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Victoria’s Secret is on the receiving end of one of the latest retail real estate lawsuits to come in the wake of the COVID-19 pandemic. In the lawsuit that it filed in a New York federal court late last month, Westfield’s New WTC Retail Owner LLC (“Westfield”) claims that the lingerie brand is on the hook for allegedly breaching its contractual obligations and improperly terminating its lease for its store in the Westfield World Trade Center Shopping Center in New York. “Following temporary tenant closures related to the COVID-19 pandemic,” Westfield claims that “Victoria’s Secret purported to invoke an early lease-termination right,” and has since refused to pay rent, while also “abandoning its leased premises,” despite having “years remaining” on its lease. 

According to Westfield’s complaint, Victoria’s Secret signed on to a 12-year lease for a store in the downtown New York shopping center in February 2015, thereby, requiring the L Brands-owned brand to pay rent and abide by the terms of the agreement until it expires on January 31, 2029. One of the exceptions to the normal course of business that would “allow Victoria’s Secret to pay alternate, reduced rent” and/or to terminate its lease? If the co-tenancy requirements set out in the lease – namely, that tenants that are “occupying at least 75 percent of the gross leasable floor area … are open for business and operating continuously during [business] hours” – “are not satisfied for twelve consecutive months.” 

That contract provision is precisely the one that Victoria’s Secret pointed to on January 4, 2021, when it informed Westfield that “it was electing to terminate the lease as of January 1, 2021 because the co-tenancy requirements were purportedly not met for a period of 12 consecutive months.” To back up its claim, Westfield alleges that when it produced evidence “that there was no failure to meet the co-tenancy requirements for 12 consecutive months,” Victoria’s Secret responded by “maintain[ing] that, based on nothing more than ‘physical observ[ations] on multiple occasions by [Victoria’s Secret] personnel,’ the co-tenancy requirements were not met,” and that it was legally entitled to terminate its lease. 

All the while, Westfield claims that Victoria’s Secret had stopped paying rent, prompting it to send the company a Notice of Default in the amount of $4,318,277.87 on March 11, 2021. “Victoria’s Secret failed to cure its default within the cure period,” Westfield contends, and on or about April 30, 2021, it “ceased operations and abandoned the premises … years before the expiration of the [lease] term,” further violating the parties’ “valid and enforceable” lease agreement. 

With the foregoing in mind, Westfield set forth breach of contract and breach of lease claims against Victoria’s Secret, and is seeking damages of upwards of $32 million to account for the company’s past-due rent, as well as the rent that would have been due over the remaining 8 years of the lease.  

Victoria’s Secret’s Turnaround

The lawsuit comes months after Columbus, Ohio-based L Brands reached a $525 million deal to sell off a 55 percent stake in Victoria’s Secret to Sycamore Partners in February 2020. The transaction, which valued VS at $1.1 billion, subsequently fell through (and led to a number of lawsuits) on the heels of Sycamore actively trying to bring an end to the deal, citing an array of COVID-related “breaches” of the acquisition agreement by L Brands. Since then, L Brands revealed that it is planning to spin off the VS brand this summer as opposed to trying to find a new buyer. “The company said that it received interest from multiple potential buyers, but its board concluded that separating Victoria’s Secret” from its fellow L Brands-owned company Bath & Body Works “into two separate publicly traded companies would be a better option,” CNBC reported in May, citing analysts at Citi and JPMorgan who has “recently valued Victoria’s Secret at about $5 billion as a stand-alone business.”  

The plot to split Victoria’s Secret from Bath & Body Works follows from years of turmoil for the former lingerie leader. Met with younger competitors, whose messaging and offerings were more compelling for many women – particularly millennials – than Victoria’s Secret’s hyper-sexualized and often male-driven ethos, the 44-year-old company lost market share over the past decade. Coresight Research put Victoria’s Secret’s hold on the segment at 24 percent in 2018, down from 31.7 percent in 2013, noting that an “emphasis on body positivity and inclusivity are spurring change, particularly in the evolving definition of sexy.” At the same time, it noted that women have been actively focusing on “fit and comfort with the help of artificial intelligence and other technology,” something that VS did not adapt to quickly enough. 

While VS’s market share was falling and its relevance waning, smaller brands like American Eagle’s Aerie, ThirdLove, Adore Me and True & Co., among others, were busy “capitalizing on brand messaging that promotes comfort, body positivity, and female empowerment,” Cowen’s Oliver Chen stated a couple of years ago, and as a result, were co-opting some of the former titan’s grip on the market. 

Despite years of issues, including on the company culture front, it appears that not all is lost for the ailing retailer, though. CNBC notes that “since this past holiday season, momentum at Victoria’s Secret has grown” amid the implementation of company-wide changes. As the Wall Street Journal asserted recently, Leslie Wexner “stepped down as CEO and chairman of L Brands [last year] amid an investigation into his ties with the late, disgraced financier Jeffrey Epstein,” and Victoria’s Secret “has tried to modernize its image by ditching its annual Angels fashion show and hiring a wider range of models.” 

Beyond that, the company has made changes to its marketing, cut down on its promotions, and “most importantly,” CNBC states that it has introduced “new products, such as more comfortable items like bralettes.” It has also “shuttered more than 200 stores in 2020 in a bid to focus on its more profitable locations and invest online.” 

The most recent results for the company? L Brands reported Q1 results in mid-May, with revenue beating analysts’ estimates. Addressing Victoria’s Secret specifically, L Brands reported that same-store sales were up by 25 percent, compared to a 15 percent drop for the same period last year, and momentum was up, thanks, in part to new merch and new marketing. 

The case is New WTC Retail Owner LLC v. Victoria’s Secret Stores LLC, 653497/2021 (N.Y. Sup.)