Bath & Body Works: The Last Brand Standing
How the soap and candle chain went from under-the-radar champ to L Brands' best hope in a post-Wexner era
Around 3 a.m. in the deep of a February night this year, a text message lit up the cellphones of top L Brands executives. After months of negotiations, a deal—THE deal—had been struck, selling off the company’s signature enterprise, Victoria’s Secret, to private equity firm Sycamore Partners. The longtime star of women’s underwear, the brand that liked to claim it essentially invented the specialty lingerie sector, Victoria’s Secret was about to gather its things and quietly tiptoe out of the room.
That news was amplified by another huge development. As part of the deal, Les Wexner, the founder of L Brands who’d built it from a single Upper Arlington store into a multibillion retail empire, had agreed to walk away. For the first time in its nearly 60-year history, someone other than Wexner—the longest-serving CEO in the Fortune 500—was going to run L Brands.
Despite those two seismic events, company executives weren’t panicking. Even though Victoria’s Secret was struggling mightily in the face of digital disruptions, a cultural backlash, allegations of a misogynistic work culture and Wexner’s connections to disgraced money manager Jeffrey Epstein, the executives were confident they could count on their new corporate anchor, another L Brands chain that had quietly grown into a retail juggernaut. Bath & Body Works isn’t as sexy as its flashy corporate sibling, but it sure makes Wall Street swoon. Sales for its portfolio of soaps, lotions and candles have been rising every year for almost a decade, and its quarterly earnings growth easily outpaced nearly every mall-based retailer. With $5 billion in annual revenue and an extremely loyal customer base, Bath & Body Works is an outlier in a retail sector on a lifeline.
That truth was validated a few weeks later, when a global pandemic caused an economic crash and the cancellation of the much-vaunted Victoria’s Secret sale. Amid this chaos, the new flagship brand was ready to rise to the occasion.
In early March, as cities around the nation began reporting their first COVID-19 cases, L Brands was taking steps to safeguard customers and employees while also starting a new era. At its Morse Road mothership, the huge video screens no longer showcased images of Victoria’s Secret Angels prancing down runways wearing wings, high heels and lacy unmentionables. Instead, they displayed wholesome images of soaps and candles from the company’s new star, Bath & Body Works.
But only days later, L Brands was scrambling. On St. Patrick’s Day, the company shut its Victoria’s Secret and Bath & Body Works stores, sent tens of thousands of employees from their offices to work from home and withdrew financial guidance for the quarter. Then, in April, Sycamore Partners filed suit to back out of its deal to take over Victoria’s Secret. Scant weeks later, L Brands agreed to call off the sale, averting a bitter and likely costly legal battle.
During the pandemic, the strengths of Bath & Body Works quickly emerged, with consumer appetite for soaps and sanitizers skyrocketing. Moreover, new L Brands CEO Andrew Meslow says the company has benefited from making nearly all of its products in the U.S., with a large local presence at New Albany’s Personal Care and Beauty Innovation Campus. Meslow says that advantage has allowed Bath & Body Works to “really chase into trends.”
The results have been impressive. While L Brands’ overall second-quarter sales dropped 20 percent from the previous year, Bath & Body Works experienced a 13 percent increase, with internet sales jumping an astonishing 191 percent. Business is so brisk, in fact, that while other retailers close stores permanently and teeter on the brink of bankruptcy, Bath & Body Works plans to open 27 new locations this year.
Wall Street has definitely noticed the sales growth and approves of L Brands’ plan to reduce costs by $400 million a year, including cuts of about 15 percent of the jobs at its corporate offices in Columbus and around the world—about 850 positions (in Ohio, just 5 percent or so of the jobs were at BBW, according to state filings). Since March, when the stock market cratered, shares of L Brands have tripled and were trading at more than $30 per share in early September, the highest price in more than a year. “We view BBW as among the least volatile, higher-growth concepts in the sector and as a core holding,” says MKM Partners analyst Roxanna Myers.
By now, almost every one of Bath & Body Works’ more than 1,000 stores has reopened. To ensure safety, store managers take the temperature of employees, who are required to wear masks and, in some cases, gloves. The company has also reduced hours and increased cleaning. At the BBW store at Easton Gateway, one of the first to reopen in mid-April, a sign reads, “Spread Love, Not Germs.”
On a busy day in August, an employee is stationed outside the Easton store to make sure that customers wear face coverings and are safely distanced. All stores have significantly limited the number of customers allowed inside to 30 percent of maximum. In many stores, fixtures have been rearranged to maintain 6-foot distancing and to help form lines for the checkout counters, which all have now-familiar plastic shields.
One of the biggest challenges posed by these new arrangements is this: How do customers smell a fragrance with a piece of fabric over their noses? “We’ve seen comments about that in social media,” an L Brands insider says with a chuckle. “They say, ‘I had to buy a candle to test the smell.’”
It was so very different in 2012. Back then, with the Great Recession receding in the rearview mirror, annual dividends increasing at L Brands, and Victoria’s Secret bras still a smash hit in the mall and on the company’s annual televised fashion show, Wexner sat down with me for a long-delayed interview in his corporate office. The retail tycoon was in a good mood, talking not only about his business achievements but also showing off photos that he had shot of his wife, the revered philanthropist Abigail, and their four growing children.
In the wide-ranging conversation, Wexner talked about what pushed him to reinvent his company so many times, selling off brands and diving into new ventures. “I can’t remember who it was, but in business school at Ohio State, they talked about life cycles—the notion that businesspeople who owned stagecoaches didn’t migrate to sailing ships, and sailing ships didn’t migrate to steamships or to the aircraft industry. They were all in transportation, but they defined themselves by horses or sailing or steam.
“So how do you define your business? It was kind of a strategic thought to dump on a 19-year-old.”
That became a foundational idea for Wexner. “I would ask myself that every year: Are we getting better at a skill that’s obsolete? We’re opening multiple apparel businesses. Do we have multiple stagecoach lines?”
A few years after that 2012 interview, push-up bustiers seemed like they were becoming the new buggy whips. And unlike in the past, Wexner was slow to identify this trend. As upstarts in the lingerie sector like Aerie began to post explosive growth by catering to new beauty ideals, Victoria’s Secret sales dropped quarter after quarter and then year after year. What’s more, the brand’s definition of sexy—flashy fashion shows, impossibly thin supermodels—found itself squarely in the bull’s-eye of the #MeToo movement. Adding to that nightmare was the toxic shadow of pedophile Jeffrey Epstein, Wexner’s former personal adviser, who reportedly told women and young girls that he was a modeling scout for Victoria’s Secret. The Epstein saga led to an onslaught of unflattering media coverage, including a New York Times investigation that revealed an “entrenched culture of misogyny, bullying and harassment” within Victoria’s Secret.
Reputation matters to Wexner. When The Limited was only a decade or so old, he recalled in 2012, someone told him his legacy would be The Limited, his original business. “I thought, ‘If I’m defined by a brand, what a sad commentary about life,’” Wexner said. “There’s more to life than that. What really matters is what you think about yourself in the here and now. Are you proud of what you’re doing? You should be proud when you think about what you’ve done for your community.”
Columbus appears to be standing by Wexner, who’s earned an enormous amount of goodwill in the city for his philanthropy and civic leadership. But recent events have tarnished his reputation beyond Central Ohio, and he came under intense pressure to step down from L Brands. Speaking at the company’s May annual meeting, held virtually for the first time, Wexner explained his decision to resign. “When I look in the mirror, I see a person who is very content and happy,” he said. “I know the business will be in terrific hands. I always felt that I’ve been lucky to work with what I think are the best people in the world.”
In 1990, Lee Peterson worked at what was then known as Limited Brands when Wexner launched Bath & Body Works. What drew Wexner to the fragrance category—soap, candles and perfume—were the eye-popping profit margins. These products cost “practically nothing” to make, says Peterson, now an executive vice president at WD Partners, a Dublin retail-consulting company. “When Les learned this, he was probably drooling,” Peterson says.
Product development is also relatively simple in this sector, Peterson says—especially compared to bras. “With a fragrance it’s easy,” he says. “Once you test it and it’s good, you can make enough to fill a dump truck. Ever see the back of a cement mixer? That’s the size of the tanks they mix it in. Then it becomes a branding and marketing issue—how to make a cool label, an interesting bottle,” and design a store that engages customers.
Additionally, the chain is more nimble than other retailers. Peterson says Bath & Body Works excels at pushing successful products into stores quickly, packaging them into baskets for moms, grandmothers and others, and keeping fresh each store’s “third window,” the critical first 6 feet customers see when they walk through the front door. “They have relatively small stores, high profit margins, great product extension, bundling that’s out of this world and a loyal customer base that ranges surprisingly across ages and genders,” Peterson says.
L Brands has long approached Bath & Body Works like a fashion play, following product development and packaging practices common in that sector and hiring people who come from fashion. That includes Meslow, the new CEO of L Brands. He was promoted to the top job after serving as chief operating officer of Bath & Body Works for the past eight years.
Meslow, who turned 51 in May, was educated at Princeton University and began his career at Ann Taylor’s Loft brand before joining Banana Republic and rising to chief financial officer. He came to L Brands in June 2003. “It’s an incredible honor to be leading this company,” Meslow says.
Insiders describe Meslow as a shy, self-effacing “numbers guy.” Unlike some executives who try to lead with a whip, Meslow is known as a low-profile listener and consensus builder. And that listening extends to Bath & Body Works customers. “We have a tremendously loyal customer,” Meslow says, “[and] we look closely at customer mix. We have a tremendously large and diverse customer base, and we’re able to monitor both channels—stores and direct [online].”
To keep a finger on the pulse of those customers, the company constantly tests new products and new store design elements. Sometimes those tests are quietly rolled out in a dozen or so stores; other times, they are more formally tested by longtime customers who visit a mockup store in the company’s East Side warehouse.
Anita Burke of Powell has been a Bath & Body Works customer and fan since the business first opened. “I actually did some focus group studies with them,” she says. “It was like walking into a regular store but at the warehouse. They wanted you to browse as if you were actually shopping, and then they did a Q&A afterward. They asked how you felt about this display, about that product, those kinds of things.”
That focus group was one of many that led the brand to create a sleeker store design that Burke likes. “It has a nicer feel to it—not that I disliked the other one.” But it’s the merchandise that brings Burke back time after time. “I’m kind of a clean freak,” she says. “I joke that I spring clean my house before spring actually comes, so I’ve always used the hand soap, the hand sanitizers, the body lotion.”
As a suburban wife and mother, Burke fits the typical profile of a Bath & Body Works customer. But she has a friend, Chad Gabriel, a brawny Powell firefighter, who breaks the mold. “You would never in a million years think Chad would be a fan,” she says. “But he’s lighting candles all over his house. I don’t even know what the ‘Scent of the Month’ is, but he does.”
Gabriel discovered the brand through his wife. He started buying soaps as gifts for her, and then when the chain added men’s shower products to its lineup, he picked some up for his bathroom. Although he acknowledges he is a big fan of the retailer, he has yet to bring in any of its soaps to the fire station.
How will L Brands continue to evolve with Bath & Body Works as its dominant force? Is the company now a one-trick pony? Could it change its stock symbol from “LB” to “BBW,” and is Wexner’s whole notion of a variety of retail chains under one roof about to go the way of, well, steamships?
Company executives aren’t eager to answer these questions publicly; they’re more focused on managing through the pandemic and its disruptions. They do stress, however, that L Brands will remain a civic force, continuing to support a wide variety of social and community causes through its charitable arm, the L Brands Foundation, one of the city’s most prolific and generous corporate benefactors. During the early days of the coronavirus crisis, for example, Bath & Body Works donated 15 semi-truck loads of soap—that’s a half-million bottles of liquid soap—to help equip local nonprofits and first responders.
But those questions probably take a back seat to the other major unknown hovering over L Brands today: How will life without Les play out? While Wexner is “content” with his decision to hand off his duties as CEO to Meslow and chairman of the board to Sarah Nash, the CEO of Novagard Solutions and a longtime investment banker at JPMorgan Chase, Wexner does remain on the board and has the title of chairman emeritus.
Analysts at Wall Street investment firm Jefferies & Company are skeptical that Wexner is going to ride off on one of his wife’s horses and into the New Albany sunset. “Will Les Wexner really be away? We don’t think so, and it will likely be a problem for [L Brands] and Bath & Body Works.” A vocal critic of L Brands, Jefferies analyst Randal Konik adds, “He is Les Wexner, he always will have a say.”
Indeed, Wexner controls about 17 percent of L Brands stock and, even in his 80s, remains extremely active. And he has long looked askance at the notion of retirement. But for the first time in decades, he is not an employee of the company he founded in 1963, even if he remains on the board. Everything indicates that he has taken his victory lap and is likely to focus his energies on community involvement rather than corporate intrigue, those close to Ohio’s richest man say.
“I’m grateful for Les and all that he has done to build this business and for all the time that he has devoted to mentoring and coaching me and other leaders of our business,” Meslow says. “I feel very fortunate to have spent almost two decades learning this business from Les.”