The 800-pound gorilla of the U.S. lingerie market is still Victoria's Secret, owned by L Brands (NYSE:LB), with a market share of around 24%. But that dominance is quickly eroding as the company faces challenges from all fronts.

Upstarts like ThirdLove and Lively are winning at the high end; Amazon.com launched its own line of inexpensive lingerie in 2017, targeting the low end; and sales of American Eagle's Aerie lingerie brand have exploded, growing by a whopping 32% in the third quarter. All of this competition has been tough for Victoria's Secret, leading to substantial comparable-sales declines over the past two years.

A Target storefront.

Image source: Target.

Target enters the fray

Target (NYSE:TGT), which has enjoyed a bit of a renaissance of late thanks to its focus on exclusive brands and e-commerce, is already a player in the lingerie market. But the retailer is now beginning an all-out assault on Victoria's Secret. with plans to launch three new brands next month aimed at the market leader. The retailer expects the new brands to reach more than $1 billion of annual sales, much like some of Target's other successful apparel brands.

Target will eliminate Gilligan & O'Malley, its existing underwear and sleepwear brand, in favor of its of its new brands. Auden will be its new lingerie brand targeting Victoria's Secret shoppers. Corsie will be focused on loungewear and younger women, looking to steal customers from Victoria Secret's PINK brand. And Stars Above will feature sleepwear.

All of Target's new bras will cost less than $22 and include plus sizes. More than 40% of its new bras will be wire-free, a category growing by 10% annually, according to NPD. Target will also launch a tool on its website that will help women find the right size, and it plans to unveil a new marketing campaign that will focus on inclusiveness, featuring women of all sizes, ages, and ethnicities.

Check out the latest Target earnings call transcript.

Victoria's Secret should be terrified

Victoria's Secret was already struggling with intense competition before Target made its move. The retailer's new brands won't make life any easier. Victoria's Secret, along with its PINK brand, need to win millennial customers in order to stay relevant. That will be much harder now that Target has set its sights on the lingerie market.

A survey late last year from ad agency Moosylvania that ranked the top 100 millennial brands demonstrates Victoria's Secret's problem. Victoria's Secret came in at the no. 21 spot on that list, and PINK was ranked 31. Where was Target ranked? No. 4, behind only Amazon, Apple, and Nike. Target is popular with millennials, and it can use that popularity to steal away market share from tired brands like Victoria's Secret.

Target's stores give it an advantage over Amazon and other purely online retailers when it comes to private-label clothing. Amazon is reportedly struggling with weak sales of some of its private-label clothing lines, despite its massive customer base. A whopping 82% of its women's clothing lines fail to sell more than 100 units per month per item, according to Amazon seller data platform Jungle Scout. While apparel sales will likely continue to shift online, having physical stores where customers can try on clothes gives Target an edge.

Victoria's Secret's sales are up for grabs as the brand struggles to retain its market share. While online-only brands will win some of the pie, Target is well-positioned to greatly expand its presence in the lingerie and sleepwear market. Target's popularity with younger shoppers and its successful track record with private-label brands should absolutely terrify Victoria's Secret.