In a surprising move, Hudson’s Bay Company is selling the storied Lord & Taylor chain, which dates to 1826 in New York, to fashion rental subscription startup Le Tote for a relatively cheap $75 million upfront, and another $25 million via a promissory note in two years.
Le Tote will acquire Lord & Taylor’s 38 store locations, its digital channels, inventory, data and technology. Hudson’s Bay has agreed to pay rent on the properties for at least three years, totaling about $58 million annually. Lord & Taylor reported $1.4 billion in 2018 sales, about a quarter of it from online, out of HBC’s total revenue of $9.4 billion.
Helena Foulkes, CEO of Hudson’s Bay, said the company settled on Le Tote after an extensive review of strategic alternatives, adding “Le Tote’s leadership and innovative approach is the best path forward for Lord & Taylor, its loyal customers and dedicated associates.”
Forbes reported Le Tote, which launched in 2012 and rents clothes to subscribers for $79 a month, is currently valued at $180 million.
“Since founding Le Tote, it’s been our mission to push the boundaries of retail,” said Le Tote’s CEO and founder Rakesh Tondon in the release. “We’re excited to bring Le Tote together with Lord & Taylor, a storied brand that has stood for quality, style and service for nearly two centuries. With this acquisition, we continue our journey in creating the future of retail.”
Le Tote plans to reinvent Lord & Taylor, its founder, Brett Northart told CNBC. “The customers have spoken, and people are looking for smaller, more personalized locations — that’s something we do well at Le Tote,” said Northart. In addition to smaller format stores, it could include repurposing existing ones into mixed-use sites.
In fact, Hudson’s Bay and Le Tote have agreed to reassess the Lord & Taylor stores in 2021, to consider other “highest and best” uses for them. HBC and HBS Global Properties, HBC’s real estate venture, will retain ownership of all owned and ground-leased real estate assets related to Lord & Taylor.
“While retailers have invested in ways to transform their traditional operations, whether it be implementing systems to create more personalized shopping experiences or subscription-based services, when it actually comes to implementing these systems, it doesn’t always work,” said Ronen Luzon, founder and CEO of MySize ID.
Luzon said for example, retailers are still struggling to seamlessly couple their in-store and online operations. In recent years, this has worked against retailers because it diminished brand loyalty.
“Rental retail services have not only perfected a way to be less committed towards one brand, but also revolutionize their ecommerce operations,” said Luzon. “While it’s not easy to go from ecommerce to in-store, or vice-versa, there’s certainly strength in this sector, especially when looking at Le Tote.”
Luzon said comes down to knowing your customer and adapting to their needs, while also integrating new approaches to perfecting overall operations. Sadly, he said, they have seen a handful of stores unable to do this for their customers, and as a result have needed to close stores in the process.
“Hudson’s Bay’s deal is an interesting one to watch, especially as the holiday season is gearing up,” said Luzon. “If Le Tote is able to take their online customers, who represent almost half of their business, and drive them in-stores too, I don’t see why this deal wouldn’t make traditional retailers a bit nervous.”
John Nash, CMO at RedPoint Global said Le Tote’s acquistions of Lord & Taylor is yet another sign of how consumer preferences are changing the face of retail. Disruptor brands, particularly direct-to-consumer businesses, have upended the way consumer’s shop, forcing traditional retailers reevaluate engagement models to remain profitable.
“This type of acquisition reinforces the point that brands of all shapes, types and sizes trying to win over consumers need to ensure each customer is personally recognized across channels and devices, receiving offers that are relevant in their moment of need,” said Nash.
In the midst of declining sales, Hudson’s Bay executive chairman Richard Baker led a consortium filing to take the company private in June. Hudson’s Bay sold flash sale site Gilt to competitor Rue La La in 2017. Lord & Taylor’s flagship store closed on Fifth Avenue in New York City this year, after Hudson’s Bay sold the building in 2017. This past June it announced plans to close up to 10 Lord & Taylor locations.
MCM Musings: It’s very interesting and without precedent to see a historic retail chain sold to a subscription rental startup, as shopper’s changing demands fuel industry disruption. At the same time, subscription services are getting so hot, more major retailers are jumping on board. Two have done so recently, Bloomingdales and Banana Republic with the possible addition of Macy’s. Will Le Tote launch a Lord & Taylor-branded subscription service? Or will it use the Lord & Taylor locations to launch its own store-within-a-store concept? Time will tell. Subscription beauty brand Birchbox opened stores within Walgreens locations in 2018 to further its reach.