Will Lord & Taylor Survive Potential Sale By Parent Company Hudson’s Bay?


Iconic Department Store Lord & Taylor May Have Outlived Its Place On the Retail Landscape

The fate of Lord &Taylor, which closed its flagship store earlier this year, is up in the air. Hudson’s Bay, which owns Lord & Taylor and Saks Fifth Avenue, has hired a financial adviser to review Lord & Taylor’s business, and that review could lead to a sale or a merger.

HBC has retained PJ Solomon as its financial adviser for the review of the Lord & Taylor operating business.

Hudson’s Bay Co., based in Toronto, owns more than 40 Lord & Taylor locations around the country, including locations at The Palisades Center, Vernon Hills Shopping Center in Scarsdale, and Ridge Hill in Yonkers.

The Lord & Taylor chain, founded in 1826, is the oldest department store chain still operating in the United States. However, Lord & Taylor has been struggling in recent years, as it failed to adapt to changing shopping habits and the growth of e-commerce as quickly as rivals like Nordstrom (NYSE:JWN).

Lord & Taylor is low-hanging fruit for the HBC. The middle-of-the-road department store banner saw its year-over-year sales decline, and together with Hudson’s Bay and the now-shuttered Home Outfitters, store comps fell 5.2%.

HBC has long worked to take advantage of its real estate, and Lord & Taylor’s value to HBC is increasingly difficult to find in its department store operations, while easier to find in its property holdings. In February it closed on the sale of the Lord & Taylor Fifth Avenue building to WeWork Property Investors for CAD$1.1 billion, or $850 million, so the value of that building alone nearly reached its annual sales.

Last year HBC was reportedly looking to unload not just the Manhattan flagship and its Skokie, Illinois, location (shuttered in 2017 after months of pressure from activist investor Land & Buildings Investment Management to sell off its best properties and deliver the proceeds to investors), but the entire chain.

That’s now officially on the table as part of a wider effort to bring HBC the utmost in profitability and potential for growth. The company in recent years has been simplifying its organization, strengthening its retail operations and unlocking the value of its real estate, and its review of its options for Lord & Taylor “is another example of how we are exploring options to position HBC for long-term success,” said HBC CEO Helena Foulkes. “Over the last year, we’ve 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 strengthened the balance sheet.”

Lord & Taylor closed two of its 50 full-line stores earlier this year, leaving it with 48 locations concentrated heavily in the Northeast. Back in June, Hudson’s Bay announced that it will move more aggressively to right-size the iconic department store chain’s footprint in 2019, by shuttering up to 10 more stores.

Earlier this year, Lord & Taylor confirmed that it will not renew the lease for its store at Oakbrook Center in the Chicago suburbs when it expires in January. Lord & Taylor decided to close its store at Monmouth Mall in suburban New Jersey, as that mall is slated for an extensive redevelopment. This location is also set to close next month.

While Lord & Taylor has announced these three store closures, that still leaves about seven more that have not been identified yet.

During Hudson’s Bay’s Q1 earnings call, CFO Ed Record said that none of the Lord & Taylor stores covered by the company’s North American real estate joint venture were likely to close. This joint venture with Simon Property Group and other big institutional investors is a vehicle to take outside investment in Hudson’s Bay’s top-notch real estate and showcase its value to investors.

Of Lord & Taylor’s 45 full-line locations not already slated for closure, 30 have been contributed to the joint venture, including the Palisades Center.

The seven remaining store closures will likely come from a pool of 15 possible stores.

About half of Lord & Taylor’s stores are in the greater New York region, meaning that there is a lot of store overlap. The Trumbull, Connecticut, store is one likely candidate for closure. There are two other Lord & Taylor stores 25 miles away in far more desirable locations. Furthermore, that store is about to face much tougher competition with the opening of a new mall anchored by Nordstrom and Bloomingdale’s in late 2019.

A relatively new store in Yonkers, New York, also may be closed, as it sits just five miles from Lord & Taylor’s extremely successful store in Eastchester.

Sales and profitability are the main factors Hudson’s Bay will consider when deciding which Lord & Taylor stores to close in 2019, but terms of its leases — and the desirability of the underlying real estate — will also affect the calculus.

For a store with an expiring lease, closing up shop is straightforward. But for a store where Lord & Taylor is locked into a long-term lease, the company would want to negotiate a buyout with the landlord. Hudson’s Bay was able to negotiate favorable lease buyouts for the two stores it closed earlier this year.

Landlords’ willingness to make similar concessions — or at least to keep any termination fees modest — will undoubtedly have some impact on Lord & Taylor’s final decisions.