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Lord & Taylor Will Be Sold to Le Tote, a Clothing Rental Start-Up

The clothing rental craze is coming for the struggling department store.

Hudson’s Bay said on Wednesday that Lord & Taylor, the beleaguered department store chain founded in 1826, would be acquired by Le Tote, a seven-year-old clothing rental start-up.

In an unusual deal, Hudson’s Bay, the chain’s parent company, will continue to own Lord & Taylor’s real estate and cover Le Tote’s rent at those properties for three years. Le Tote will pay $100 million in cash for Lord & Taylor’s brand and inventory and take control of 38 stores and the chain’s digital presence. Five stores will close as part of the transaction, but the company did not say which ones.

Lord & Taylor will continue to make regular sales, but the acquisition will add “millions of pieces of inventory to our selection,” Rakesh Tondon, a co-founder and the chief executive of Le Tote, said in an interview. “This is going to be the most robust inventory offering of any rental service or any subscription service out there.”

It’s a surprising marriage, especially given the relatively low profile of Le Tote. The San Francisco-based company, started in 2012, lacks the name recognition of Rent the Runway, the best-known clothing rental business, and has raised only $75 million in venture capital. (It is still securing financing for the purchase.) It is one-tenth the size of Lord & Taylor based on revenue, Mr. Tondon said.

The idea emerged from discussions Le Tote was having with Lord & Taylor about helping the chain develop rental and subscription services, he said. Clothing and accessory rentals have been on a tear recently, attracting interest from high-end designers to mall chains like American Eagle. The start-up grew to believe it could use its technology and data know-how to personalize store visits and online shopping for Lord & Taylor customers, while injecting new fuel into its rental offering.

“The crux of our rental business is the technology and tools that allow us to offer a really personalized experience to every single customer,” Mr. Tondon said.

He described a long-term vision where a customer could download a Lord & Taylor app, visit a store and walk up to a screen that would recognize her. The customer would receive product recommendations based on her digital browsing habits, and a fitting room could be curated for her, Mr. Tondon said.

The purchase most likely comes as a relief for Hudson’s Bay, which has been stymied by how to handle Lord & Taylor. The Canadian retail group, which also owns Saks, has closed Lord & Taylor stores, sold the chain’s storied New York flagship building to WeWork and even started selling its wares on Walmart’s website. Hudson’s Bay said in May that it was pursuing “strategic alternatives” for Lord & Taylor.

Helena Foulkes, the company’s chief executive, has said that Lord & Taylor is in “the middle” among retailers, which she views as the toughest place to be. “It’s neither the high-end luxury where you can really own it, nor is the low-cost deep discount retailer,” Ms. Foulkes said in an interview with Recode in March.

On Wednesday, Ms. Foulkes said in an interview that the deal would bring much more technology into Lord & Taylor stores and allow Hudson’s Bay to focus on its Saks Fifth Avenue chain and “real estate opportunities down the road.”

“It’s unique to have a technology company purchasing a department store chain,” Ms. Foulkes said. She added that it was also good for associates, as an acquisition by a regional chain would probably have eliminated more jobs.

Mr. Tondon said on Wednesday that Lord & Taylor had about 180 corporate employees and 4,000 store-related workers, while Le Tote had 250 employees. Ms. Foulkes did not specify how many Lord & Taylor employees would lose their jobs, saying that the “vast majority” would be asked to stay.

Lord & Taylor customers could start seeing signs of Le Tote in stores in the next few months. The start-up’s subscribers may also see hundreds of new brands and new options for buying undergarments, swimwear and cosmetics through the service.

Mr. Tondon said that the companies were preparing for “the customer of the future.”

“A lot of them will buy, a lot of them will rent, they’ll come into stores and return online,” he said. “We want to be able to offer customers the ability to do all of the above.”


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