UPDATE: April 23, 2019: L Brands last week announced the nomination of two new independent directors to its board, Anne Sheehan and Sarah E. Nash, "with considerable expertise in business," according to an April 18 press release containing statements from both companies. L Brands also said that it and Barington Capital Group have entered into an agreement that entails Barington voting for the company’s board slate and, more broadly, serving "as special advisor to L Brands."

Dive Brief:

• Activist investor Barington Capital this week criticized L Brands' failure to bring Victoria’s Secret’s merchandising and marketing up to date as bad for business. 

• In a letter to L Brands CEO Leslie Wexner, upon whom he heaped effusive praise, Barington chief James Mitarotonda blamed recent stock woes on the lingerie brand’s performance and suggested that L Brand’s board retain a financial advisor to "explore opportunities to unlock the tremendous value of Bath & Body Works, such as through a spinoff of Victoria’s Secret or an initial public offering (IPO) of Bath & Body Works." Mitarotonda also recommended that the company "improve the composition of its Board of Directors, as we believe that the lack of director independence and diversity on the L Brands Board has hindered its ability to effectively oversee and advise management."

• In its response the same day, L Brands brushed aside Barington’s letter, asserting that it “has made significant changes in its business to focus resources on core categories to enhance performance and accelerate growth,” including offloading Henri Bendel and La Senza and making management changes, among other moves.

Dive Insight:

This letter makes it official: You can count investors in joining feminists, branding experts and consumers in saying that Victoria’s Secret needs to change.

Because the lingerie giant is clearly the market leader in the space, it’s easy to understand why L Brands might hesitate to do that. The lingerie label did $2.5 billion in sales in the fourth quarter (overshadowing Bath & Body Works, which Barington still called "exceptional").

Mitarotonda 's hedge fund addresses that: "We believe that the declining performance of Victoria’s Secret is primarily due to merchandising missteps and the failure to maintain a compelling brand image that resonates with its target consumers," according to the letter, which pointed to comments by the company's marketing chief in response to critiques about a lack of inclusivity in the brand's choice of models as one example of the company's "tone deaf" brand image. The letter went on to note the challenges a tarnished image could create. "Despite these issues, Victoria’s Secret and PINK are still market-leading brands with store productivity higher than most of their peers. However, even leading brands must evolve to meet their customers’ changing demands or risk suffering declining profits and a loss of market share."

And it is indeed slipping: Victoria's Secret comps declined 3%, as comps at its Bath & Body Works unit rose 12%, for an overall comp rise of 3% at the company. Stores are part of the problem. Taking out direct-to-consumer sales, store comps at Victoria's Secret fell 7% (as Bath & Body Works store comps rose 8%) for an overall L Brands store comp decline of 1%. It’s no surprise that the company last week announced that it will shutter 53 underperforming Victoria's Secret stores, after closing 30 last year. 

Furthermore, despite the company’s pushback against Barington this week, there’s little evidence that it’s making any significant move to address the market share that it’s lost to the likes of American Eagle’s Aerie brand and several digital natives that are offering less sexy items and that don't rely on over-the-top "angels" to sell their undies. Victoria's Secret did recently tie up with popular Parisian lingerie brand Livy, but that's not the kind of fundamental change that Barington is clearly after.

In fact, the dedication to its core branding remains apparent. "VS is not showing any real signs of improvement in product or tweaking their messaging. As we continue to shop their stores, we are also noting the quality remains poor. The product continues to promote the sexy ideal and in their messaging," Jane Hali & Associates analysts wrote last week. The note called out DTC brands like Adore Me, Negative Underwear and Lonely Lingerie as brands doing well in the category through use of "positive on-trend messaging" and superior fit.