Retail

CEO of upstart clothing rental firm that just bought Lord & Taylor says low rates factor into the deal

Key Points
  • Low interest rates contributed to the structure of online start-up Le Tote's $100 million deal to buy Lord & Taylor, says CEO Rakesh Tondon.
  • "The market is great for debt right now and rates are really affordable," he says.
  • Borrowing costs could get even cheaper as the Fed considers another rate cut at its September policy meeting.
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Le Tote's Rakesh Tondon on $100M Lord and Taylor deal

Low interest rates contributed to the structure of upstart online clothing rental Le Tote's deal to buy storied American retailer Lord & Taylor, CEO Rakesh Tondon told CNBC on Thursday.

"Absolutely, the market is great for debt right now and rates are really affordable," Tondon said on "Squawk Box." "So we thought this made a ton of sense to finance this with debt."

Borrowing costs in the U.S. could get even cheaper as the Federal Reserve considers another rate cut at its September policy meeting. The market expects the Fed to announce a quarter-point reduction on Sept. 18, the same as in July, which was the first cut in more than a decade.

Tondon's remarks about the advantages of low rates came a day after Le Tote announced it will purchase Lord & Taylor from Canada-based Hudson's Bay for $100 million. Le Tote, which is still securing financing, will take over Lord & Taylor's brand and intellectual property. Hudson's Bay will retain ownership of Lord & Taylor real estate.

Hudson's Bay, which also owns the iconic New York brand Saks Fifth Avenue, completed its acquisition of Lord & Taylor in 2012 — the same year that Le Tote was founded in San Francisco.

Tondon said Le Tote considered opening its own stores, but the opportunity to achieve scale quickly by acquiring an established brand like Lord & Taylor was more attractive. "What we're trying to do is merge tradition with technology," he said.

Le Tote subscribers, who pay $79 monthly to rent clothing and accessories, had been asking for "pop-up locations, for stores where they could come, touch, feel" products before making "a decision to purchase potentially online," Tondon said. "We're going where the customers are asking us to go."

Lord & Taylor, one of the country's oldest department stores, was founded in 1826 in New York. Currently with 38 stores, the retailer has struggled in recent years as the traditional shopping landscape has been upended by e-commerce giant Amazon and newcomers such as Le Tote.