Hudson’s Bay Co. made it official Wednesday–the company has inked a deal to sell its Lord & Taylor business to Le Tote Inc. for 132.7 million Canadian dollars ($100 million).
The terms of the deal has HBC receiving 99.5 million Canadian dollars ($75 million) in cash upon closing of the deal, and a promissory note for 33.2 million Canadian dollars ($25 million) that is payable in two years. Le Tote, a subscription-based rental business, is in the process of securing financing for the full purchase price, and the transaction is expected to close before the start of the 2019 holiday season. HBC has the right to terminate the agreement if Le Tote is unable to secure committed financing within 45 days of the signing of the purchase agreement.
In addition, HBC will secure an equity stake in Le Tote and two seats on the company’s board of directors and certain rights as a minority shareholder, the Canadian company said. HBC and its real estate joint venture HBS Global Properties will retain ownership of all owned and ground-leased real estate assets connected to Lord & Taylor. HBC will be responsible for the rent payments–an annual liability of about 77 million Canadian dollars ($58.0 million)–at Lord & Taylor locations operated by Le Tote.
Le Tote will acquired the Lord & Taylor brand and related intellectual property assets, as well as assume operations of 38 stores, Lord & Taylor digital assets and inventory. Le Tote also is expected to extend employment offers to the majority of Lord & Taylor associates.
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HBC said that starting in 2021, the two companies “will have options to reassess the Lord & Taylor store network.” Those options include HBC recapturing select locations for possible redevelopment. For any locations that HBC recaptures, it will retain the long-term rent responsibility and cost for redevelopment.
HBC said that in fiscal 2018, Lord & Taylor represented nearly 1.4 billion Canadian dollars ($1.05 billion) of HBC’s 9.4 billion Canadian dollars ($7.08 billion) in retail sales.
HBC said in May that it was exploring options for its Lord & Taylor business.
“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 chief executive officer, said.
Rakesh Tondon, Le Tote’s CEO and founder, said, “Since founding Le Tote, it’s been our mission to push the boundaries of retail. We’ve strived to lead the charge in developing innovative, intuitive, value-driven ways for customers to engage and consume…. With this acquisition, we continue our journey in creating the future of retail.”
Tondon co-found Le Tote with Brett Norhart in 2012.
A report from ResearchandMarkets.com on “Online Clothing Rental market by End-users and Geography–Global Forecast and Analysis 2019-2023” said category has an compound annual growth rate of almost 11 percent during the forecast period.
Jon Beck, CEO of Columbus Consulting, said the apparel rental subscription business has a “lot of growth potential [and] will continue to evolve over time as customers and the market matures.” Because the model embraces sustainability, he said, using it along with a mix of other digital and physical retail strategies will allow Le Tote and Lord & Taylor to deliver on customer expectations and boost shopper loyalty.
“But driving profitability and sustainability won’t be easy,” Beck said. “To be successful, it’s critical that the company establishes a consumer-centric supply chain and aligns that to the right balance of assortment.”