Another May Question Answered: Federated to Sell Lord & Taylor
By George Anderson
Along with what would happen to Marshall Field’s, one of the big questions that many asked when Federated Department Stores acquired the former May Department Store properties was, “What would happen to Lord & Taylor?”
Yesterday, Federated Chairman, President and CEO Terry Lundgren answered that question. “After a thorough review, we have concluded that Lord & Taylor does not fit with our strategic focus for building the Macy’s and Bloomingdale’s national brands. However, Lord & Taylor is a niche specialty retailer with a great name, many outstanding locations, an experienced management team and a strong customer following that makes it a desirable business.”
Translation: Lord & Taylor is for sale.
The 55-store retail chain had sales of $1.566 billion in 2004. It operates locations in New Jersey, New York, Illinois, Massachusetts, Connecticut, Maryland, Virginia, Michigan, Pennsylvania, Missouri, Delaware, Florida and Washington D.C.
Moderator’s Comment: What do you expect to happen now that Federated has put Lord & Taylor up for sale? What will new owners of the chain likely
do with it? –
George Anderson – Moderator
Marshall Field’s should be described in this quote from above as well: “However, Lord & Taylor (Marshall Field’s) is a niche specialty retailer with a great name, many outstanding locations, an experienced management team and a strong customer following that makes it a desirable business.”
This change with Lord & Taylor and Marshall Field’s will hit Chicago shoppers very hard. These are two very established names in the Chicago area and now that they are both soon to disappear, Chicago just will not be the same.
These next two paragraphs are strictly my personal opinion:
Secondly, I don’t understand Mr. Lundgren. So he says that Lord & Taylor is a company with a great name and many outstanding locations! Wouldn’t you DESIRE AND WANT these to be part of your company? Needless to say, I think this is an insult to Federated. In my opinion, I personally interpret this as saying Lord & Taylor doesn’t fit into our plans to overtake the entire department store business of the United States.
Mr. Lundgren must have a personal affinity for Lord & Taylor, because he destroyed one of the oldest names in retail with Marshall Field’s, but wants to keep this prestigious Fifth Avenue name. I am surprised they didn’t take Lord & Taylor and renovate them into Bloomingdale’s. This again is a terrible death blow to Marshall Field’s and one more reason I will NEVER shop there once it’s converted to Macy’s…and mind you, I live three blocks from the State Street store.
As a retail designer with a degree in retail planning and design, I don’t understand what Mr. Lundgren is thinking, but it’s drastically upsetting the entire retail freedom of the USA and creating HUGE homogenization here in our country. While he is at it, why doesn’t their company go after Hudson’s Bay Co, Parisian, Saks, Holt Renfrew, Dillards, Bon-Ton or Nordstrom? This way, he can have his dream of having the entire country and Canada under the name of Macy’s and Bloomingdales and thus take away our rights as citizens to have a choice of where we shop! Soon the only department stores to shop at will be Macy’s and Bloomingdales.
Mr. Lundgren: Thank you.
Without a doubt, the remaining Lord & Taylor stores in the Midwest will either be picked up by Iowa based Von Maur, or closed. Similar in size (100,000 to 150,000 sq. ft.), merchandise (classic to contemporary, not trendy, and no house wares or bedding), and customer, with much better customer service; Von Maur already picked up the former L&T in Columbus. The company president has already let it be known that they would love to be in one of the Federated owned spots in Woodfield Mall in suburban Chicago, where they already have 3 stores, and possibly even on Michigan Avenue. I would imagine that the Northbrook, Oakbrook, and Old Orchard stores would be closed and put to other use (they are close to existing Von Maur stores). The owner of Old Orchard already has announced renovation plans for the mall that doesn’t include the L&T. The real question is if Von Maur would really want to open on Michigan Avenue. As far as L&T’s other Midwest stores, they have 2 in St Louis, where Von Maur has yet to open, and 3 in suburban Detroit, where Von Maur has 2 stores. I would imagine this will be an opportunity for them to expand that they simply can’t pass up, especially since this is in Von Maur’s Midwest home territory. They are good at doing this; successfully buying up 3 closed Jacobsen’s stores in Michigan and Kentucky 3 years ago.
I grew up in the Philadelphia area, then moved to Atlanta, then to Florida, now live in the Nashville area. We have lost so many great store names — Lit Brothers, Gimbel’s, John Wanamaker, Strawbridge and Clothier, Bamburgers, Davisons, Rich’s — the list goes on. In New York alone we lost B. Altman, Abraham and Straus, Bonwit Teller; I have had 8 store credit cards turn into Macy’s Charges. I hope we still have Lord & Taylor and Saks Fifth Avenue when the dust settles, but my fear is Lord & Taylor’s 5th Avenue store and key stores in the chain will become Nordstrom, and Saks Fifth Avenue’s 5th Avenue store and key stores will become Neiman Marcus; so our store choices will be Upscale Neiman Marcus, Nordstrom, Bloomingdale’s; moderate will be Macy’s, Dillard’s and J.C.Penney.
I do not see Sears-Kmart surviving.
We will then have Wal-Mart and Target in malls. I hope the mall owners are ready for these major changes, for we should soon see them starting to merge and dissolve too.
What a loss, what a shame, but hope springs eternal…now that every one is so big…maybe, just maybe some small chain will be born and we will see regional stores again that cater to the area’s needs instead of trying to make us fit into what they think we need.
Makes me wonder whether Nordstrom’s or Neiman’s will bid seriously to acquire L&T. Could be a brilliant stroke for either one to get hold of Lord & Taylor’s superb midtown Manhattan location.
How many departments stores can be up for sale at any one time? There’s a supply/demand issue here. Saks is putting Parisian up for sale right after selling their northern stores to Bon Ton and their other southern stores to Belks. Presumably SFA itself will go on the block soon after.
Are there that many buyers out there?
Second issue: How many upscale department stores can the market sustain? At present there are five chains — Nordstrom, Neiman-Marcus, Bloomingdales, L&T, and SFA. All other retail categories are winnowing down to two — Home Depot/Lowes, Best Buy/Circuit City, Wal-Mart/Target, Staples/Office Depot (Office Max just announced a bunch of closures), etc.
Why should I, as an investor, be interested in buying L&T, which is #4 (at best) in its category?
UNCORK THE BUBBLY !! There isn’t a L&T w/i 2,000 miles of me, and even optimistic/naive souls like myself realize this may (sadly) end in nothing but a real estate ploy, but at this point I can only feel relief than I’m not reading another obituary.
Some other thoughts:
1) Sell the flagship? NO! (if this happens, we’ll know right away the jig is up) Would Macy’s, Bloomingdale’s, or Saks sell their flags? Of course not: They give identity to the whole chain.
2) Your main competition isn’t Bloomies (too trendy) or Neiman’s (too scattered in the your territory) it is – or will soon be – Nordstrom; but you still have a gsf/location advantage, and the fond memories of long time customers, to work with.
3)L&T didn’t work under May (neither did Robinson’s: the whole idea of mixing upscale Associated with mid-market May was a flawed concept), and wouldn’t work in the Federated monolith… but so what (? ): upscale is booming, and there’s a Pacific sized ocean of aging Boomers out there who don’t want to hear rap blaring over the PA system, and want something other than a selection of bare midriffs to choose from for their grandchild’s wedding…. GO GET ‘EM!
Lord and Taylor has locations in only a dozen states. If the new owner can prove a winning formula for the existing stores they can roll out the brand to many more locations. There is room in this country for more than a couple of upscale department stores, if they’re run right. Of course, if the locations continue to offer the same brands and styles as the competition, the financials won’t be lucrative enough to build new locations. Assuming the service doesn’t decline, the key is acquiring a superior, unique assortment. Lord and Taylor has looked too much like its competition for a long time.
I think Lord & Taylor is a respected brand name and worth keeping. Maybe the new owners could sell the fifth avenue location in New York, since that is worth a lot of money, and just concentrate on the branches. I do admit I’m biased since I’ve always liked this store – I was saddened when the divesting of 32 stores a couple years ago closed down the Lord & Taylor closest to me.
Maybe Dillard’s or the Bon-Ton could buy the Lord & Taylor stores and gain a foothold in the Northeast.
It’s the evolution of the retail business. Lundgren and team have crunched the numbers, did the comps, and saw that putting one more investment dollar into L&T will return less than similar investments in other nameplates. These assets are underperforming, although L&T stores represents about 6% of overall group sales, they contribute about 4% to company earnings. Unlike the Marshall Field’s decision (keep and do a nameplate change and allow regional buying), Lundgren could not see how to make L&T fit within the national brand approach. The cash from such a sale can help with their stated aggressive expansion of Macy’s and Bloomingdale’s. How well he executes their national brand strategy with regional decision-making to improve profitability and delivering against local/regional tastes will determine Lundgren’s mark. L&T’s prospective owners need to heed Don’s comments, add creativity to the deal structure, rationalize locations and assortments in order to have a viable L&T.
I understand Don’s point, that these moves are solely being done to improve shareholder value. While unfair for the customers, its sure to help out the people who have invested in the company.
In regards to historymystery, I agree with the fact that the Lord & Taylor stores are rather empty and look like any other May chain. In fact, the newer LS Ayres in Indianapolis looked surprisingly similar to Lord & Taylor. Having the personal choice of shopping either at L&T or Marshall Field’s in downtown Chicago, I choose Field’s. I am able to find drastically reduced Kenneth Cole, DKNY, and other designer labels, while at L&T these same items are at least 60-70% higher in price. The bowling ball concept would apply to the L&T near my office here at Northbrook Court, in Northbrook, IL. The store is in a mall with Macy’s (Field’s), and Neiman’s. It seems rather stogy and outdated compared to the rest.
Lord & Taylor, in its last year under May, wisely closed locations in places like Denver (where I live) that just don’t have enough customers into the L&T “look.”
I don’t think it’s capable of becoming a national brand again — consumers associate it with a certain kind of East Coast style, and that is why the Colorado stores were always so quiet (you could roll bowling balls through the one most recently opened at Flatiron Crossing without fear of hurting anyone). In its days under Associated, L&T emphasized American designers, and while that never entirely went away, under May the American design aspect was never publicized properly.
I’d hate to see their flagship NYC store close, however. I would hope that some investment group could buy the chain, revive the “designed in America” emphasis, and upgrade the stores so they don’t feel like May Company (really, you couldn’t tell the difference between L&T and Foley’s, except that Foley’s had more merchandise crowded onto every square foot of the sales floor). Upgrading service levels to match the prices would also be crucial.
Business philosophy regarding “focus” versus “diversification” is a cyclical exercise in keeping professors and pundits busy. Right now, conventional wisdom seems to indicate that focusing on a specific line of business allows management to excel at that line of business, and leads to greater shareholder value.
One questions the application of the “focus” argument given the existence of Bloomingdale’s as well as the Bridal Group within the Federated umbrella. Here is my guess as to the motivation behind the announcement. First, Federated may have determined that rapidly increasing the size, scope and geographical coverage of Bloomies is not a wise investment of scarce resources. Second, Federated may have found a high enough degree of locational overlap that conversion of L&T to Bloomies would make little sense. Third, after identifying the locations which would make sense to convert, and valuing that conversion, the sale value of the remaining locations may be significantly less.
In short, I think that Federated has analyzed the situation from a shareholder value perspective and determined that conversion would bring less value than sale as an ongoing unit. Maintaining the L&T brand was not an option within the corporate vision Mr. Lundgren has established. The Bloomies brand is sufficiently robust that it would make little sense from his perspective to sustain both of them.
A cautionary note to potential investors or buyers of L&T: there can be no doubt that the L&T brand and format compete directly with the Bloomies brand and format. Even though the current locational overlap may be limited, anyone seeking to expand L&T will inevitably come into direct locational competition with Bloomies. Here’s the caution: evidently, people with more actual access than you will ever get (even during due diligence) have already determined that the Bloomies brand, format and organization are SUPERIOR to L&T’s. This MUST be a fact, or Mr. Lundgren’s announcement would not be in the shareholder’s best interest.
Entering the fray late has its advantages…
1. Specialty retail, Lord and Taylor? Who’s zooming who? It’s more like redundant real estate. But to whom does Federated want to sell the gun that will be pointed at Macy’s?
2. If they own the property in NYC, sell it straight away. Urban stores are brutal cost drivers and difficult in which to make any money.
3. Von Maur makes sense. Interesting to see a new collection of competition all emerge within the past couple of months: VM, Bon-Ton and Belk. Watch out Macy’s and JCP.
4. Will SHC make any money after eschewing promo its historic hard-core during the holidays?
5. Next holiday will see many consumers shopping at brand(s) brand new to many markets. Might be more since the national expansion of regional malls?