Lord & Tay­lor Deal Seen Near

Though the fa­mous flag­ship and a few stores closed, the trans­ac­tion would leave the chain op­er­at­ing in­tact.

WWD Digital Daily - - Front Page - BY DAVID MOIN

Hud­son’s Bay Co. is close to re­veal­ing a deal to sell Lord & Tay­lor to Le Tote, a seven-year- old, San Fran­cisco-based sub­scrip­tion rental web site, ac­cord­ing to sources.

The deal would give new life to the strug­gling Lord & Tay­lor de­part­ment store chain by adding a di­rect-to- con­sumer rental ser­vice to the busi­ness model.

Lord & Tay­lor closed its Fifth Av­enue flag­ship and a few other un­pro­duc­tive lo­ca­tions this year. But the store still has a rep­u­ta­tion for broad and ap­peal­ing as­sort­ments in dresses, a cat­e­gory that works well for rental ser­vices, par­tic­u­larly with evening styles. Lord & Tay­lor also has re­spectable of­fer­ings in tai­lored cloth­ing and suits, which would be at­trac­tive to Le Tote.

Richard Baker, ex­ec­u­tive chair­man and gov­er­nor of the Toronto-based HBC, has a track record for in­no­va­tive deal-mak­ing and a Lord & Tay­lor-Le Tote hookup would be no ex­cep­tion.

Ac­cord­ing to sources, Le Tote will pay money and pro­vide some eq­uity in its busi­ness to HBC in re­turn for free rent at Lord & Tay­lor stores for a pe­riod of time. Le Tote has never op­er­ated stores be­fore, but would take over the Lord & Tay­lor store teams.

Lord & Tay­lor op­er­ates about 40 stores, and Le Toto will op­er­ate al­most all of them, sources said. More spe­cific terms of the deal could not be learned. HBC had no com­ment on Wednesday.

Sig­nif­i­cantly, the deal will en­able HBC to tap Le Tout’s tech­nol­ogy and data anal­y­sis re­sources to de­velop a vast rental busi­ness not only for Lord & Tay­lor, but also for Saks Fifth Av­enue in the U.S. and pos­si­bly even the Hud­son’s Bay de­part­ment stores in Canada. “It’s state-of-the-art tech­nol­ogy,” said one source.

Last May, when HBC re­vealed that Lord & Tay­lor was on the block, the com­pany cited a sale, joint ven­ture or a merger with an­other com­pany as pos­si­bil­i­ties. HBC also said strate­gic al­ter­na­tives in­volved the re­tail op­er­at­ing busi­ness of Lord & Tay­lor, sug­gest­ing that L&T’s real es­tate would be re­tained.

When HBC ini­tially said it was look­ing at al­ter­na­tives for Lord & Tay­lor, in­dus­try spec­u­la­tion cen­tered on the com­pany be­ing sold off piece­meal to dif­fer­ent re­tail­ers. Though the de­part­ment store over­all has been fal­ter­ing, it has some sub­ur­ban lo­ca­tions that gen­er­ate healthy sales and traf­fic such as in Scars­dale and Gar­den City, N.Y. Baker’s so­lu­tion would not only bol­ster HBC’s bal­ance sheet, but save an iconic re­tail name­plate and hun­dreds of jobs.

“This would be a big morale-booster,” to the store work­ers, said one of the sources.

“Most of the peo­ple will con­tinue work­ing at Lord & Tay­lor,” said an­other source close to the com­pany.

Le­tote.com, launched in 2012, has scores of ap­parel and ac­ces­sories brands on its web site and has at­tracted in­vestors in­clud­ing Azure Cap­i­tal Part­ners, Si­mon Ven­ture Group, Lerer Hip­peau, AITV,

Epic Ventures, Ar­se­nal Ven­ture Part­ners and Fun­der­sClub.

Le Tote’s mem­bers pay a flat monthly sub­scrip­tion fee to rent the fash­ions. The busi­ness was founded by Brett Northart and Rakesh Ton­don, who both pre­vi­ously worked at the in­vest­ment bank Ridge­crest Cap­i­tal Part­ners.

Le Tote made news about a year ago when it be­came the first U.S. sub­scrip­tion ser­vice to en­ter the Chinese mar­ket, con­sid­ered the largest e-com­merce mar­ket in the world. It’s been dubbed the “Net­flix of fash­ion” for its rapid growth.

The fash­ion rental ser­vice sends its mem­bers a cus­tomized box of cloth­ing and fash­ion ac­ces­sories they can wear as much as they like, and then send back for a new se­lec­tion. One of Le Tote’s points of dis­tinc­tion is its ma­ter­nity di­vi­sion, which relieves the frus­tra­tion women have spend­ing money on new clothes dur­ing preg­nancy which only get worn for a short pe­riod of time. Le Tote op­er­ates on a monthly fee at $79, $89 for ma­ter­nity rentals.

The trans­ac­tion with Le Tote fur­thers a string of other bold ma­neu­vers by He­lena Foulkes, chief ex­ec­u­tive of­fi­cer of Hud­son’s Bay to stream­line the com­pany and fo­cus on the Saks Fifth Av­enue and Hud­son’s Bay de­part­ment stores.

“This re­view of strate­gic al­ter­na­tives for Lord & Tay­lor is an­other ex­am­ple of how we are ex­plor­ing op­tions to po­si­tion HBC for long-term suc­cess,” said back in May. “Over the last year we have taken bold ac­tions and made fun­da­men­tal fixes that have re­sulted in a far stronger, more ca­pa­ble HBC, hav­ing re­turned to pos­i­tive op­er­at­ing cash flow, in­creased prof­itabil­ity, and hav­ing strength­ened the bal­ance sheet.”

Those ac­tions in­cluded clos­ing the his­toric Lord & Tay­lor flag­ship on Fifth Av­enue in Man­hat­tan last Jan­uary and sell­ing it to WeWork, now known as The We Co. At least four other L&T stores have been closed. The com­pany said last year that up to 10 lo­ca­tions could close.

In other down­siz­ings of its re­tail oper­a­tions, HBC ear­lier this year shut­tered its Home Out­fit­ters chain in Canada and said it would close up to 20 Saks Off Fifth stores in the U.S. The com­pany is per­form­ing “a fleet re­view” of the 133 Saks Off Fifth chain and could try to sell it. Saks Off Fifth has been yield­ing poor re­sults for sev­eral sea­sons, even though the off-price sec­tor, led by T. J. Maxx, Ross Stores and Burlington, is among the strong­est in the re­tail in­dus­try. HBC also last year sold off Gilt Groupe to Rue La La.

In Europe, too, HBC has been stream­lin­ing. Last year, the com­pany sold off a ma­jor­ity in­ter­est in its Euro­pean re­tail oper­a­tions to Signa Hold­ings, which owns the Karstadt de­part­ment store chain in Ger­many, and a 50 per­cent stake in its Euro­pean real es­tate. The sale to Signa led to a merger of the Kaufhof and Karstadt de­part­ment store chains in Ger­many.

Lord & Tay­lor’s store in Man­has­set, N.Y.

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