A year after rumors surfaced that HBC was looking into selling Lord & Taylor, the company made it official, saying last week that a sale is among the strategic options it’s now pursuing for its small, struggling department store banner.
It’s easy to find the rationale: Comps at DSG, (the HBC business that comprises Lord & Taylor plus the Canadian Hudson's Bay department store chain and now-shuttered Home Outfitters) fell 5.2%, in the company’s most recent quarter. Specifically, Lord & Taylor sales continued to decline year-over-year, the company also said last month. The $850 million that HBC garnered through its sale of Lord & Taylor’s Italianate Fifth Avenue flagship to coworking company WeWork demonstrates how the business’s real estate may be its most compelling asset. The banner has a fleet of 45 stores, mostly in the Northeast and Mid-Atlantic U.S.
It didn't used to be this way for Lord & Taylor, which, founded in 1826, is America's oldest department store. The chain was once a destination for women in search of smart styles. "It was a safe, classy store. It wasn’t over the top but it was a cut above the middle," Mark Cohen, director of retail studies at Columbia University's Graduate School of Business, told Retail Dive in an interview. "They had a lot of private label and key brands, they had really powerful assortments of day-to-day dresses, and day into evening. They had a famous 'little black dress' department. You could very comfortably put together a wardrobe [on a middle-class income]."
The company's appreciation of style was reflected in its architecture, not just at its flagship but also in suburbia, according to architect Bruce Kopytek, who writes about the heyday of department stores. It was innovative, too, in 1938 opening the first in-store eatery and clearing windows of merchandise for a holiday display; in 1940 taking a chance on American fashion designers; in 1945 tapping a woman, Dorothy Shaver, as president; and in 1952 launching a personal styling service, according to HBC's timeline. It was Shaver who brought sleek, off-white free-standing stores with a "country club feel" into the hearts of suburban towns like Manhasset on Long Island, Scarsdale, New York, and Chevy Chase, Maryland, according to Kopytek. Their interiors also reflected a "modern, personal design concept" that made room for interactions between salespeople and customers, he said.
But "women don’t wear dresses like they did years ago and I don’t think [Lord & Taylor] had the merchandising chops," Cohen said, to react to new realities. That ground has been ceded to specialty players like Modcloth, which has created an online community among its customers and swiftly responded to demand for iterations like dresses with pockets.
In fact, much of Lord & Taylor's expertise went missing under its more recent owners, he and other analysts say. The trouble began when The May Company took it over in 1986 and streamlined operations so that merchandising was centralized — and less personalized, according to several experts. Macy's then bought May, and, eager to trim its portfolio, unloaded Lord & Taylor to real estate mogul Richard Baker in 2006 for the relative bargain of $1.2 billion, launching Baker's retail career. (Two years later he bought Canadian department store company Hudson's Bay, now Lord & Taylor's owner.)
"When HBC bought them they weren’t quite sure what to do with it," retail analyst and consultant Sanford Stein, author of "Retail Schmetail," told Retail Dive in an interview. "It might have been easier if they hadn’t gone through the meat grinder as part of the May Company."
Lord and Taylor, as Cohen sees it, was "basically orphaned." And that was practically and symbolically underscored by the WeWork deal, which he calls "the last straw."
The handling of Lord & Taylor stands in stark contrast to the $250 million "Grand Renovation" of Saks Fifth Avenue, the other American department store in HBC's portfolio. For Saks' flagship it commissioned an iridescent centerpiece Rem Koolhaas-designed escalator, moved a revolutionary 32,000-square-foot beauty area with spa services upstairs to the second floor, tripled the space dedicated to handbag sales on the main floor and opened a Parisian-style restaurant, L'Avenue at Saks. Lord & Taylor received a landing page on Walmart.com.
"Let's face it, the money's in Saks, and clearly they realize that the middle is going to be suffering," Bob Phibbs, CEO of the consulting firm The Retail Doctor, told Retail Dive in an interview. "Lord & Taylor was always a cut above Penney and a direct competitor to Macy's. But the middle is getting squeezed, unless you're willing to spend money on your stores like they did with Saks. Clearly they get it — that ability to wow shoppers — that’s the market."
But the company's problems aren't just its shrinking sales and customer base, according to Anika Sharma, professor at New York University's Stern School of Business, who also views the banner as struggling, like Macy's, in an uncomfortable middle. Its problem, rather, is that they lost their connection to their customers. "If I asked Lord & Taylor who their consumer is, they would come back with basic demographics," she told Retail Dive in an interview. "You always walked into the store because you saw them as an authority that would help you. Today that authority has become YouTube, or it’s your friend. All you’re really doing is trying to confirm what your mind has already made up."
"I don’t think you’re going to see any takers ... Who’s going to pick it up? There’s no retailer in business that would want it. At best you might see a private equity play that will pick it up and milk it dry."
Sanford Stein
Analyst, Consultant, Author of "Retail Schmetail"
The Lord & Taylor signature buyers and stylists are long gone, yet may have represented its last, best hope. "Who is saying, 'Help me plan your wardrobe or your trousseau'?" she said. "This is why brands like Stitch Fix are doing well. I would expect something like that from a place like Lord & Taylor, but the store is not doing well because they've taken those people out. They’re a depository of other brands, but they don’t stand for something."
That leaves Lord & Taylor more attractive as a real estate investment than a retail one. "I don’t think you’re going to see any takers," Stein said. "Who’s going to pick it up? There’s no retailer in business that would want it. At best you might see a private equity play that will pick it up and milk it dry."
Cohen speculated that Belk, now owned by private equity firm Sycamore, might see it as a way to expand, but noted that otherwise department stores are in the business of shrinking their footprints. "If no one comes forward at any reasonable price they probably have a liquidation value in mind and they’ll probably close it," he said, adding that they won't be able to walk away from lease obligations. "I think they’ve figured out what they’re able to do and are looking for alternatives that are more viable for them. Could be a real estate deal with a mall owner that doesn’t want the store to go dark, as with Aeropostale."
Neither that, nor its history, is much of a reason for its survival, however, Sharma says. "Just because Lord & Taylor is the oldest department store in the world doesn’t mean you have to save it," she said. "If Lord & Taylor closes down tomorrow, I would love to meet the person who’s going to miss it."
