Hudson’s Bay Company (HBC) has announced plans to sell its US department store chain Lord + Taylor to Le Tote, a clothing subscription and rental business, for US$100 million ($149 million).
The decision, announced Wednesday, August 28, will enable the Canadian retail company to focus on its other department store businesses: Saks Fifth Avenue and Hudson’s Bay.
HBC, which also owns German department store chain Galeria Kaufhof, called these its “greatest opportunities” in a statement to investors.
“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,” Helena Foulkes, HBC’s CEO, said in a statement.
“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.”
Founded in 2012, Le Tote is a subscription company that lets users rent a certain number of clothes and accessories for a flat fee every month.
It operates a similar model as Trunk Club, which Nordstrom acquired in 2014 for an estimated US$350 million, according to media reports at the time.
Le Tote’s acquisition of Lord + Taylor demonstrates how much the power dynamic between traditional retailers e-commerce disruptors has shifted in the past five years.
Under the terms of the agreement, Le Tote will acquire the Lord + Brand brand and related IP, and assume operations of its 38 stores, digital channels and associated inventory.
Rakesh Tondon, Le Tote’s founder and CEO, said the company will establish drop-off points for its apparel rental business in Lord + Taylor stores, and use its technology to improve product recommendations and personalised shopping experiences, Reuters reported.
“We want to keep the Lord & Taylor brand (and) energize it, (but) not change too much too quickly,” Tondon said.
Le Tote said it expects to extend employment offers to the vast majority of Lord + Taylor’s associates.
Under the terms of the agreement, HBC will receive US$75 million in cash upon the transaction’s closing, which is expected to occur before the start of the 2019 holiday season, and US$25 million in cash after two years.
In addition it will receive an equity stake in Le Tote, two seats on the company’s board and certain rights as a minority shareholder.
HBC, through its real estate joint venture, will retain ownership of all owned and ground-leased real estate assets related to Lord + Taylor, and will maintain economic responsibility for the rent payments owed by Lord + Taylor for at least the first three years.
The company expects to be liable for approximately C$77 million in Lord + Taylor total cash rent on an annual basis.
Starting in 2021, HBC and Le Tote will have options to reassess Lord + Taylor’s store network. This may include HBC recapturing select locations for the possibility of redevelopment into mixed-use properties with a variety of services, experiences and retail offerings.
Lord + Taylor represented C$1.4 billion, or roughly 14 per cent, of HBC’s total retail sales in FY18, the company ended up booking a C$119 million loss attributable to the department store chain.
Le Tote, a private company, was most recently valued at US$180 million, according to Forbes, having raised over US$60 million in funding, according to TechCrunch.
The company is in the process of securing financing for the purchase price.