Maybe The Limited Has Limits After All

Jackie Onassis was there. So was Brooke Astor. And so, of course, was the host, Limited Chairman Leslie H. Wexner. On Feb. 27, le tout New York toasted the opening of the new flagship store for Henri Bendel, the retailer to the ultrachic now owned by The Limited Inc. Wexner had a lot more than a store opening to celebrate. In 1990, a year most retailers want to forget, The Limited's earnings rose 15%, to $398 million, on sales of $5.3 billion. At 25 3/4, Limited stock is almost double the price of last September.

So all's well at The Limited? Not exactly. Although Bendel's gives Wexner entree into the high end of fashion retailing, where he can compete with Bergdorf Goodman, I. Magnin, and Neiman-Marcus, he can't let this refurbished jewel grab too much of his attention. Despite the recent runup in the stock price, it's now only where it was in 1987. Moreover, last year's rise in net profits pales compared with the 41% increase in 1989. That reflects disappointments at two core operations: Limited Stores, the largest division, with $1.3 billion in sales, saw its 1990 operating profit drop 24%, to $163 million, according to estimates by analyst Richard N. Baum of Sanford C. Bernstein & Co. And at Lerner New York, the second-largest division, with $975 million in revenues, Baum says operating profits dropped 7%, to $93 million. (The Limited declined to comment for this article.)

To be sure, The Limited's winners in 1990 turned in solid performances indeed. Operating profits jumped 79% at Lane Bryant, the 752-store chain for heavyset women. Lane Bryant's profit margins had deteriorated through the late 1980s. Then early last year, Lane Bryant's longtime boss Ira Quint left. The new chief, Cheryl Nido Turpin, axed such marginal lines as evening dresses and jewelry and focused on delivering to overweight customers much the same fashion look as slimmer shoppers demand. "We don't take into account their large size," said Turpin in a recent interview.

Even more important was a standout performance by Victoria's Secret, the purveyor of women's bath products and lacy lingerie. Its stores and mail-order business reached $900 million in sales last year, while profits rose 63%, to an estimated $169 million. "Victoria's Secret will continue to grow like a weed," predicts Thomas Tashjian, a retail analyst at Seidler Amdec Securities Inc.

Subtract the profits of the lingerie chain and mail-order business, though, and the problems at Lerner and Limited Stores would have kept operating profits flat in 1990. For years, Limited Stores led the company in sales and profit growth by peddling low-priced but attractive knockoffs of the latest looks. "Wexner became the expert at dressing the masses," says Alan G. Millstein, an apparel consultant in New York.

'LOST TOUCH.' The Limited Stores division, however, has lost some of its focus. The company has enlarged and upgraded many stores with high-tech lighting, chrome, mirrors, and marble floors. New stores of 10,000 square feet each are more than twice as big as original locations. Some observers think the big stores may be too grand, considering the middling quality of the apparel. "The better the store looked, the greaterthe gap between the quality of the merchandise and the surroundings," says Carol A. Farmer, a retail consultant.

Another problem was the decision by Verna Gibson, the longtime division head, to phase out its popular Forenza private label and launch in its place Paul et Duffier. The new line offers higher-priced clothes with European cuts and somber colors to a customer analysts say had consistently shown her preference for bright-colored, inexpensive apparel. Last summer, shoppers left Paul et Duffier creations on the racks. "The buyers fell in love with what they liked and lost touch with mass appeal," says William N. Smith, a retail analyst at Smith Barney, Harris Upham & Co.

Meanwhile, Express, another division of The Limited, has been expanding rapidly--and in some cases, say former executives and analysts, stealing business from Limited Stores. In New Jersey, for example, Robin Fischberg, a 21-year-old student at Katharine Gibbs School, used to buy Forenza sweaters in every color from Limited Stores. Now, she prefers shopping at Express: "Express' quality is probably not the best," she says, "but the stuff is really fashionable."

PEACHES AND CREAM. A turnaround similar to the revival of Lane Bryant could be at hand for Limited Stores. Gibson abruptly departed in January. She could not be reached, but former executives say her effectiveness was diminished by a lingering ear infection that made air travel difficult. Her replacement is Howard Gross, former president of Victoria's Secret.

Retailing sources say Gross fired nine buyers immediately. Two new departments that had been developed under Limited Stores' aegis--Cacique, a line of more conservative lingerie, and Limited Too, a retailer of fashionable children's clothes--now report to Vice-Chairman Thomas G. Hopkins, so Gross can focus on the core operations.

Executives at The Limited's Lerner chain of 858 budget stores have their own slump to remedy. The company has been transforming many of Lerner's poorly lit caverns into sumptuous emporiums replete with large dressing rooms, piano players, and overstuffed furniture--what executives call the "peaches and cream" format. But revenues at Lerner's stores open more than a year fell 2% in 1990, according to Baum at Sanford Bernstein. Says Kurt Winters, a retail analyst at IDS Financial Corp., which owns 2.8 million Limited shares: "You hear all this talk about how good the peaches and cream format is, and yet you never see any results." The company is continuing its renovations.

As executives at Lerner and Limited Stores search for solutions, a spokesman for Wexner says he will become more involved with operations, especially at Limited Stores--a big task. "My biggest concern is that Les Wexner is spread too thin," says one institutional investor who asked not to be identified. Wexner has predicted his company will hit $10 billion in sales by 1995. Reaching that size means Wexner will have to keep reinventing those winning formulas that made him one of the country's master merchants.

      Division               1990 operating profit  *Percent change
                                    Millions           from 1989
      LIMITED STORES                 $163