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Who'll Take Lord & Taylor's Vacant Stores?

Thousands of square feet of vacant, Class-A mall anchor space are up for grabs now that May Co. has announced plans to close 32 of its Lord & Taylor stores.

Retail landlords say they aren't worried about the vacancies, mainly because Lord & Taylor is vacating entrenched fortress malls such as Dadeland Mall in Miami and Flatiron Crossing in Denver. Now, more attractive retailers-ranging from Kohl's to Nordstrom-are potential new tenants for the space, according to Wall Street analysts.

May Co. owns all but seven of the stores to be closed, and has already sold its Dadeland Mall space back to Simon Property Group. May also sold its rights to build a Lord & Taylor at General Growth's mammoth Jordan Creek Town Center in Des Moines, Iowa, to Saks Inc., which will build one of its Younkers stores instead.

At Las Vegas' Fashion Show mall, Rouse Co. has not received notice from Lord & Taylor regarding the future of their proposed anchor store, on which construction has stopped. But Rouse is confident it could find another tenant for the space. Simon is equally confident in its prospects for replacing the closing Lord & Taylors in its portfolio.

JCPenney, Sears, Federated and Dillard's would gain market share by scooping up certain stores, says Bear Stearns retail analyst Dana Telsey. In a report, she says that May will probably sell the stores on an individual basis. Target and Kohl's are also on her list of likely buyers. And "although Nordstrom has scaled back its new store openings, given the compelling demographics we would expect them to at least consider the stores in Miami's Aventura Mall and Atlanta's Phipps Plaza and North Point Mall," Telsey notes.

Eleven of the stores to be closed are in privately held malls. Nine are in Simon malls, four are in General Growth Properties malls, four are in Taubman malls and three are in Rouse Co. malls. Citigroup Smith Barney's REIT analyst Jonathan Litt says the high quality of most of the malls affected should allow locations to be re-tenanted within 12-24 months. May remains contractually obligated to continue paying rent on the leased stores, although it could negotiate termination fees, he says. Lord & Taylor's average remaining lease terms are 15 years.

The trimmed-down Lord & Taylor store base will be concentrated in the Northeast, Mid-Atlantic and Midwest regions. The retailer is pulling out of major markets such as Denver, Atlanta, Dallas, Miami and Houston, as well as states with only one store. Litt says Lord & Taylor's problem in these markets is too much competition from deep-rooted luxury icons Neiman-Marcus and Saks Fifth Avenue.

Eighteen of the 32 stores to be closed are locations opened in the past five years as part of Lord & Taylor's strategy to position itself as a more moderate-priced department store. That strategy failed, and now Lord & Taylor is aiming to position itself between traditional department stores such as Federated's brands, and luxury department stores such as Saks Fifth Avenue. "It will be positioned closer to Nordstrom," says Citigroup Smith Barney analyst Deborah Weinswig, who adds that now Lord & Taylor President and CEO Jane Elfers can concentrate on the 54 locations where the repositioning process is working and the brand franchise is intact. Closing the weaker stores will make it easier for Lord & Taylor to work with better and designer vendors who previously didn't want to sell to them, Weinswig says.

The 32 closing stores make up 38 percent of Lord & Taylor's store base and 35 percent of Lord & Taylor's total square footage, but contribute only 19 percent of total sales for the division. Lord & Taylor sales per square foot were $171 in 2002, a 17 percent drop from $207 in 2000, according to Telsey. This compares to total department store sales per square foot of $172 in 2002, which declined 16 percent from $207 in 2000.

May probably won't lose the entire $360 million in sales that these stores generated, Weinswig says, because 60 percent of the Lord & Taylor stores that are closing are located in malls with another May Co. division such as Foley's or Hecht's.

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