Lord & Taylor Gets On with Its Life
By Rick Moss
As expected, Federated Department Stores announced yesterday that it will sell
its Lord & Taylor chain, which it had acquired along with the May Co. deal,
to the principals of real estate investors/developers NRDC Equity Partners and
Apollo Real Estate Advisors.
The cash price for the 48-store chain (41 along the Northeastern corridor and
seven in Illinois and Michigan) will be $1.2 billion, with closing expected
during the third quarter of 2006. L&T had sales of $1.57 billion in 2004,
according to Bloomberg.
In a statement to the press, NRDC indicated that they intend to keep the chain
intact and retain Jane Elfers in the position of CEO.
“Lord & Taylor has been an iconic national brand for 180 years,” said NRDC
President Richard Baker. “We believe there is significant opportunity to continue
the revitalization of the brand begun in 2003 by Jane Elfers and her management
team.”
Although, according to the New York Times, Baker has said they will
keep the flagship Fifth Avenue store, plans do not preclude the possibility
that some property will be sold off. NRDC, which also acquired Linens ‘n Things
in partnership with Apollo in February, said they are reviewing the real estate
portfolio but that “no decisions have been made on any individual stores.”
Moderator’s Comment: How do you rate the future prospects
of Lord & Taylor under its new owners? How will springing the chain lose
as an “independent” affect the department store landscape?
From the moment the Federated/May deal was announced,
most knew Lord & Taylor was earmarked for sale. It was clear that Federated
would have its hands full hanging the Macy’s banner on 400 May locations, and
L&T appeared to be a market segment redundancy to Bloomingdales, also in
the Federated stable.
There are malls (Willowbrook, here in North Jersey, for
instance), that have Macy’s, Bloomies and L&T as anchors. So the challenge
to Ms. Elfers is clear…how do you assure that your chain has a reason for
being?
With the huge effort to create the national Macy’s brand,
Federated’s eye could be off of Bloomingdale’s long enough for L&T to make
some distinctive moves and upgrade its “reputation for dowdy fashions and older
shoppers” (NYTimes). On the up side, L&T could emulate Nordstrom
as opposed to Bloomingdale’s. Now that’s head-to-head competition worth aspiring
to. –
Rick Moss – Moderator
HERE’S AN INTERSTING OPPORTUNITY… no last year data!
The new ownership gives the management at Lord & Taylor an opportunity to reinvent itself and not let LY thinking obfuscate innovative opportunities for long term improvement.
For example: how can you stop “couponing” when the albatross of LY sales force you to continue this practice? But if they allow the store to “start from scratch” and eliminate these LY barriers, then marry this situation with a real 3-5-10 year vision/plan and great things could be accomplished.
Imagine what a consumer based retailing approach could do for the retailing landscape?
The stores need such a major makeover to just be a good follower of Nordstrom or Bloomingdale’s or Neimans, it seems unlikely…plus, it is the leaders who win, not the followers. They need to find a space they can stake out and own for themselves, which takes dynamic, bold, risk taking management…….. it’s just not going to happen here. Watch the mess the financial and real estate geniuses (note I didn’t say retailing) at Sears/Kmart are making and watch the same thing happen to L&T. Because the real estate is so good in both cases, the new owners are going to come out OK. The unfortunate thing is that there is a terrific opportunity to create a new version of a great old brand if real merchants were given the chance.
Given the nature of the acquirers, this would appear on the surface to be a real estate play, and L&T occupies some good real estate. NRDC sorta denies it: “Richard Baker, president of NRDC Equity Partners, said in a separate release that the acquisition of L&T furthers ‘NRDC’s strategy of acquiring great companies that have a strong brand and a valuable real estate platform.’”
But later in the same article: “‘Lord & Taylor has been an iconic national brand for 180 years. We believe there is significant opportunity to continue the revitalization of the brand begun in 2003,’ Baker said.”
So which is it? An “opportunity to continue the revitalization of the brand” or “a valuable real estate platform”?
I’ll go with this sentence: “Analysts say the retailer’s most valuable asset is its real estate, particularly its 10-story, 600,000-square-foot flagship store on Fifth Avenue.”
Lord & Taylor has a major decision to make: incremental updates versus bold moves. Recent updates, such as adding Ellen Tracy (already at Saks, Bloomingdale’s, and Neiman-Marcus) and Lauren by Ralph Lauren (already at Macy’s and many other places) are incremental improvements, unlikely to bring major profit improvements. But they’re very safe risks. Bold moves (exclusive designers, changes to the selling and customer service culture, eliminating the come-on sale ads with small print disclaimers) are riskier, but might bring quantum-leap profit improvements. If profits improve only modestly, the real estate portfolio sale will be very tempting. The good news: to try the bold moves, they needn’t bet the company. They have enough stores to run tests without disrupting all the stores.
The timing of NRDC’s acquisition of Lord & Taylor may in fact turn out to be welcomed by many traditional department store shoppers. In the past 10 years, we’ve seen the number of department store chains reduced from over 100 to less than 20. With a well developed strategy and disciplined implementation, Lord & Taylor can position itself to thrive in a department store world that is threatened to be dominated by Macy’s. Differentiation and excellent customer service along with its strong locations will help L&T to be successful. However, if NRDC’s intent is to leverage Lord & Taylor’s locations in what becomes just another real estate deal, I believe it would be not only a disservice to the shopping public, but will turn out to be the demise of another prestigious retailer.
I am going with the people who see the glass as “half-full” here. Lord & Taylor has a unique opportunity to come back to life as something lean and mean. The biggest hurdle they have is changing Joe Public’s perception of the chain. May did a great job of suffocating and diluting this brand so it may take some time to clean up the mess.
Some things to consider:
-Grow smart. Clean yourself up and act like the sophisticated lady you are before you go to the ball – you’ll be so appreciated more. There are some locations you don’t need to go back to and some that you do. Choose wisely.
-Mind your manners. Today’s shopper wants to feel special from the moment they walk into the door. Show them that you’re glad to see them.
-Carve out your niche. Many urban centers around the country have reinvented themselves lately. Think about growing in downtowns; become a destination retailer. Macy’s will be busy for years trying to make the May-Federated merger work. They don’t have the time to deal with new frontiers. Many a second-tier cities are looking for an upscale store. Again, you have a unique opportunity.
-Offer more selections of quality. I don’t need to go to Lord & Taylor to get Polo or Hilfiger because I can go to Dillard’s for that. Look for the Ted Baker’s and the Billy Reid’s of the world.
-Take a bath. Offer a clean organized store. Spend the money on housekeeping because it’s a must!
As a part of the former ADS management team that rode that enterprise down to ruin, I can offer my advice that Lord & Taylor is the ultimate, great “aspirational” brand in apparel retailing. They are most successful not with the wealthy and necessarily WASP-y as much as those who aspire to be.
The assortment has for many decades been tasteful, quality merchandise at reasonable prices but with an ambiance of a far more upscale retailer. If they can maintain the sales PSF, they will make it, as there will always be a customer who does not want the high style and/or high prices of Saks/Niemans/Bloomingdale’s/Nordstrom but is uncomfortable with the poor housekeeping, lack of service, and general low-end feel of most mid-market stores like Macy’s/Macy’s/Macy’s/Macy’s.
Lord & Taylor’s upscale name and genteel store ambiance are two of its greatest assets. I’d recommend they stick with classic styles, bring back their store brand over the absurd Grant Thomas and Kate Hill monikers which made it appear the store name had lost its cache, and play to the hilt that they are a “better” store for a “special” customer but keep the price points near the JC Penney/Belk’s level. A tall order but I think it is a hopeless fight to compete with Nordstrom, Saks, etc.
Finally, there is room to bring back a limited line of home goods, modify the “LNT” brand from Linens ‘n Things to “L&T” and use it in both locations.
I have a warm spot for Lord & Taylor and so am glad to learn it has obtained a fresh lease on life under new ownership. The mid-Manhattan store for me epitomizes low-key excellence, fine service, and yes, value, without succumbing to the glitz and perfume shpritz of Bloomingdale’s.
The comparison with Nordstrom is useful, if not perfectly apt. They share similar service values and price tiers. They certainly have some personality traits in common. They are both beloved in their regions, with relatively little geographic overlap…
Hmmm… anybody else see an opportunity here?
YIPPEE!!! My birthday present six weeks late (or is it America’s present 12 days early?). Yes, the phrase “real estate developer” casts an ominous tone to all of this, but let’s cross our fingers and give them a chance: who – save the most embittered cynic – wouldn’t like to see a happy ending to this story.
A few thoughts and caveats:
1) Know your market: Bloomies isn’t your competition; it’s Saks/Nordstrom/Macy’s(egad!); there are plenty of people who know it’s not “dowdy fashions” you offer, but “timeless elegance.”
2)Consider a mini-branch downtown; Wanamakers had a men’s store on lower Broadway for years…. you sell suits, Wall Street (still) buys ’em. (And for those who doubt the wisdom of following a Fallen Flag, I would say it’s no more remarkable than Bloomies opening a store in Soho.)
3) Consider bringing back housewares/home furnishings – at least in the 5th Ave flagship.
4) Avoid the flood of naysayers and ill-informed opinions (the “Times” article – with enough broad assertions and outright factual errors to fill their own column – is an unfortunate example.) There are plenty of bright and resourceful people who can pull this off…. seek them out.
GOOD LUCK !!
I see real potential here, given that the Federated/May merger stripped many markets of the comparison shopping component for mid-to-high level department store fashion.
Certainly there is a real estate play at work also. With great locations like Fifth Avenue, N. Mich, Pru Center in Boston and numerous other mid-to-high end mall locales, there are certain to be some conversions, space re-allocations, and closings, but they appear to have faith in the present management’s turn-around strategy, and will also now be freed-up from the onerous ‘experts’ at Federated and May, who had no idea what to do with L&T and seemed to have little in the way of a vision for what it can be, not to mention respect for a 180 yr old brand. That isn’t a small detail, given that for many, the L&T name and brand still has historical value and cache (albeit diminished), and to have jettisoned it would not have served the value of the overall purchase strategy. To understand how this brand/value issue is not being well applied, just watch Federated over the next two years or so. (The Marshall Field’s/ Macy’s name debacle and the potential steep loss of market share will be sad to watch unfold, should this occur.)
If L&T management and its new owners can shed its dowdy past, infuse the store with some exclusives and one-of-a-kinds, get customer service to Nordstrom-like levels, and consolidate locations to further focus on their core customer, then they have a strong chance for a turn around and, in the long run, a potential(re-)introduction to some markets that would appreciate a revitalized brand like L&T. Given that many places are now, more or less, reduced down to Macy’s as the only store in town, this will be a welcome alternative in the lucky few markets that still retain L&T locations.
Competition is always good, and the recent elimination of (much of) it in the department store world has not been welcome, at least with the buying public. Keeping L&T and enhancing it for the future will be a positive change.
I am really happy Lord & Taylor will continue as a brand. The Federated-May merger will leave just one upscale department store – Macy’s – in many markets, especially in the Northeast. In many areas, Lord & Taylor will have a chance to get its act together before Nordstrom arrives (e.g. in New York City and Boston).
Maybe Lord & Taylor will again offer housewares as it did 30 years ago since the new holding company also owns Linens ‘n Things. Recent ads for L&T show the name in plain script with the handwritten logo in the background. I hope the company doesn’t get rid of the cursive logo completely; it differentiates the chain from the plain script logos of Nordstrom and Saks.
I’m also happy the new owners said they would think about expanding the chain. In the divestiture of stores 3 years ago, the stores nearest me were closed. Many have commented the chain exited competitive yet fast-growing markets in the South. If only Alan Questrom could take over L&T and fix it as he did JCPenney. The past leadership of Lord & Taylor has been spotty; at the start of the century it was aggressively building new stores and remodeling and expanding westward to Las Vegas only to rentrench suddenly. May Department stores didn’t give these stores enough time to find their customer.
Lord and Taylor still has a lot of life left in her yet! Many of the smart set still consider L&T THE place to find classic updated clothing. Learn a lesson from May Company’s mistake of trying too broad of an appeal with its constant sales and mid-tier merchandise. Return the chain to its elegant past by providing superior merchandise, smart well-dressed associates and stores in the right markets. As a former employee, I was thrilled to be associated with the firm. In my community Lord and Taylor still has an aura to it. It is my hope that the company continues to thrive under Jane Elfers. Under her leadership, the future looks bright indeed!