New York, NY, January 13, 2006--Lord & Taylor is for sale, fueling speculation about the fate of a venerable department store chain that offered American classic design, but lost its highbrow appeal amid fierce competition.
Federated Department Stores Inc., which purchased Lord & Taylor when it acquired May Department Stores Co., last year, said Thursday it will sell the New York-based department store chain because it no longer fits with an expansion strategy for its larger Macy's and Bloomingdale's chains.
The most likely buyer would be a private-equity group, said Phil Zahn, a retail analyst at Fitch Ratings, as "there are not many major department stores chains that are looking to make acquisitions" at this point. Other analysts believe that upscale retailers like Saks Inc., or Neiman Marcus Group Inc., may be interested.
"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," said Federated chief executive Terry J. Lundgren in a statement. The transaction is slated to be completed by year-end.
The decision to sell Lord & Taylor came as little surprise to Wall Street. In September, Federated, which is converting most of May's nameplates to the Macy's brand, said that it was studying what to do with Lord & Taylor.
Its sale would be the latest in a flurry of deals in the retail sector. The latest involved Saks, which said Monday it was considering selling its Parisian department store chain.
The move would continue a sell-off of stores by Saks, which announced in late October that it is selling roughly 140 stores in its northern department store group to Bon-Ton Stores Inc. Belk Inc., purchased the company's Proffitt's and McRae's stores in July.
Jim Sluzewski, a spokesman for Federated, said the intention is to sell Lord & Taylor as a "whole" chain with 55 stores mostly in the Northeast, but analysts speculated Thursday on a number of scenarios, including the chain being sold piecemeal. Goldman Sachs and JP Morgan Chase is advising Federated on the transaction.
The retailer's most valuable asset is its real estate, particularly its 10-story, 611,000-square-foot flagship on Fifth Avenue, according to Faith Hope Consolo, chairman of Prudential Douglas Elliman's retail leasing sales division. Consolo believes that a big-box retailer like Target Corp., may want to buy some of its mall sites, but she thinks the New York site would be likely sold to a commercial developer, who could convert it into a "class A development."
Consolo and others believe that Federated may not want to sell the New York location to a department store competitor given its proximity to its Macy's store.
Whoever buys the overall chain, which Federated said generated sales of $1.56 billion in 2004, needs to do a lot of work, analysts say.
Lord & Taylor, founded in 1826, established a reputation for showcasing top American design talent and was the first to pioneer the concept of personal shopping, according to its company website. The retailer was also the first to create Christmas windows for sheer entertainment, rather than for selling merchandise.
But about a decade ago, it began to lose upscale customers to competitors such as Nordstrom Inc., as it expanded to less-expensive brands, according to C. Britt Beemer, chairman of America's Research Group, in Charleston, S.C.
The retailer's problems worsened with increased competition from specialty stores like Chico's FAS Inc., which developed a strong following for the over 35-year-old female customer.
In 2003, Lord & Taylor, under the leadership of CEO Jane Elfers, decided to close 32 underperforming stores in 15 states, and spearheaded a makeover aimed to bring back its luster. The retailer eliminated moderate-price labels that were overly distributed elsewhere and brought in trendier brands such as Kate Spade.
