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Aug 28, 2019

HBC inks deal to sell Lord and Taylor to Le Tote for US$100M

National Bank, Hudson's Bay, Tiffany: Market movers for Aug. 28, 2019

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Hudson’s Bay Co. (HBC:CT) is selling the operations of its Lord & Taylor department store chain to clothing rental subscription company Le Tote for US$100 million, the companies announced on Wednesday.

Of the total, a quarter will come in the form of a promissory note payable in cash after two years. Additionally, Hudson’s Bay will take a 25 per cent stake in Le Tote, becoming its biggest investor, according to founder and Chief Executive Officer Rakesh Tondon.

Le Tote will operate 38 Lord & Taylor stores, according to the statement. Another five are set to shut down, according to a person familiar with the terms of the deal who asked not to be named since the details haven’t been made public. Previous closures of the chain have included the flagship Manhattan location. The San Francisco-based company said it will extend employment offers to “the vast majority” of Lord & Taylor employees.

The statement confirms an earlier report by Bloomberg News.

The deal gives the Canadian retailer a way to divest operations of the struggling Lord & Taylor chain while holding onto the more valuable asset -- the real estate on which the stores are located. It also lets Hudson’s Bay focus on better-performing units such as Saks Fifth Avenue. However, Hudson’s Bay will still be responsible for making Lord & Taylor’s rent payments for at least three years, which it estimates at about $77 million (US$57.9 million) per year.

Open to Changes

The transaction, expected to close at the start of the 2019 holiday season, gives Hudson’s Bay some measure of flexibility in the future: Starting in 2021, both companies will have options to reassess the store network. Hudson’s Bay could then look into redeveloping some properties, including for mixed use.

The move is Chief Executive Officer Helena Foulkes’s latest attempt to turn around the company, after selling flash-sale e-commerce site Gilt and cashing out of European operations. The deal brings together “fashion rental subscriptions with traditional retail,” she said in the statement.

Meanwhile, the company is also mulling an offer by company Chairman Richard Baker and his partners, who collectively own about 57 per cent of Hudson’s Bay, to take the company private.

Hudson’s Bay shares were up 39 per cent this year through Tuesday’s close, largely related to Baker’s offer. The stock rose as much as 0.7 per cent to $10.23 at 1:14 p.m. in Toronto.

Le Tote, based in San Francisco, was founded in 2012 and is backed by firms that include Lerer Hippeau, Azure Capital and Simon Ventures. The company offers monthly boxes of apparel items that users can purchase or return after use. The company is in the process of securing financing for the full purchase price, according to the statement.

Le Tote’s Tondon said in an interview that hew wants to integrate the two businesses quickly. Le Tote customers will get access to about 500 brands, including categories they can’t currently find, while Lord & Taylor shoppers will get a chance to rent clothes, he said.

With the sudden addition of more than 4 million square feet of retail space, the deal will represent a seismic change for the e-commerce startup.

Lord & Taylor generated $1.4 billion of revenue in fiscal 2018, Hudson’s Bay said. Total revenue for the period was $9.4 billion.