In the mid-1970s, a Stanford MBA named Roy Raymond walked into a department store to buy his wife lingerie, only to find ugly floral-print nightgowns – made even uglier under harsh fluorescent lights – and saleswomen who made him feel like a deviant just for being there.

Realising that other male friends felt the same way, the 30-year-old saw an opportunity: to create a lingerie store designed to make men feel comfortable shopping there.

Raymond imagined a Victorian boudoir, replete with dark wood, oriental rugs and silk drapery. He chose the name "Victoria" to evoke the propriety and respectability associated with the Victorian era; outwardly refined, Victoria's "secrets" were hidden beneath. In 1977, with $80,000 of savings and loans from family, Raymond and his wife leased a space in a small shopping mall in Palo Alto, California, and Victoria's Secret, was born.

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To understand how novel Raymond's idea was, it helps to have a little context. In the 1950s and '60s, underwear was all about practicality and durability. For most American women, sensual lingerie was reserved for the honeymoon trousseau and anniversaries. For the most part, underwear remained functional, not fun.

Victoria's Secret changed all that, thanks in large part to its catalogue, which reached customers across the country. Nowadays it also has stores across the Americas and has expanded into the Middle East and Europe, with a store opening in London last summer. Its annual fashion show, which takes place in New York tonight, costs $12m, is televised on CBS and makes international stars of its models, known as Angels.

Within five years of founding Victoria's Secret, Raymond had opened three more stores in San Francisco. By 1982, the company had annual sales of more than $4m – yet something in Raymond's formula was not working. According to Michael J Silverstein and Neil Fiske's book Trading Up, Victoria's Secret was nearing bankruptcy.

Enter Leslie Wexner, the man who had ushered in the mass-market sportswear boom with a store he called The Limited.By the early 1980s, Wexner was looking to branch out, and on a visit to San Francisco he stumbled across Victoria's Secret.

"It was a small store, and it was Victorian – not English Victorian, but brothel Victorian with red velvet sofas," Wexner told Newsweek in 2010. "But there was very sexy lingerie, and I hadn't seen anything like it in the US"

Wexner quickly saw what was wrong with the business model: in focusing on a store and catalogue that appealed to men, Raymond had failed to draw a large following among women. Wexner surmised that women were as uncomfortable in Victoria's Secret as Raymond had been in that fluorescent-lit department store.

Nevertheless, Wexner saw the company's potential, and in 1982, he bought the stores and the catalogue for about $1m. His first step was to study European lingerie boutiques, and he returned home convinced that if American women had access to same kind of sexy, affordable lingerie as their European counterparts, they, too, would want to wear it every day. Wexner envisioned "a La Perla for the mass market" with a new shopping environment – one that was inviting to women.

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Wexner ultimately decided to create for the company what Ralph Lauren mastered the decade before him: a British-inspired aspirational world that the American consumer would clamour to enter.

Gone were the dark woods and deep reds of the original stores; now, gilded fixtures, floral prints, classical music and old-timey perfume bottles filled the space. Lacy bras and panties hung neatly under warm-hued lights. Even a London home address – No 10 Margaret Street – was invented, even though headquarters were in Ohio. The catalogue, which had become modern and racy, was softened to reflect the new image, with models who looked like they had just walked off the pages of Vogue.

In short, women were buying, while men continued to ogle the catalogue. Wexner's plan was working. By 1995 Victoria's Secret had become a $1.9bn company with 670 stores across the US.

As they continued to refine and tweak the company image (they abandoned the English-boudoir theme around 2000), Victoria's Secret became the most popular apparel brand in the world today, with sales above $6bn last year.

Sadly, as Wexner's and Victoria's Secret's success grew, Raymond, despite his keen instincts, saw his fall apart. After selling the company to Wexner, Raymond stayed on as president of Victoria's Secret for about another year before leaving to open My Child's Destiny, a high-end children's retail and catalogue company based in San Francisco.

But a poor marketing strategy (focused too much on attracting only well-heeled parents) and an even poorer location (little walk-in traffic) forced them to file a Chapter 11 bankruptcy petition two years later in 1986. The Raymonds ended up divorcing, and in 1993, Roy Raymond jumped to his death from the Golden Gate Bridge, leaving behind two teenage children.

Raymond's genius was recognising the need to remove shame from the process of buying unmentionables. But his story reads like a cautionary tale of how a brilliant opportunity can be seized and yet missed. Wexner, on the other hand, had both vision and skill. He imagined a world where there was no such thing as an unmentionable, and figured out a way make it so.

Naomi Barr is chief of research at 'O', The Oprah Magazine. A version of this story first appeared in 'Slate' magazine. © 2013, Slate