failed to evolve with consumer expectations, allowing for smaller brands to capture the lost market share. It goes without saying that, in modern markets, legacy brands have to refresh their marketing strategies and respond to cultural change to avoid suffering a similar fate. 

The global underwear industry currently stands at $250 billion and is expected to reach $325.4 billion by 2025. And while Victoria’s Secret is likely to not only survive, but also maintain its hold on a chunk of that market into the near future, it recognized the cultural shift too late to keep its competitors completely at bay. While its recovery plan won over some customers in 2021, it doesn’t change the fact that its net sales have declined from a height of $8.1 billion in 2018 to $5.4 billion in 2020.

And Victoria’s Secret is not alone in stumbling. Other legacy brands that did not evolve with the changing times have seen similar declines in their profits and the pressing need for business transformation. For instance, in 2018, Italian lingerie brand La Perla recorded $110 million in losses and has been trending downward ever since. In 2020, its revenue declined by 22.8% to $80 million. Like Victoria’s Secret, La Perla’s recovery strategy has focused on expanding its physical presence in China. It has plans to open 30 stores in China by 2023. Similar to other competitors, it is also targeting younger audiences in its marketing campaigns, recently signing a 22-year-old Italian Moroccan model to be the face of a new line of cosmetics geared toward attracting Gen-Z customers. 

AEO is a strong counterexample: a 44-year-old legacy player that sensed the moment for what it was — or just happened to have an underwear brand perfectly suited to it. Aerie is likely to continue to see growth if it stays focused on appealing to the growing Gen-Z market and remaining nimble in a time of change for the industry. However, it and other brands would also be smart to pay attention to these seismic shifts in the zeitgeist and consumer sensibilities. 

One clear area of opportunity for Aerie: While Aerie targets Gen Z, which currently spans from ages 15-35, its sweet spot remains the 22-25 age range. “As the brand matures, the customer has grown up slightly with us, too,” said McCormick, when asked about the narrow audience targeting. “We want to be there for her when she buys her first bra and beyond.” To grow even further, Aerie and other DTC brands will need to appeal to older Gen-Z consumers.

Some Lessons

• Brands have to stay on top of new trends: Another newer lingerie brand, Fleur de Mal, a celebrity favorite, also emphasizes sexiness while also incorporating new trends, often before they become popular. For example, its launches of bodysuits and long-waisted underwear. It’s even occasionally jumped categories to do so: As the sexual wellness industry saw sales of some products double YoY in 2020, Fleur de Mal jumped right in and launched its Pleasure category. It kicked it off by offering three vibrators in partnership with sex toy company Le Wand.
• Community and loyalty matter: Smaller DTC brands are focused on building community and creating strong bonds with customers of all shapes, sizes and colors. This will continue to be a good strategy for smaller competitors as they challenge Victoria’s Secret’s hegemony. 
• Inclusivity is tangible: As new brands continue to build out their product assortment and use inclusive messaging, they have to back their messaging around inclusivity with inclusive sizing practices. Otherwise, they run the risk of sounding inauthentic. 
• Competing on the ground is as important as competing online: Despite seeing increased growth, new DTC lingerie brands can’t just focus on online sales; they’ll also need to invest in physical stores, like Aerie. The retailer is poised to capture new consumers by expanding its physical presence. Physical stores give customers a chance to see, test and experience a product in a way that online shopping cannot match. And while online sales are on the rise, the majority of consumers still prefer to make purchases in-store. 
• Sexy still works: Rihanna’s 3-year-old lingerie brand Savage x Fenty, which is already worth more than $1 billion, shows that “sexy” lingerie marketing still works, as long as it’s inclusive. It’s a note that Victoria’s Secret seems to be taking. SxF focuses on feeling sexy in one’s own skin and uses innovative marketing to get its message across. For example, it’s the focus of Amazon Prime Video specials that feature a range of models and “real people” putting on a show.