Hudson’s Bay Co. (HBC) has reached an agreement to sell its Lord and Taylor division to clothing rental subscription service Le Tote, the latest in a series of moves shifting the retailer’s focus to its two largest businesses.
The deal, announced by the two companies Wednesday, will see Le Tote takeover 38 Lord and Taylor stores across the United States, as well as the chain’s intellectual property, inventory and digital channels. HBC will receive $99.5 million (US$75 million) in cash when the deal closes and $33.2 million (US$25 million) in a note payable in 2021, as well as a 25 per cent equity stake in Le Tote and two seats on the company’s board, Le Tote founder and president Brett Northart confirmed on Wednesday.
HBC will also retain ownership of the Lord and Taylor locations it currently has, as well as ground-leased real estate assets. HBC has agreed to cover the rent of the Lord and Taylor locations for at least three years, which will cost the company $77 million per year. It also has the option to reassess the store network in 2021, which could include redeveloping the department stores into “mixed-use properties”, the company said.
The retailer, which also owns the Hudson’s Bay, Saks Fifth Avenue and Saks Off Fifth chains, currently operates 45 Lord & Taylor stores and is in the midst of closing two. A spokesperson for the company said HBC plans on closing an additional five stores, but did not specify which locations will be shuttering.
HBC’s stock closed at $10.22 on the Toronto Stock Exchange, an increase of 0.59 per cent.
‘Focus on our greatest opportunities’
The retailer had previously disclosed it had been mulling a sale of the U.S.-based department store chain, which had been struggling since HBC acquired it in 2012. Lord and Taylor brought in $1.4 billion of HBC’s $9.4 billion in retail sales, but reported a loss of $119 million last year.
The sale comes as chief executive Helena Foulkes tries to simplify the company’s overall business and operations while shifting the focus to its two largest divisions – Saks Fifth Avenue and Hudson’s Bay.
Foulkes reiterated that strategy in a statement released Wednesday.
“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,” Foulkes said.
The deal is expected to close later this year. But customers shouldn’t expect major changes at Lord and Taylor stores immediately after Le Tote takes over, says Northart, the company’s co-founder and president.
“I don’t think you’re going to see a dramatic change overnight. We’re going to start layering services and products that make sense for the customer,” he said in an interview with Yahoo Finance Canada.
“We’re not going to take these stores and immediately turn them into something like a rental-only store.”
Northart also said that the company plans on using the 38 Lord and Taylor stores to provide a touchpoint for its existing customers, as well as experiment with a broader offering.
“(We want to see) what technology are we uniquely suited to build and deliver a more interesting experience to the customer and really lead by innovating and evolving the model,” Northart said.
The Lord and Taylor sale comes as a group of majority shareholders, led by HBC’s executive chairman Richard Baker, try to take the retailer private at $9.45 per share. The bid has been slammed by activist investor Jonathan Litt, as well as HBC’s special committee analyzing the offer, for being “inadequate.”
Litt, the cofounder of Land and Buildings Management Investment LLC, also called for Baker’s resignation earlier this month, releasing a letter to shareholders that accused the executive chairman of attempting to “disenfranchise” minority shareholders with his bid.