• Le Tote will acquire the Lord & Taylor brand and related intellectual property, while assuming operations of 38 stores, Lord & Taylor's digital channels and inventory.
  • In 2021, HBC will have options to reassess the Lord & Taylor store network – which may include taking back some locations."
  • The deal will create a "new experience with fashion rental subscriptions, e-commerce and stores."
HBC has entered into an agreement for Le Tote to acquire Lord & Taylor

HBC has entered into an agreement for Le Tote to acquire Lord & Taylor

Canadian retailer Hudson's Bay Company (HBC) has inked a deal to sell its Lord & Taylor banner for US$100m to fashion rental subscription service startup Le Tote.

Le Tote, whose business model lets women rent clothing and accessories for a flat monthly fee with the option to purchase items at a discount, will acquire the Lord & Taylor brand and related intellectual property, and assume operations of 38 stores, alongside its digital channels and inventory.

HBC will receive $99.5m (US$75m) in cash upon the transaction's closing and a secured promissory note for $33.2m (US$25m) payable in cash after two years. In addition, HBC will receive an equity stake in Le Tote, two seats on the company's board of directors and certain rights as a minority shareholder.

The news concludes HBC's review of strategic alternatives for its Lord & Taylor business, which the retailer announced in May. 

"For HBC, this transaction builds upon our previous bold actions, further enabling us to focus on our greatest opportunities, Saks Fifth Avenue and Hudson's Bay" - Helena Foulkes

"We're excited to have reached an agreement with Le Tote that creates a new model for Lord & Taylor, bringing together fashion rental subscriptions with traditional retail," says Helena Foulkes, HBC's CEO.

"Following an extensive review of strategic alternatives, Le Tote's leadership and innovative approach is the best path forward for Lord & Taylor, its loyal customers and dedicated associates. For HBC, this transaction builds upon our previous bold actions, further enabling us to focus on our greatest opportunities, Saks Fifth Avenue and Hudson's Bay."

Rakesh Tondon, Le Tote's CEO and founder, adds: "Since founding Le Tote, it's been our mission to push the boundaries of retail. We've strived to lead the charge in developing innovative, intuitive, value-driven ways for customers to engage and consume. 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."

Under the agreement, HBC and HBS Global Properties, HBC's real estate joint venture, will retain ownership of all owned and ground-leased real estate assets related to Lord & Taylor. For at least the first three years, HBC has agreed to maintain the rent payments owed by Lord & Taylor at the locations operated by Le Tote. Net of HBC's distributions from HBS Global Properties, HBC expects to continue to be liable for about $77m in Lord & Taylor total cash rent on an annual basis.

Meanwhile, starting in 2021, HBC and Le Tote will have options to reassess the Lord & Taylor store network. This may include HBC "recapturing" and redeveloping some locations.

In fiscal 2018, Lord & Taylor represented $1.4bn of HBC's $9.4bn in retail sales. HBC's 2018 adjusted EBITDA was $462m, which reflects a $119m loss attributable to Lord & Taylor, inclusive of allocated corporate expenses.

Le Tote is in the process of securing financing for the full purchase price, with the transaction expected to close before the start of the 2019 holiday season.

What the analysts say

Paula Rosenblum, co-founder and managing partner at RSR, believes the deal is "strange on many levels."

"Lord & Taylor has been passed around from owner to owner for years, decaying the brand to the point most consumers, including me, have no idea who they are or what they stand for anymore. Don't forget, Lord & Taylor is now being sold on Walmart.com. The deal itself is also strange on many levels. For example, Hudson's Bay being able to take stores back in 2021 is something that doesn't make immediate logical sense. It's a sad end for a once proud lady who has fallen on hard times."

For Neil Saunders, managing director of GlobalData Retail, the move is an "interesting sale which underlines two things: First, how much the value of Lord & Taylor has eroded over the past few years. Second, that there was very little credible interest in the firm from other traditional retailers or the private equity segment. Both of these facts suggest that the company's business model is pretty broken."

He adds: "Rental is a fast-growing part of the market but it is not a panacea or a fix for all ills. Lord & Taylor can no more survive by moving more into rental than can Macy's or any other traditional player."

However, some of the ideas from Le Tote are worthy. "Localising assortments is sensible, having a rental service as part of the offer will build some interest, and focusing on smaller, more personalised stores is viable if executed properly. However, none of these things addresses the core issues: what does Lord & Taylor stand for, why is it different to others in the market, and why should customers shop there. There were no compelling answers to these things under HBC, and any new owner will have to correct that if it is to save the company."

Meanwhile, Jon Beck, CEO of Columbus Consulting, says the apparel rental subscription business has "a lot of growth potential."

He adds: "It will continue to evolve over time as customers and the market matures. Using this model that embraces sustainability, along with a mix of other digital and physical retail strategies, Le Tote and Lord & Taylor can continually deliver on customer expectations and boost shopper loyalty. But driving profitability and sustainability won't be easy. To be successful, it's critical that the company establishes a consumer-centric supply chain and aligns that to the right balance of assortment."