(Bloomberg) –Hudson’s Bay Co., No. 41 in the Internet Retailer 2019 Top 1000, is selling the operations of its Lord & Taylor department store chain to clothing rental subscription company Le Tote for $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 stake in Le Tote and get two seats on the board. That stake will be 25%, according to a person familiar with the deal who asked not to be identified because that detail hasn’t been made public.
Le Tote will operate 38 Lord & Taylor stores, according to the statement. Another five are set to shut down, according to the person. 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 C$77 million ($57.9 million) per year.
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 CEO Helena Foulkes’s latest attempt to turn around the company, after selling flash-sale ecommerce 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% of Hudson’s Bay, to take the company private.
Hudson’s Bay shares were up 39% this year through Tuesday’s close, largely related to Baker’s offer. The stock rose as much as 2.4% on Wednesday after an initial trading halt.
Le Tote, based in San Francisco and No. 946 in the Top 1000, 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.
Lord & Taylor generated C$1.4 billion ($1.05 billion) of revenue in fiscal 2018, Hudson’s Bay said. Total revenue for the period was C$9.4 billion ($7.07 billion).
Le Tote is one of two online retailers in Internet Retailer’s Top 1000 that has a rental-only business model. Internet Retailer digs into why more apparel retailers are launching rental arms to their businesses in the 2019 Online Apparel Report.
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