Hudson's Bay Company and Le Tote, a fashion rental subscription service, have announced an agreement for Le Tote to acquire Lord + Taylor for $100 million. The companies expect Le Tote’s proprietary technology, data and innovation combined with Lord + Taylor’s traditional store footprint, e-commerce presence and merchandise selection to offer customers a new experience in the mid-market segment. Under the terms of the agreement, Le Tote will acquire the Lord + Taylor brand and related intellectual property while assuming operations of 38 stores, Lord + Taylor’s digital channels and the associated inventory. Le Tote expects to extend employment offers to the vast majority of Lord + Taylor associates. HBC will receive a total of $100 million for the sale. The company will receive $75 million in cash upon transaction close and a secured promissory note for $25 million payable in cash after two years. Lord + Taylor had revenues of C$1.45 billion (US$1.09 billion) in 2018. Therefore, the US$100 million purchase price equates to a multiple of 0.1 times last year’s revenues for the business. HBC will also receive an equity stake in Le Tote, two seats on the company’s board and certain rights as a minority shareholder. HBC’s real estate joint venture will retain ownership of all owned and ground-leased real estate assets related to Lord + Taylor. For at least the initial three years, HBC has agreed to maintain economic responsibility for the rent payments on properties owed by Lord + Taylor at the locations operated by Le Tote. Net of HBC’s distributions from HBS Global Properties, HBC expects to continue to be liable for approximately $77 million in Lord + Taylor total annual rent. Le Tote is securing financing for the full purchase price, and the transaction is expected to close before the start of the 2019 holiday season, subject to satisfaction (or waiver) of closing conditions. If committed financing has not been obtained within 45 days following signing, HBC has the right to terminate the agreement. Why this is huge The deal represents a watershed moment in many regards. Retailers have struggled to keep up with the digital revolution and innovative new business models such as subscriptions and rental services. Conventional retailers that successfully integrate omnichannel and new business models into their operations continue to flourish and open new stores, while those who do not, struggle. HBC CEO Helena Foulkes commented that the deal creates a new model for Lord + Taylor,  bringing fashion rental subscriptions to traditional retail. Lord + Taylor was founded in New York in 1826. Le Tote was founded in San Francisco in 2012. Implications for HBC In fiscal 2018, Lord + Taylor represented  of 15.9% of HBC’s retail sales. In the first half of fiscal 2019, Lord + Taylor’s retail sales as a percent of HBC’s total sales dropped to 14.1%. Lord + Taylor has experienced at least eight quarters of high single digit negative comparable sales declines, with the most recent quarter at (17.1%), the highest negative comps of any of its banners. Lord + Taylor losses in 2018 totaled ($119) million, inclusive of allocated corporate expenses. Starting in 2021, HBC and Le Tote will have options to reassess the Lord + Taylor store network. This may include HBC recapturing select locations to determine their best use, including possible redevelopment into mixed-use properties with a variety of services, experiences and retail offerings. HBC has hired a team of seasoned professionals to lead the planning and execution of any redevelopment, which is an inherently complex, capital intensive, long-term project. For any recaptured or returned stores, HBC retains long-term rent responsibility, risk and costs for redevelopment.