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Inside Le Tote’s $100 Million Bet on Lord & Taylor

For direct-to-consumer brands, the next frontier is the physical space, and Le Tote’s CEO said buying Lord & Taylor for $100 million allows the DTC brand to scale its brick-and-mortar infrastructure much faster than if it had chosen to build the base itself.

Rakesh Tondon, who helms the subscription apparel rental business, told the audience on Tuesday at the Evolving E Summit, co-hosted by GGV Capital and Max Ventures in Manhattan, that Le Tote was already in talks with Hudson Bay Co. about a partnership that would have placed branded shops inside Lord & Taylor stores, as well as license its rental technology to offer the service to the department store’s customers.

Le Tote was founded as a rental service and essentially operates as a monthly subscription, although it has evolved to allow customers to buy instead of rent.

“As our partnership communications [continued], HBC decided to sell [and then] we thought about whether we could purchase it,” Tondon said, adding that existing customers had already been asking for different ways they could shop the service.

And what also helped spur the deal was a similar psychographic among the two brands’ customer bases. While Lord & Taylor skewed older, Tondon said his customers had also gotten older as Le Tote itself grew out of the early startup phase. Le Tote and Lord & Taylor also sold many of the same or similar brands.

Tondon’s realized that foregoing the Lord & Taylor acquisition opportunity would stall an expansion into its own brick-and-mortar stores by as much as four years. The deal allows Le Tote to “capture the 7 million customers who walk through the Lord & Taylor stores,” he explained.

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Lord & Taylor’s brand is well known already and brings in $1 billion in loyal revenue. The way Tondon sees it, what the 193-year old nameplate needs is a dose of technology injected into its operations to bring the legacy department store retailer into the modern age.

Reviving the storied brand will requite more than a tech injection to update operations, something Tondon acknowledged. While Lord & Taylor employees are accustomed to operating with the mindset of simply preserving market share, “We say, how do we grow faster? In retail, flat is the new up. We’re thinking instead: how do we grow 30, 40, or 50 percent a year,” Tondon explained.

And instead of focusing on a flagging customer base, Le Tote is thinking not only about how to better engage the customer but also how to attract fresh blood. “We’re looking at understanding what are the [customers’] pain points that is dragging Lord & Taylor down,” Tondon said.

Le Tote’s first task will be investigating why customers aren’t spending more if they’re satisfied with the Lord & Taylor shopping experience. Tondon queried whether it was a problem with the site, noting that the Lord & Taylor has lost millions in potential sales because customers were unable to complete the checkout process.

As for how to combine the mindset of the newer, younger Le Tote operation with the less nimble old-school retailer, Tondon said his plan is to upsell services to customers who walk through the nameplate’s doors, which means customers will soon be able to buy, rent and subscribe.

Le Tote plans to enliven Lord & Taylor with its data-driven, direct-to-consumer mindset. Armed with the knowledge that customers typically purchase cosmetics every 60 days to 70 days, it could ship products directly to customers’ homes or review data to determine potential overlap between buyers of Brand A and Brand B, for example. What’s more, patterns culled from weather data according to zip code could help optimize the product assortment across its rental markets.