Hudson’s Bay, the parent company of Lord & Taylor, announced it would sell the iconic fifth avenue store to co-working startup WeWork and Rhone Capital LLC for $850 million. The price is a 30 percent premium over the value of the real estate when it was last appraised in 2016.
Lord & Taylor will rent a quarter of the building to operate a smaller department store while WeWork’s headquarters will occupy the rest of the space. Founded in 2010, WeWork provides shared workspaces for entrepreneurs and businesses and recently formed a joint venture with Rhone Capital to invest in real estate.
The acquisition demonstrates the powerful trends that are reshaping retail as consumers increasingly prefer online shopping over physical stores.
“The department store really is a dinosaur. And its demise is ongoing,” says Mark A. Cohen, the director of retail studies at Columbia Business School.
Once booming businesses, Macy’s and Sears are now in the process of closing hundreds of stores. Earlier this year Sears also sold off its iconic Craftsman brand to Stanley Black & Decker in an effort to stay afloat. Lord & Taylor’s competitor, Nordstrom, is taking a more creative track. The company is considering going private and has also developed a new concept, Nordstrom Local, small stores that will offer free consultations, personal stylists, alterations, and refreshments, but will not stock any clothes.
While selling the flagship store will help Hudson’s Bay reduce its debt, simply cutting back on costs will not be enough to right the ship. Before the deal with WeWork was announced, Lord & Taylor was rumored to be in talks with Walmart for dedicated space on its website. The partnership would increase online traffic to help Walmart compete with Amazon and allow Lord & Taylor consumers to return purchases to Walmart’s 4,700 retail stores. Whether or not this tactic will boost Lord & Taylor’s growth remains to be seen, but one thing is clear: Lord & Taylor, like other department stores, must reinvent or risk becoming extinct.