Private Initiatives in a post-2008 World

            When private equity firm NRDC (a firm that specializes in real estate with investments in retail, office, and warehouse projects) acquired Lord & Taylor in March of 2006 for a reported $1.2 billion, the retail world made a bet that the oldest department store was dying a slow death. NRDC targeted the failing business for its prime real estate on Manhattan’s 5^th Avenue and 39^th Street.

            Four years forward, and under the leadership of retail executive and Stern alum, Brendan Hoffman, who already had over 15 years of executive experience with Neiman Marcus when he accepted the position of CEO at Lord & Taylor, the famed department store is thriving.  This discussion is particularly interesting today as a reminder of a topic we have touched upon before in one of the earlier entries. Namely, retail, an industry that has been shunned by most private equity firms in the past and certainly during the latest economic boom, is suddenly very trendy (pun intended). We have been watching major M & A taking place over the summer in Europe. Closer to home, we have been witnessing major restructuring of businesses here in the US, not to omit NRDC’s decision to acquire Fortunoff, the home-furnishings and jewelry retailer that finally filed for Chapter 11 bankruptcy and was successfully sold at auction. What retail does therefore is that it stirs the market. Even if consumer confidence is still low, deals do take place at a macro level and in between firms with mergers and acquisitions, consolidations, and successful turnarounds such as the one Lord & Taylor had.

            An industry that has been scoffed as too trivial and too messy has been elevated to an exciting playing field for major investors. This is happening because failure creates opportunity. (We have also discussed how failed banks have created opportunities for major investors who are in the process of assembling substantial portfolios of regional banks). It is also happening because digital technology has allowed retail to branch out to Web 2.0 and reconnect with its customers. This was particularly pertinent in Lord & Taylor’s revival. Having flirted with expensive brands, the department store was not good enough to attract the higher-end partners it sought and it became too expensive for its core customer. It had managed with this ill-advised strategy to alienate its core customer at all levels. The new owner brought the new CEO, who seems to be aligning his strategy for the reinvigoration of Lord & Taylor’s brand as a “House of National Brands” with the latest in infrastructure.

            Infrastructure today is a more complex term than when it was originally coined. It encompasses the physical real estate of the brand. The building is in fact undergoing major architectural work that showcases customer friendly design.  The renovation has gained support and enthusiasm from Lord & Taylor’s partners, who collaboratively began work at the department store’s ground floor and cosmetics counters that had been unchanged since the early 1970s. The “face-lift” is steadily moving to the upper floors where both space and windows are now open.  The latter are literally opening up to 5^th Avenue allowing natural light in—after having been blocked for almost a century. Infrastructure goes beyond the physical character of the building and includes the brand’s digital image, communications, mobile applications and everything that allows the brand to maintain a presence in a very competitive market. To extrapolate, I will note here that infrastructure may also mean the people who work for a business especially if the business would like to develop exceptional customer service—which today is key for success—and a coherent brand image aligned with the firm’s strategy for long-term success. This is where Lord & Taylor is at the helm of the retail industry with its initiative to re-institute Executive Training Programs through which to cultivate the next generation of leaders in the industry.

            Lord & Taylor’s current CEO, Brendan Hoffman, had participated in the brand’s Executive Training Program when he began his career and recognizes today the value of that type of training. He also recognizes his and the industry’s responsibility to develop their executives and therefore to implement training programs, a feeling that the CEOs of the C-Suite (entry of October 24) shared with him. Once again, private companies seem to be at the forefront of innovation in a post-2008 world.