Torrid (CURV 12.16%) just enjoyed a successful initial public offering that raised $231 million and won the company a market valuation of $2.3 billion. Once the sibling of Goth-flavored teen apparel chain Hot Topic, the plus-sized retailer has emerged as the real on-trend chain.
But lots of retailers now recognize body positivity as a growth opportunity, and with the plus-sized market expected to become a $700 billion industry within the next few years, L Brands' (BBWI 1.91%) Victoria's Secret chain has also latched onto this newfound interest in inclusivity as it prepares for its coming spinoff.
Although Victoria's Secret has embraced the movement with both angel wings, Torrid's mix of fashion, lingerie, and accessories has always been more true to its roots. So let's take a look at whether Torrid or Victoria's Secret -- which remains a retail behemoth in its own right -- is the better play on body positivity.
An emerging opportunity
Torrid was acquired along with Hot Topic for $600 million by private equity firm Sycamore Partners in 2013.
It was operating around 230 stores at the time but has since grown to over 600 locations. Considering that occurred during a period when retail was in sharp decline and chains were closing doors or going bankrupt, Torrid's expansion of its physical footprint by nearly three times indicates it has its finger on the pulse of what its customers want.
Torrid has some 3.2 million active customers and was able to generate net sales of $974 million in 2020 during the pandemic, down just 6% from the prior year's $1 billion. Its sales grew at a compounded rate of 8% annually between 2017 and 2020, and today 70% of its sales are done online, compared to 29% pre-pandemic.
That shift was born of necessity when all of retail was forced to shut down, but The New York Times quotes CEO Liz Munoz as saying, "Our business had already been blown up into a million pieces -- might as well get creative."
Yet growth is continuing, and first-quarter sales doubled to $326 million from last year. Adjusted operating profits hit $76 million versus a loss of $8.2 million when the pandemic was raging.
Getting its wings clipped
Victoria's Secret isn't to be trifled with, however. It has faced a lot of withering criticism for being out of touch with today's sensibilities, which it acknowledges, but it still generates more than five times the sales of Torrid.
The lingerie leader reported $5.4 billion in annual sales last year and just notched another $1.2 billion more in the first quarter. It now says it's determined to be more a more inclusive retailer. CEO Martin Waters told analysts the retailer will be "more focused on being broadly inclusive of all women of all shapes and sizes and colors and ethnicities and genders and areas of interest."
The Victoria's Secret fashion show featuring angel-wing-clad buxom models strutting the latest lingerie down a runway is now a thing of the past. The company also says its apparel collection will no longer be about what men want, but rather what women are looking for.
"We're moving from a look to a feeling," Waters says. "It's about including most women rather than excluding most women and being grounded in real life rather than mostly unattainable."
Still, Victoria's Secret has a lot of catching up to do if it wants to match Torrid's authentic vibe, and both will have to contend with more retailers wanting in.
The Aerie chain from American Eagle Outfitters (AEO 3.13%), for example, has also capitalized on this trend and has every bit of the organic reputation to match Torrid's. Analysts see it growing into a $2 billion-to-$3 billion brand over the next few years.
A hot topic
So which retailer would be the better investment? I'd have to lean in favor of Torrid. For all the potent sales muscle it retains, Victoria's Secret's branding and revenue are on the decline. The company needs to convince consumers that being inclusive is now part of its DNA.
Still, some caution is necessary. For one, Torrid is a "controlled company," meaning that because Sycamore Partners owns a better-than-50% stake, it will have a lot of say over Torrid's business. As a result, Sycamore could thwart the retailer's ability to take actions that might benefit its business, such as acquiring another company or even being acquired.
Over time you can expect Sycamore to sell down that ownership interest, though that also means more shares could hit the market, resulting in at least temporary downward pressure on its share price.
Torrid also has a lot of competition, and Aerie looks like a tough rival for both. Yet, with the rapid expansion of the plus-size market, Torrid looks like it has the potential to be one of the retail leaders.