There’s movement at L Brands Inc. to revise the board, repair Victoria’s Secret, and restore the reputation of Leslie H. Wexner following revelations around the company’s founder, chairman and chief executive officer’s involvement with alleged child sex trafficker Jeffrey Epstein.
Compounding the already complicated and loaded situation was Epstein’s death Saturday from a possible suicide. His body was reportedly found Saturday morning in his jail cell at the Metropolitan Correctional Center and he was said to be taken under cardiac arrest to Downtown New York Hospital. An investigation into Epstein’s death is underway. In the swirl of dark circumstances, another vexing question looms for the retailer: Who, if anybody, is in line to succeed Wexner, the legendary merchant prince and brand builder? He’s 81 and confronting a heap of challenges, yet there aren’t any clear successors in the wings. Wexner remains entrenched, owns 17 percent of L Brands’ stock and has maintained sway over a largely handpicked board perceived as “friendly” to him.
“Les is the last of the merchant princes and I believe the company will need a modern leader with fresh ideas and a global portfolio perspective across all channels of distribution,” observed Kirk Palmer, ceo of the executive search firm bearing his name. “There are distinct advantages to have someone from our industry, but CPG or other industry experience should also be considered — assuming that each business has strong ‘front-of-the-house’ brand leaders in place.
“If and when a change occurs in leadership of L Brands,” Palmer added, “Les is clearly going to be a tough act to follow. Tens of thousands of people have benefited from the vast array of business this iconic entrepreneur has created, acquired, grown and nurtured. The list of truly proven and qualified candidates will be thin.”
“I would be really surprised if they thought anyone could do it internally, with the possible exception of Nick Coe,” ceo of Bath & Body Works, said one industry executive familiar with L Brands. “And even though Nick is a very good guy and has done a great job at BBW, they would likely seek someone external that has a bigger portfolio background. L Brands has a really strong senior team — from chief financial officer and other back-of-house execs, to the brand leaders at VS, Pink and Beauty. But except for Nick, I don’t think any would be deemed fully qualified for consideration to run the whole thing.”
One industry expert said Wexner is “absolutely a survivor” and that “he is undefeatable — particularly given his ownership.”
Wexner has control over 47.7 million shares of L Brands, a 17.4 percent stake in the business valued at $1.1 billion.
That stock fortune — already depressed by years of tough-going at Victoria’s Secret — has taken another hit lately, falling by more than 17 percent since Epstein was arrested on July 6.
The ceo’s relationship with Epstein and how much time Wexner has left at the company is a sensitive subject on Wall Street that analysts would rather avoid discussing: not one contacted by WWD would comment on the allegations surrounding the retail titan and its potential impact on the firm. That, in part, reflects Wexner’s position as a long-standing and savvy retail operator often credited with inventing the modern specialty store concept.
He has successfully darted in and out of a turbulent fashion market — from buying Victoria’s Secret in 1982 when its sales were barely more than $5 million to ditching most of his company’s apparel business a decade ago to focus on lingerie and Bath & Body Works. Many were stunned when he decided to drop swimwear.
That reputation for sharpness has dimmed somewhat as Wexner has tried to explain away his long association with Epstein, who was thin on credentials but managed to ingratiate himself to the billionaire, even gaining power of attorney, which gave him sweeping powers over his financial empire.
One financial source described the power of attorney arrangement with Epstein as “shocking.”
“It was the kind of document you sign before you go into a coma handing your empire to your spouse,” the source said. “We all sign POAs for people to trade shares on our behalf, etc. But they look nothing like the one Les signed. That’s a big-league POA. And he’s got real lawyers and is a smart guy, he knew what he was doing; and what he did was something no client would do for a financial adviser.”
Beyond the Epstein mess — and the tragic, tawdry and illegal allegations it involves — Wexner has had to deal with merchandising and marketing issues at Victoria’s Secret as well as activist investor Barington Capital, which started pushing for changes at the company this spring. These include a spin-off of Victoria’s Secret and splitting the jobs of chairman and ceo among two executives, to lessen Wexner’s power.
L Brands ultimately reached a compromise with Barington, agreeing to bring in two outside board members: Anne Sheehan, chair of the Securities and Exchange Commission’s investor advisory committee, and Sarah Nash, who spent nearly 30 years at J.P. Morgan Chase, rising to vice chairman of global investment banking.
At the company’s 2020 annual meeting, the board will submit a proposal to stockholders to amend its certificate of incorporation to declassify the board. If shareholders approve the plan, directors will stand for election annually for one-year terms beginning at the 2021 annual meeting.
“We intend to refresh our board…with a view toward constituting a board that has the integrity, judgment, skill set, experience and other characteristics to oversee the broad set of challenges that the company faces and evaluate management on executing the company’s business strategy,” the board said in the proxy.
With the makeup of the board changing, the missteps at Victoria’s Secret and now the Epstein situation, it is only natural that questions about Wexner’s continued leadership of the firm he built have emerged.
“He has to be done,” said the financial source. “I’m not sure how two new board members appointed to deliver good governance — timing couldn’t be more ironic — could let him go on with all that’s happening.”
“The real issue with Wexner is the business,” said one real estate executive who has worked with Wexner. “I don’t think Epstein will have any impact on the business. It’s a sideshow. The big mistake was when they threw out swimsuits at Victoria’s Secret. Les just felt it was a distraction. He was right to restructure the core business years before and was successful getting rid of Limited Stores and the men’s business. They were categories he just didn’t want to be in any longer and for the most part, he called it right.
“But in this environment you can’t be in one or two businesses. If one declines you are kind of stuck. Bath and Body Works is in a very strong lane, though starting to see a little drop-off. Everybody in the world is getting into the same lane. The competition is fierce. Growth in the off-price arena is coming from health, home, beauty and wellness.”
According to the real estate executive, Victoria’s Secret and Foot Locker share “a problem of riches.” He said they continue to perform well in weak mall locations, where they pay almost no rent to landlords who are desperate to keep them. “They can do almost as much business in a ‘c’ center as in an ‘a’ center, but if the c centers close, it’s a problem. The Eastland Center outside Detroit shut down so what did Foot Locker do? They put up a freestanding store near the mall. There is a Victoria’s Secret customer in these lower-end markets and the department stores can look really bad. There’s less competition. With those c malls closing, Victoria’s Secret has to look somewhere else to make up the business. Maybe Express does a little bit of business in these centers, but even H&M doesn’t do business.”
Women carrying Victoria’s Secret shopping bags are still a familiar sight in malls and big cities, though the brand for the last few years has been struggling to reverse declining sales and recapture relevancy amid changing consumer tastes in the #MeToo era and shopping habits and increased competition, from Aerie, Soma, ThirdLove, Adore Me, Lively and Spanx. Competitors are showing real women with imperfections in their marketing, while Victoria’s Secret has stuck to its fantasy Angels.
Last fall, executives at Victoria’s Secret decided to return to the swimwear category, which seems like it’s a natural fit for the brand. Bras, lingerie, sleepwear and fragrance continue to be sold in stores and online.
John Mehas, ceo of Victoria’s Secret, isn’t a likely candidate to succeed Wexner since he’s only been at the retailer for about half a year, after running Tory Burch for two years. Earlier, Mehas had a 15-year run at the Ralph Lauren Corp., including serving as president and ceo of the Club Monaco division for more than 13 years. “He did interesting things there, but it didn’t make much money,” one source said.
His stature could rise if he turns the Victoria’s Secret ship around. “John is an outstanding retail merchant and we could not be more excited for him to lead Victoria’s Secret Lingerie to a new phase of success,” Wexner said when Mehas was hired in November. “Our number-one priority is improving performance at Victoria’s Secret Lingerie and Pink. In doing so, our leaders are coming in with a fresh perspective and looking at everything…our marketing, brand-positioning, internal talent, real estate portfolio and cost structure.”
Others indicated last week that Mehas has been aggressively trying to overhaul the business, including canceling a lot of merchandise. “He’s really redoing everything and he’s checking with Les every step of the way,” a source said.
“There are those who say Nick Coe is next in line,” said one human resources executive. “He’s done a good job at Bath & Body Works, but do you replace Les with a merchant or someone who is more of a big operator? My instinct is they would pick somebody who would be strategic, a big business guy, because L Brands is like a holding company with a portfolio of businesses. It probably needs a Lew Frankfurt type, rather than a Mickey Drexler type. It could the chief operating officer,” Charles McGuiga, who is also ceo and president of the Mast Global arm of L Brands.
“So much of the job of the ceo is investor-related communications,” the executive continued. “Or they could bring back Sharen Turney. She got pushed out of running the Victoria’s Secret business which at the time wasn’t good, and Les stepped in and thought he could do better. But inside the company, there can’t be more than two or three people now.” (Officially, Turney retired as ceo of Victoria’s Secret in 2016, ending a 16-year run that saw the retailer grow substantially).
One retail expert compared Wexner to Ralph Lauren. “They’re two towering figures that don’t want to let go of any control. Wexner is over 80 but the idea of succession, you would think it would have been handled 15 years ago. I’ve heard nothing. Les is never going to retire, absent of something draconian with Epstein. He’s entrenched.”
“Wexner would have to be forced out — he would not relinquish control voluntarily,” said another financial source. “He’s cycled through so much talent because he gives big titles/packages and then wants to control everything. Eventually his big hires feel undermined and leave.”
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