Monday, March 13, 2006

Lord Knows Why

Federated doesn't want its new fashion brand

Steve Kaufman

Shortly after I first arrived in Manhattan, in December 1967, I wanted to buy a Christmas present - one that screamed high-style New York - for my mother back in Chicago.

Someone recommended Lord & Taylor, and the recommendation was spot on! The hushed elegance of that Fifth Avenue store told me I was in a genuine New York fashion center, part of the city's grand old carriage trade.

I think I bought a cashmere sweater and I think the gift was a success. That store continued to be a welcoming place for a lunch hour of browsing. It was always crowded with New York fashionistas.

But in the 1970s, Barneys and Saks and Bloomingdale's eclipsed Lord & Taylor as fashion stylemeisters. By the 80s, the store at 39th Street found itself too far downtown from the emerging Madison Avenue boutique scene, too far uptown from burgeoning SoHo. The only other retail anchor in the neighborhood, B. Altman at Fifth Avenue and 34th Street, closed in 1989.

Lord & Taylor had hung onto "fashionable," but not to "trendy." May Co., which acquired Lord & Taylor in 1986 when it bought Associated Dry Goods, didn't help with its focus on mid-America, middle-market mall shoppers.

Now Federated, the new owner, has announced it will sell Lord & Taylor. Why not convert those 54 stores to Macy's and/or Bloomingdale's, as it is doing with Marshall Field's and the other former May Co. properties?

"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," said Federated chairman Terry Lundgren.

One problem, evidently, was the size of the stores. The typical Lord & Taylor store is 110,000 square feet, half that of the average Macy's.

Moreover, while Lord & Taylor was the upscale brand in the May Co. stable, it's not as upscale as Bloomingdale's, though more upscale than Macy's. It's in the unviable middle, the average Joe. Also, many of the Lord & Taylor stores are right across the mall from a Macy's.

Selling Lord & Taylor is probably more valuable to Federated than trying to operate a New York store just a few blocks from Macy's Herald Square. The elephant in the room is Federated's nearly $12 billion of debt. The acquisition of May Co. doubled the company's revenue but also sent its debt load soaring. The word on the street is that Federated will get perhaps $1 billion for Lord & Taylor. That's more attractive than operating a chain of redundant, marginally profitable stores.

The eventual fate of Lord & Taylor will depend on whether it's purchased by a retailer that wants to operate the stores or by a financial investor that may have other plans.

A private equity firm is the current best guess. Not many department store organizations are looking for acquisitions these days. The troubled Saks Inc. has been busy selling stores, not buying them. Dillard's probably doesn't want a New York presence, and many of its mall stores are already in the same places as Lord & Taylor. Neiman Marcus (although itself now owned by an equity investor) wouldn't cannibalize its Bergdorf Goodman operation in New York and likely isn't interested in most of those mall locations, either. Von Maur, Boscov's and Belk's may be too regional. J.C. Penney is probably maxed out.

So good-bye, Lord & Taylor, after 180 years - 92 years at its current location. Everyone still loves the miniature mechanicals in its Fifth Avenue holiday windows, replicating animated scenes of New York Christmases past.

But in a way, those magical windows have become a metaphor for the retailer itself - remembering better years long gone.


  1. That's a good article. I'm glad they point out that L&T is in the middle of Macy's and Bloomie's. It's another sign of the times..

  2. Steve Kaufman is a great writer. I like reading his commentaries, especially when they're spot-on like this one was.

    Federated is missing an extraordinary oppurtunity...