The Purchase private equity firm that owns the Lord & Taylor department store chain has made a purchase offer for the financially ailing Fortunoff company and its 21 retail stores in the metropolitan area. A federal bankruptcy judge ultimately will decide the fate of the deal and of Fortunoff, which operates one of its four full-line stores in White Plains.
Fortunoff officials in Westbury, Long Island, last week said the company has agreed to sell the 86-year-old Brooklyn-born business to an affiliate of NRDC Equity Partners L.L.C. To carry out the deal, Fortunoff last week filed a Chapter 11 bankruptcy petition in U.S. Bankruptcy Court in Manhattan.
Headquartered in The Centre at Purchase on Manhattanville Road, NRDC Equity Partners is a joint venture between Robert C. Baker and his son, Richard A. Baker, principals of National Realty & Development Corp., and William Mack and Lee Neibart, partners of Apollo Real Estate Advisors L.P. NRDC Equity Partners acquires operating companies in the retail, leisure, lodging and commercial real estate sectors.
The partners in October 2006 paid $1.083 billion to acquire Lord & Taylor from Federated Department Stores. A retail industry analyst last week said the prospective buyer plans to open Fortunoff boutiques in its larger Lord & Taylor stores.
In conjunction with the bankruptcy filing, Lord & Taylor provided a $10 million letter of credit to enable Fortunoff to continue to purchase inventory. Some of the company”™s existing lenders have agreed to provide Fortunoff with debtor-in-possession financing that will be used to run its business during the bankruptcy process pending the sale, Fortunoff officials said. All Fortunoff stores will remain open during the Chapter 11 process.
“We are excited by the opportunities presented by affiliating with Lord & Taylor,” said Fortunoff CEO Arnold Orlick. “It has been a difficult retail environment and capital constraints have limited our expansion opportunities. This transaction will help realign our capital structure and provide an avenue for future growth. Fortunoff is a strong brand that has provided quality retail services to customers for more than 80 years. We look forward to restructuring our business under a new owner.”
Richard Baker, chairman of Lord & Taylor and CEO of NRDC Equity Partners, said the company plans to invest $100 million in both existing and additional Fortunoff stores.
“Fortunoff is a valuable brand with great potential for continued growth,” he said.
The regional retailer, however, has been in a long decline in the highly competitive jewelry and home furnishing markets, said industry analyst Howard Davidowitz, chairman of Davidowitz and Associates Inc., a retail consulting and investment banking services firm in Manhattan that counts Fortunoff among past clients.
The company reportedly has annual sales of $450 million. Yet since the founding Fortunoff and Mayrock families in 2005 sold four-fifths of their stake in the business in 2004 to two private equity firms in Manhattan, Trimaran Capital Partners L.L.C. and the Kier Group, Fortunoff”™s debt reportedly has risen to about $60 million.
“Here”™s a company that hasn”™t grown very much really in many, many years,” said Davidowitz. “Their competition has grown like crazy,” such as Bed Bath & Beyond, IKEA, Home Depot and online jewelry sales sites, he noted. “They have not been able to expand their business. They”™ve basically been at the same volume level for many years. They were attacked by more focused and aggressive competitors.”
“What”™s going on now is we”™re in a consumer-led recession,” Davidowitz added. “We”™re in the biggest home crisis since the Great Depression. The home business is a train wreck. That”™s a big part of Fortunoff”™s business. Obviously they have problems.
“From Fortunoff”™s point of view, they need the deal desperately. Fortunoff gets less valuable every day.”
Putting Fortunoff boutiques in Lord & Taylor stores “would automatically be a tremendous growth vehicle for Fortunoff at a very low cost,” the analyst said.
Davidowitz said the two retailers”™ customers share a similar profile. “It”™s very possible that the psychographics and the demographics of the Fortunoff brand fit Lord & Taylor. I think it does.” Richard Baker, Lord & Taylor”™s chairman, “sees the synergy there, and so do I,” he said.
Fortunoff officials said the sale will be accomplished through a bankruptcy process that permits other interested bidders to make competing offers. Subject to the approval of the Bankruptcy Court and other customary conditions, the sale is expected to close in early March.
Davidowitz said he has learned, after being involved in 50 bankruptcy deals, that “you just don”™t know” the outcome in court, where creditors come first. “Somebody is owed 60 million smackers,” he said. “What happens with that? What happens with the trade that”™s owed money?”
Davidowitz cautioned: “This is very early in the game. This is not a done deal.”
