Shakeup at Lord & Taylor
Shopping magnate Richard Baker braces for a dismal holiday season.
NEW YORK (Fortune) -- Faced with a dismal climate for consumer spending, Richard Baker, a real estate mogul turned boy wonder of retailing, has set in motion a dramatic shakeup of his crown jewel, the Lord & Taylor department store chain.
Baker is replacing L&T's CEO Jane Elfers with Brendan Hoffman, a longtime Neiman Marcus executive. The management shake up is part of an ambitious plan to combine L&T's back office operations with those of two other retailers that Baker owns through his investment firm NRDC Equity Partners.
With forecasts calling for one of the worst holiday shopping seasons in nearly two decades and the credit markets in crisis, retailers are scrambling to rethink their strategies and conserve cash.
L&T has spent millions over the last few years to remodel stores and add trendier fashions in an effort to attract higher-end customers. Although the company has made some progress, L&T - like other retailers - is coming up against economic headwinds that will make managing expenses a greater priority going forward.
Baker, who was the subject of a Fortune Magazine profile in April, got his start building shopping centers anchored by Wal-Marts along the East Coast. He made the jump from real estate mogul to retail operator in June 2006, when his investment firm paid $1.2 billion - all but $100 million of it borrowed money - to buy Lord & Taylor from what was then called Federated Department Stores (now Macy's).
His shopping spree didn't end there. In February, Baker spent $100 million to acquire Fortunoff, a down at the heels furniture and jewelry chain, out of bankruptcy. He then launched Creative Design Studios, which makes apparel for Lord & Taylor and other stores. And in July, he bought Hudson's Bay, the large Canadian department store chain. Although an acquisition price was not disclosed, Baker said at the time of the deal that he planned to invest $500 million in a holding company, called Hudson's Bay Trading Company that would have oversight of all his retail operating companies.
The plan under discussion calls for back office functions such as computing and accounting to be combined at L&T, Hudson's Bay and Fortunoff -- potentially saving millions of dollars a year. "The executive reorganization enables the Hudson Bay Trading Company and its subsidiaries to generate sizeable economies of scale through improved purchasing, shared services and more efficient utilization of information technology including Internet retailing," according to the company's press release.
But making any changes heading into the all-important fourth quarter carry huge risks. Retailers typically save management shuffles until January, after the busy holiday shopping season when any disruption can magnify the possibility of operating snafus.
In choosing Hoffman to run L&T, Baker is betting on a well-regarded executive, but one who does not have recent experience running bricks-'n-mortar stores. Hoffman, who got his start in the L&T training program, has spent the last six years running the catalog and online operations for Neiman Marcus.