Victoria's Secret and Financial Benchmarking

Its iconic fashion show won’t occur until this fall but Victoria’s Secret is in the headlines for another reason. Owner L. Brands, Inc. (“LB” ticker) will no longer mail about 300 million catalogs each year. The goal is to save between $125 to $150 million and be more eco-friendly. Shoppers can still purchase online or visit one of 1,164 shops in the United States and Canada (and internationally via retail partnerships). According to Ad Week, earlier experiments in reducing snail mail did not materialize in a drop in sales. Besides, the company’s Twitter profile shows a beefy 9.64 million followers which no doubt helps to contribute to the bottom line.

Catalog news aside, I’m thinking about this $7+ billion sales engine today for another reason. Having just bought one of their sports tops, I was seriously surprised to get it home and realize how small it was for a size that ordinarily fits. Mind you, we’re not talking about a smidge too tiny but something more in the realm of “This item must have been incorrectly tagged.” Kudos to the local store as I had no problem returning it for full credit the next day although I had to take time out of my day to visit a second time. While I am unlikely to buy clothing there again, I do like their scents and they are size-free. As an aside, clothing sizes vary across retailers and over time so I’m not picking on Victoria’s Secret. See “The absurdity of women’s clothing sizes, in one chart” by Christopher Ingraham (The Washington Post, August 11, 2015).

Applied to finance land, the issue of labeling is at the center of more than a few calls for more transparency. On April 15, 2016, the U.S. Securities and Exchange Commission (“SEC”) made public a 341 page concept release, requesting comments as to how best to modify disclosures about items such as core company information, off-balance sheet arrangements, liquidity and capital resources, operating results and risk management. In other words, much of the data that investors would typically review before making a decision to buy, hold or sell a company’s securities is subject to possible change. Part of a Disclosure Effectiveness initiative, this financial regulator seeks feedback about ways that individuals and institutions can be better informed.

Certainly it is a good thing to provide access to reliable data and an accompanying narrative. However, more information is not always the same thing as helpful information. This is particularly true if a metric is misleading or incomplete or both. To illustrate, inputs put forth so far about how to improve current risk management reporting suggests dissatisfaction and a perception that filings are overly broad and should be refined. Comments include requests to present risk factors by entity, materiality and likelihood of occurrence.

With another sixty days before the SEC’s deadline, it’s too soon to know exactly how disclosures will change. Fingers crossed that reforms will address proposals made by knowledgeable persons to ameliorate any deficiencies.