GameStop (NYSE:GME) has lost more than 70% of its market value over the past five years, as digital downloads have disrupted its business of selling new and pre-owned video games. During the same period, competition from superstores and online retailers impacted its sales of gaming consoles and accessories, while sluggish mall traffic exacerbated the pain.

Those problems caused many investors to dub GameStop the "next Blockbuster," but some investors still believe that the beaten-down retailer can stage a comeback. Two of those long-term investors, Hestia Capital and Permit Capital, recently penned an open letter to GameStop, calling for the company to shake up its board and boost shareholder value.

Investors review a company's balance sheet.

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Hestia and Permit, which together own a 1.3% stake in GameStop, aren't typically activist investors. However, the firms now believe that they should take an activist stand to address GameStop's "destruction" of shareholder value.

Hestia and Permit warned the board, "[I]f this letter fails to elicit an acceptable response, we are prepared to take our proposals directly to stockholders and nominate directors for election at the Company's 2019 annual meeting." Will this activist push gain momentum and break GameStop out of its multiyear rut, or will it fall on deaf ears?

Replacing a "stale" board

Hestia and Permit's main complaint is that GameStop's turnaround efforts are practically nonexistent. The firms note that over the past five years, they can't "identify any significant steps the [c]ompany has taken -- besides the introduction of collectibles -- to adapt to disruptive dynamics in its core business."

Hestia wrote a similar letter in February, which seemingly prompted GameStop to extinguish more debt and authorize a new buyback plan, but the firms claim that "these measures do not go far enough in scale or commitment to result in meaningful change for stockholders."

Hestia and Permit believe that GameStop's board has grown "stale," with its directors having an average tenure of 11 years. They want to refresh the board with "new, independent directors with relevant experience to focus on: optimizing the business, returning capital to stockholders, rebuilding company leadership and assessing the failed sale process." (Here's more background on the company's unsuccessful attempts to attract a buyer.)

Hestia and Permit also noted that GameStop's board members don't own much of its stock relative to their annual pay, which suggests that their interests are "not well-aligned with stockholders."

What are the activists proposing?

Hestia and Permit believe that GameStop could cut over $50 million from its annual selling, general, and administrative (SG&A) expenses by reducing SG&A from 24.2% of its revenue over the past 12 months (excluding its tech brands unit) to 23.5% of revenue.

A group of young adults play a video game.

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The firms also believe that GameStop's creation of the tech brands unit, which was recently downsized by the divestment of its Spring Mobile stores, distracted it from "leveraging its competitive strengths and maximizing revenues in the core gaming business." Hestia and Permit believe that GameStop should return a significant portion of its estimated $1.5 billion in cash to shareholders, so that management isn't "tempted" to diversify into other non-core markets.

The firms note that GameStop is trading at a historically low valuation (with a forward P/E of 5), so it should repurchase more shares and issue a tender offer of up to $700 million for existing shareholders. They believe that the "fair value" for GameStop is "at least $19" -- which is more than 70% above its current price.

Hestia and Permit also want GameStop to rebuild its leadership, after suffering a streak of major executive departures. (The company has had five CEOs over the past two years.) The firms want a new board to focus on rebuilding GameStop's executive team and hiring a permanent CEO.

Can Hestia and Permit force GameStop to change?

GameStop is clearly in trouble. Analysts expect its revenue and earnings to decline for the foreseeable future as it struggles to stay relevant in a market dominated by digital downloads and e-tailers. Sales of accessories and collectibles were robust last quarter, but the strength of those smaller businesses couldn't offset softer demand for pre-owned video game products.

GameStop is benefiting from strong demand for Funko's collectibles, Fortnite-themed products, and Turtle Beach's gaming headsets -- but these popular products are also widely available from mass merchants and online retailers.

Like Hestia and Permit, I think GameStop's turnaround plans are sluggish and unfocused. But even if GameStop follows Hestia and Permit's advice, I doubt that the plans will lead to a meaningful turnaround for GameStop -- which is already sliding headfirst down a slippery slope.