In another example of the diminishing value of department store real estate, Hudson’s Bay Company (HBC) is selling the Lord & Taylor New York City flagship store to a joint venture led by WeWork for $850 million. WeWork, which provides shared workspace and services for entrepreneurs, will convert the real estate into its new global headquarters.
A slimmed-down 150,000-square-foot Lord & Taylor store will remain open within the 676,000-square-foot building. Lord & Taylor will continue retail operations in the entire building through the 2018 holiday season.
Selling off major real estate has become more common among department stores. Macy’s sold off flagship locations in San Francisco and Minneapolis, and half of its Chicago State Street store. As for Macy’s iconic Herald Square location, the Lord & Taylor real estate sale represents the best-case scenario for what Macy’s could potentially generate if it were to structure a similar sale-leaseback transaction, according to research from Gordon Haskett.
The Hudson’s Bay sale will enable the company to pay down a significant portion of its approximately $2.4 billion debt — a welcome move for a company that has been in financial disarray for several quarters. HBC cut 2,000 jobs starting in June 2017 as part of its ongoing digital transformation, and CEO Jerry Storch will step down on Nov. 1.
Some of HBC’s shareholders have pushed the company to sell off its real estate assets as department stores have continued to close physical locations amid struggling sales, and Storch’s departure only fueled the fire. The company’s flagship Saks on Fifth Avenue store was recently appraised at $3.7 billion.
“While longer-term structural issues are more than well-advertised, today’s supply/demand imbalance continues to be an augmenting headwind, in our opinion,” said Chuck Grom, Consumer and Retail Equity Analyst at Gordon Haskett in commentary provided to Retail TouchPoints. “To this end, the demand versus supply equation has tilted unfavorably in recent years. For demand, core living costs and ‘experiences’ spend is outpacing apparel spend, and there is less ’impulse‘ shopping online vs. in-store.”