(CNN) - In another sign of trouble for traditional retailers, iconic department store Lord & Taylor has been sold for $75 million to Le Tote, Inc., a fashion rental subscription service.
Lord & Taylor opened its first store in New York in 1826, making it the nation's first department store. It was once a mainstay of high-end fashion.
Hudson's Bay Companies, the owner of both Lord & Taylor and Saks Fifth Avenue, will get an equity position in Le Tote as part of the deal, in addition to the modest cash payment, according to a statement from the companies on Wednesday. It will also continue to own the real estate and leases associated with the remaining 38 Lord & Taylor stores.
But in a sign of the limited value that the chain now has, Canada-based Hudson's Bay has agreed to pay about $58 million in annual rent on the Lord & Taylor stores that are leased for "at least" the next three years.
During that time, Le Tote expects to keep the stores open and will continue to employ most of Lord & Taylor's staff. But starting in 2021, the two companies will have the option to "reassess" the store network, allowing Hudson's Bay to find other uses for the properties.
Lord & Taylor had sales last year of $1.4 billion, or about $1.1 billion in US dollars, the companies' statement said. But the company as a whole has lost money since 2016, and it disclosed in May that it was considering a sale of Lord & Taylor.
"Following an extensive review of strategic alternatives, Le Tote's leadership and innovative approach is the best path forward for Lord & Taylor, its loyal customers and dedicated associates," said Hudson Bay CEO Helena Foulkes.
Rental clothing is becoming a major trend for consumers eager to wear new looks frequently and are not always keen on buying pricey outfits to wear just once or twice. The clothing rental market is estimated at around $1 billion today and will hit $2.5 billion by 2023, according to GlobalData Retail.
"Since founding Le Tote, it's been our mission to push the boundaries of retail," said Le Tote CEO and founder Rakesh Tondon. "We're excited to bring Le Tote together with Lord & Taylor, a storied brand that has stood for quality, style and service for nearly two centuries. With this acquisition, we continue our journey in creating the future of retail."
Earlier this month The Gap's Banana Republic chain and Macy's Bloomingdale chain both unveiled their own rental offering. Urban Outfitters, Ann Taylor, American Eagle (AEO) and Vince have recently launched rental services, while Nordstrom said it would offer returns from Rent the Runway at stores in Los Angeles.
"This is a way to keep up with customers' ever-changing, moving lifestyle," Banana Republic CEO Mark Breitbard. "It will just help us over the long term maintain health for a brand that has been in business for 40 years."
According to its website, Lord & Taylor was created by English immigrants Samuel Lord and George Washington Taylor when they opened their first store on the Lower East Side of Manhattan nearly 200 years ago. The store would grow and relocate six times over its first 80 years, moving into its flagship Fifth Avenue store near Times Square in 1914. By then the company had already been publicly traded for 10 years.
The company thrived in the years following World War II, led by Dorothy Shaver, the first woman to lead a major retailer. Under Shaver it launched its first suburban branch stores and introduced the concept of personal shoppers.
But competition from lower-priced rivals continued to grow. It was acquired by May Department Stores in 1986, and in 2006 it was taken private by private equity firm NRDC Equity Partners. Many traditional retailers have struggled and closed after private equity firms and hedge funds bought them. Among them were Toys "R" Us, RadioShack, Sports Authority, as well as other clothing chains Gymboree, Charlotte Russe and The Limited.
Hudson's Bay acquired Lord & Taylor in 2012 and Saks the following year. It also purchased German retailer Galeria Kaufhof, another family-run chain, in 2015.
It agreed in 2017 to sell Lord & Taylor's flagship 5th Avenue store to WeWork. The original plan was for it to become WeWork's headquarters after the 2018 shopping season, with Lord & Taylor continuing to operate a scaled-down store at the location. But it dropped those plans and closed the store altogether earlier this year. It also closed 10 other stores.
-- CNN Business' Paul La Monica contributed to this report.
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