Liquidity

Upstart ‘Le Tote’ To Acquire Nearly Two Century Old Retailer Lord & Taylor

A condensing market will make it rain, at least for some.

On Wednesday, Canadian retail conglomerate Hudson’s Bay Company (HBC) announced in a press release that it’s reached an agreement with 7 year-old San Francisco-based clothing rental upstart Le Tote to acquire 193 year-old department store chain Lord & Taylor.

According to the announcement, Le Tote will acquire Lord & Taylor’s brand, “and related intellectual property while assuming operations of 38 stores, Lord [&] Taylor’s digital channels and the associated inventory.”

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The price for the retail empire? A cool $100 million, paid out in two tranches. Le Tote will pay Hudson’s Bay Company $75 million (USD) in cash “upon the transaction’s closing” and a secured promissory note for an additional $25 million “payable in cash after two years.” Additional terms of the transaction stipulate that HBC will take an equity stake in Le Tote and will receive two seats on the startup’s board of directors.

To be clear, Le Tote is acquiring the Lord & Taylor business, but not all of its assets. HBS Global Properties, a real estate joint venture owned by HBC, “will retain ownership of all owned and ground-leased real estate assets related to Lord [&] Taylor.” HBS Global Properties and HBC have agreed to maintain financial responsibility for rent payments owed by Lord & Taylor to the shopping malls and other places where Le Tote will operate its stores. “Net of HBC’s distributions from HBS Global Properties, HBC expects to continue to be liable for approximately $77 million in Lord + Taylor total cash rent on an annual basis,” the company said in its press release.

Lord & Taylor may be a venerable retail brand, but is it a good business? The press release states that Lord & Taylor made up $1.4 billion (about 15 percent) of HBC’s retail sales in fiscal year 2018. However, “HBC’s 2018 Adjusted EBITDA was $462 million, which reflects a $119 million loss attributable to Lord + Taylor, inclusive of allocated corporate expenses.” Turning Lord & Taylor into a profitable business will be a tall order.

The press release states that Le Tote is “in the process of securing financing for the full purchase price.” The transaction is expected to close ahead of the 2019 holiday shopping season, though this too is a little touch-and-go. “If committed financing has not been obtained within forty-five days following signing, HBC has the right to terminate the agreement,” the company stated,

According to Crunchbase data, Le Tote has raised $62.5 million in venture funding. Le Tote participated in Y Combinator‘s Summer 2013 batch and is backed by firms like Sway Ventures, Lerer Hippeau, Azure Capital Partners, and Scrum Ventures, among others.

Illustration Credit: Li-Anne Dias

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