Studying the Classics

By Kristina Dell

Richard Baker walks into the Time Warner Center in New York City wearing a sporty tan summer suit accented by a marigold tie with yellow socks to match. These days the real estate developer, art collector and former chef is having fun with fashion. As CEO of NRDC Equity Partners--the private-equity firm that bought Lord & Taylor--Baker is the proud new owner since October of America's oldest department store. And he's overseeing a makeover as bold as his brightly colored tie. To prove his dedication to the turnaround, he and his wife have made a pact to buy almost all their clothes from the retailer, and everything he is wearing except the tie ("I had clothes before I bought Lord & Taylor") is from his store. Baker's practical approach has made him a quick learner. "You laugh, and it's funny, but the truth is that if you don't wear the product of the store, you don't know certain things," says the 41-year-old entrepreneur. "This is how we're going to make this business better because we live in the product, and we live in the stores, and it's important to us."

Just as important to the creation of a thriving Lord & Taylor is Baker's ability to dive headfirst into the insular fashion world, solicit advice and have people root for his success. He isn't simply a hands-off leader with a big bank account. He's a likable businessman with an artsy streak--a trait not immediately apparent from his unaffected personality. (But visit his home, and you will find priceless Picassos, Chagalls and a James Turrell art-installation pool.)

In an era when department-store popularity is declining--as shoppers opt for selective, less-time-consuming specialty stores or fashion discounters--Baker has made it his mission to reinvigorate the 181-year-old chain by keeping it small: he will downsize the New York City flagship store and continue with a tightly edited merchandise mix tailored to East Coast suburban families at all the stores. Jane Elfers, Lord & Taylor's CEO for the past seven years, has been quietly restructuring the brand away from the store your grandmother loves into a showcase for top American design talent. And the business-savvy Baker just might have the right mix of creativity and cash to give the turnaround the boost it needs.

Whereas many retail insiders counted out the beleaguered department store--assuming it would be sold off in pieces once it was put on the block in January 2006, after Federated merged with May Co.--Baker saw a chance to revitalize an iconic brand name. He and his three NRDC Equity partners (one of whom is his father Robert Baker) bought the property for about $1.1 billion, a small stake in Federated's $27 billion business in annual sales. "What we liked about Lord & Taylor was that it had great DNA, a very solid management team and a large amount of spectacular real estate," says Baker. National Realty & Development Corp., the original family business Robert Baker started and continues to own with Richard, is one of the largest, privately held companies, with more than 20 million sq. ft. (1.86 million sq m) of shopping centers and retail properties. As a young boy, Richard would spend weekends with his father driving around looking at real estate and construction sites, preparing to delve into the family business. "I have a lifetime of experience, not as a shopper but as someone who develops retail opportunities," says Baker.

From the outset, Baker took bold steps to show the fashion community that he was serious about turning around the brand. He met with vendors, publications and the Council of Fashion Designers of America (CFDA) asking for advice and partnerships. He recently started a new company called Creative Design Studios that will own all of Lord & Taylor's proprietary brands and invest heavily in up-and-coming American designers, like Cynthia Steffe, regardless of whether they sell to his store. He has become a major underwriter of the CFDA Vogue Fashion Fund, which mentors and financially assists young talent. Seventy new vendors, who had not shipped to Lord & Taylor in the past, are now in the store, as Baker repositions the brand along the lines of a Bloomingdale's or a Nordstrom's, a place to pick up a cashmere sweater or a party gift.

Steffe is on board as is designer Charles Nolan, who will re-energize the store's proprietary Kate Hill brand. Bryan Bradley of Tuleh, who is creating an exclusive Lord & Taylor line, will play up the chain's history. His collection will feature $30 rock-concert-style T shirts with sayings and imagery lifted from the store's archives (think Lord & Taylor's red rose and an art director's wit circa 1954). Upscale chiffon dresses, sweaters and blouses in the $70 to $280 range are also part of the classic yet sexy and modern line. "Lord & Taylor is what America stands for rhetorically, and I find its idiosyncratic nature really appealing," says Bradley. What other store plays the national anthem every morning?

Spending the necessary cash to get Lord & Taylor back on track commercially--something Federated neglected to do--is equally as vital as retooling the merchandise. Baker has signed on the David Lipman Agency (of the Burberry and David Yurman campaigns) as creative consultants to redesign boxes, bags and credit cards, and will launch a September advertising campaign shot by Mario Testino that features Lauren Hutton, Carolyn Murphy and the sons of John McEnroe and Clint Eastwood. He's plunking down $250 million to update Lord & Taylor locations around the country and $100 million to renovate the 680,000 sq. ft. (about 63,000 sq m) Fifth Avenue flagship store, which hasn't been touched since the 1970s. In addition to redoing the entire store inside and out and opening a specialty eatery by Drew Nieporent (the restaurateur who operates Nobu and Tribeca Grill), Baker will shrink the store to a more manageable size and rent out the remaining space as luxury offices. The money made will be reinvested in the store.

Regardless of the changes, the brand has a long way to go. The diminished chain that Baker inherited is a far cry from the powerhouse it was in the 1940s, '50s and '60s. The originator of the Christmas window and the first to hire a woman president and personal shoppers was once a showcase for high-end American designers--a tradition Baker hopes to revive. But when Lord & Taylor was bought by Associated Dry Goods in the late '70s, it lost its edge as a fashion leader. May Co.'s 1986 acquisition only contributed to their downward spiral. "Lord & Taylor was the golden jewel in May's portfolio, but [the owners] didn't focus on it," says Christine Chen, a retail analyst at Needham and Co. Upscale vendors began to bow out. "When I took over [as CEO] in 2000, there was no difference between us and May Co. stores [Macy's and Filene's] at the other end of the mall," says Elfers, who has worked at the store for 18 years.

Elfers started down the long road of repositioning the brand four years ago. A typical department store with 250,000 sq. ft. (about 23,000 sq m) can leverage its large size to get deep discounts on volume purchases. Lord & Taylor's petite 120,000 sq. ft. (11,000 sq m, aside from its New York store) made it tough to compete on promotions, price or depth of merchandise. So Elfers went smaller. In 2003 she closed 32 underperforming stores and then six more before the company's 2006 sale, placing the brand in higher-end markets. The profitable East Coast, Chicago and Detroit stores remained because of their similar climate and customer profiles.

Within 12 months, Elfers had streamlined the merchandise, discarding $350 million worth of retail volume. Out went Liz Claiborne, Tommy Hilfiger and Nautica to make room for Coach, Kate Spade and Tommy Bahama. "The big theme that drives retail is getting back control of the brand, which is what they've tried to do," says Chen. "The Starbucks theory [of always expanding] doesn't work for fashion." Since 2003 Lord & Taylor has replaced 85% of its merchandise and reduced its style count 45%. The current 47-store chain is more akin to a specialty store: manageable, edited and easier to shop. "I think there will be a rallying cry for regional nameplates that bring charm and the service people are looking for," says Elfers. The plan is showing results. In 2006 the chain's sales and earnings performance was the best it has been in a decade. This year it's on track to do even better.

Despite the progress, not everyone has as much faith in the department store's future as Elfers and Baker do. "Lord & Taylor is a problem child, a tarnished brand, and has a long way to go," says Howard Davidowitz, chairman of Davidowitz & Associates Inc., a national retail-consulting firm. "I am not sure, in the current competitive climate, that Lord & Taylor can stand on its own two feet and be a survivor." Davidowitz points to the fact that Baker paid top dollar for a minnow in a sea of powerful retail companies. The store is loaded with debt while seeking to find its niche and customer base. "Baker knows the mall, but he's trying to run a fashion store, and this is day and night," says Davidowitz.

But others see Baker's approachable personality and outsider status as key to Lord & Taylor's success. He's energized but not jaded. "He doesn't come from the realm of fashion retail as we know it, but he's become very smart and has developed relationships with people in the industry very quickly," says Steven Kolb, executive director of the CFDA. Tuleh's Bradley thinks Baker's ability to observe from a nonretail point of view is the reason changes have happened so quickly. "He is a big-picture guy, and when the small picture needs to be looked at, he can zoom in without telling people how to design the clothes."

Even as Baker examines every aspect of the store, he's careful not to destroy what many people love about it. (He says he receives hundreds of e-mails from Lord & Taylor shoppers along the lines of "Please don't mess with my store!") His sensitivity has won over supporters. "He is a great partner," says Elfers. "If I had sat down and written an ending for Lord & Taylor, I don't think I could have written a better one." Die-hard fans can only hope she's right.