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Lord & Taylor Teaming With Walmart, a Desperate Last Gasp or a Brilliant Move Toward the Future?

Think back just a few years. What would you think if you heard Lord & Taylor would start selling goods through a portal?

Unless you’re The Amazing Kreskin, it’s highly unlikely you would have grasped the potential benefits of a deal like that—for either party. But in the present day retail landscape, there’s at least as many arguments both pro and con.

While everyone’s been focused on the “retail apocalypse,” the real story to come out of 2017 might be the strange bedfellows that have emerged as everyone tries to plot a course forward.

In June, Amazon surprised industry watchers with its acquisition of Whole Foods. While the consensus was that the move made perfect sense—Amazon needed the doors and the grocery cred, while Whole Foods seemed to be losing its way—few could claim to have seen it coming. More recently, Kohl’s has teamed up with the e-commerce giant in a move that people have likened to sleeping with the enemy. Under that deal, the department store now plays host to Amazon shop-in-shops and welcomes the company’s e-commerce returns.

While Amazon’s been building these relationships, Walmart too has been busy adding to the chain’s core competencies. The retailer’s third quarter results that show a 50 percent surge in e-com business proves last year’s Jet acquisition has supercharged the company’s online know-how. A host of additional digitally native brands are also allowing it to buy into the apparel space, a market the company has historically faltered in.

So with that as the backdrop, this week’s announcement that Lord & Taylor will have a flagship store on might seem less jarring—though not everyone’s convinced.

“For Walmart, it’s a good deal. For Lord & Taylor, I’m less convinced,” said former May Department Store executive Jan Rogers Kniffen. “Walmart needs fashion brands and image like Amazon does. Walmart needs a higher image. They’re already moving that way. They’re trying to improve their fashion content.”

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For Walmart, Lord & Taylor and its brands could serve as a halo for the rest of the company’s online business, the CEO of J.Rogers Kniffen WWE retail investor consultancy, continued.

“Amazon doesn’t have much of a negative connotation, on Walmart, there is,” he said. “I do think that’s getting fixed with deals like Bonobos. They’re getting cooler and broadening out, and this will help.”

But that explains why the deal is appealing to Walmart. What of Lord & Taylor?

First, the department store chain is facing a multitude of issues—some of its own plus those of its parent company Hudson’s Bay Company.

In addition to all of the ills that are plaguing its brethren—low footfall, a too-slow supply chain, rising competitors that are trendier and faster to name a few—HBC also has to fight the store’s perception of “upscale, old and stodgy,” Kniffen said.

Given the retail environment, said Peter Killian, principal of The Cambridge Group, even for those who think the partnership is a long shot, they have to admit that doing something is better than doing nothing.

“You have to at least try something like this. Everything else seems like some sort of half measure. Their website isn’t enough of a destination for that to make an impact,” he said. “Unless a company is being big and bold, they might be interpreted as a company that’s trying to ride this out.”

[Read more about how companies are creating opportunities out of the retail turmoil: The Seismic Shifts at Retail are Bending, Not Breaking Flexible Brands]

So is this the last gasp effort of a desperate retailer on the ropes or the savvy maneuvering of a company that recognizes where the industry is headed and has decided to jump out ahead?

“I would not say desperate but I would say it’s intriguing and bold and it accepts some market realities that people have known for at least a few years now. People know malls are dying, the luxury brands that these stores sell are actually stronger than the stores’ brands themselves and the department store model is broken,” Killian said. “If it works, then there’s a lot of upside to be had to be leveraging their brand in the digital environment rather than the brick and mortar environment.”

Killian said the way retail is headed, it’s only smart to make inroads into digital and reduce reliance on physical stores—especially since there’s money to be made on the real estate as illustrated by HBC’s sale of the Lord & Taylor flagship.

A focus online could also give Lord & Taylor something it has never really had: a household name. “It’s never been a good business from an investor point of view,” Kniffen said. “It’s never had legs outside of the New York metro area. And that’s not likely to change.”

The retailer alluded to the need to extend the brand in the release announcing the deal, saying through it will reach “exponentially” more shoppers.

But will these new eyeballs reach for their wallets? Will Walmart shoppers be willing to splash out on Lord & Taylor goods? Conversely will Lord & Taylor customers be turned off by the Walmart brand? “There is some danger you could have the customer say maybe this isn’t the high-end company I thought it was,” Kniffen said.

There’s no doubt that for some “Walmart” only connotes “everyday low prices.” This perception became a liability when the mass merchant bought ModCloth and Bonobos.

One former fan of the ModCloth site commented on the company’s blog post about the deal, “What does Walmart know about this style? Business Insider reported one angry, presumably ex-customer posted on Bonobos’ Facebook page “This screams, ‘we have no idea who our customer is.’”

But that’s just it, Killian said. Today, the Walmart customer isn’t necessarily who you’d think they’d be—especially online. “The way that people have thought about the Walmart customer as a deep value customer is not as true as it once was, especially if you look at their online customer, or for a Jet customer that’s even less true. They tend to be more of the Amazon profile,” he said.

So why take the risk of seeming to go down market? Surely, Amazon would have been interested in a similar deal. Though with all of the private label brands the company has been rolling out lately and recent partnerships with Nike and holiday pop-ups featuring exclusive product with Calvin Klein, it could be argued the chain could have gotten lost in the shuffle.

“From the Lord & Taylor perspective, you might say ‘Are we going to be their priority or is this just something that’s an experiment?’” Killian said. “Walmart has a lot more to gain than an Amazon does and Walmart does need to play bigger in apparel and Amazon already is the biggest player in the U.S. as of this year. Lord & Taylor may not have gotten the attention and dedicated resources that Walmart is probably going to throw at this.”

It’s one reason why Killian is optimistic about the deal. Walmart is properly motivated to make this work because if it does, the floodgates could open with other brands that wouldn’t normally flock to the retailer looking to join its ranks.

Ultimately Kniffen said even if this deal doesn’t pan out the way Lord & Taylor hopes, the consumer will be fine. “Neimans, Lord & Taylor and Saks could go away, and I’m not convinced we’d miss them.”

But if the partnership does take off, Killian said the implications are far reaching. “If it does it means channels really are blurred and exclusivity doesn’t really matter that much anymore,” he said. “It could mean a lot of things that would challenge the current thinking.”