Lord & Taylor leaving Pittsburgh – 3-year-old Downtown store among 32 retailer is unloading

By Len Boselovic and Dan Fitzpatrick,
Post-Gazette Staff Writers
Thursday, July 31, 2003

May Department Stores said yesterday it intends to sell its Lord & Taylor store on Smithfield Street and 31 others in 15 states in a $380 million restructuring.

The announcement deals another blow to the city’s languishing plans to revitalize its struggling Downtown retail district.

The St. Louis-based chain yesterday said it is divesting stores that aren’t supporting its strategy of repositioning the chain as an upscale retailer. Although they represent 38 percent of Lord & Taylor’s 86 locations, the 32 stores account for only 19 percent of sales.

It’s not certain when the Downtown store will close. It employs 75 and opened three years ago as a strategic piece of a Fifth-Forbes renewal plan that never took off. May has a lease agreement with the Urban Redevelopment Authority that calls for it to operate the store through 2005 or pay off an $11.8 million URA loan that helped finance its opening.

Spokeswoman Sharon Bateman would say only that Lord & Taylor will continue operating all stores targeted for divestiture until it can get out of leases at those it rents and sell the stores that it owns.

Retail analysts expect it will be tough to find buyers given the economy and competition, and said the urban location won’t make the sale of the Pittsburgh store any easier.

Mayor Tom Murphy and URA Director Mulugetta Birru — the duo that worked hard to woo Lord & Taylor to the city — indicated that they would sue if May failed to live up to its obligation to operate the store through 2005.

But analysts expect that won’t prevent May from leaving town sooner and speculated that a payoff of its loan is included in the $380 million May said the overall restructuring will cost.

Lord & Taylor bought its Downtown site from Mellon Financial for $9 million in 1998 and opened the store two years later after extensively renovating the building over the protests of preservationists who lamented the destruction of the neoclassical, marble interior.

Downtown boosters hoped Lord & Taylor would serve as one of the last pieces of a puzzle aimed at spurring transformation of a ragtag corridor into a vibrant retail and entertainment center.

But as the Fifth-Forbes plans stalled, so did sales at the new Lord & Taylor, totaling only $11.2 million in 2001 and $9.1 million last year, according to the URA — sharply below the $35 million threshold at which the chain was supposed to contribute money to help pay off the URA loan.

While the store was a poor performer, city officials said they were caught by surprise by yesterday’s announcement.

Birru, in fact, cited an upbeat conversation he had six to eight months ago with a May executive vice president who admitted that sales were slow but stressed that May “would never give up in the Pittsburgh market and they would make it work.”

Birru was miffed at how the announcement yesterday was handled. “I haven’t spoken to them; they haven’t called us … they should let us know on the phone that they are closing and why they are closing and how they would cooperate in dealing with us,” he said.

Joining Birru in frustration yesterday were the preservationists who fought May’s decision to gut the building’s interior. “We believe this has been a high price to pay for a retail store,” said Cathy McCollom, an official with the Pittsburgh History & Landmarks Foundation. “It was a spectacular, unique interior that was lost forever.”

Murphy tried to put a brave face on the news, saying the city “firmly believes that the Golden Triangle can become a thriving, vibrant retail district.”

If the city is to take any comfort in yesterday’s news, it’s that Pittsburgh wasn’t being singled out.

Lord & Taylor also is abandoning stores in Harrisburg, Baltimore, Columbus, Ohio, and Tampa, Fla., two stores each in Miami and Dallas, three stores each in Atlanta, Houston and Denver, as well as several other locations.

May expects the closings to save it $50 million annually and allow it to focus on making the chain more appealing to an affluent clientele. One criticism of the Downtown store and other Lord & Taylor locations targeted for abandonment is that their merchandise wasn’t all that different from department stores such as sister Kaufmann’s or Lazarus.

With Lord & Taylor out, it’s not certain what will become of the Downtown site. Some have suggested Nordstrom, another high-end retailer long sought by the city, as a possibility, but those efforts have been unsuccessful to date and analyst Eric Meyers doesn’t think Lord & Taylor’s exodus will change that.

“I don’t think Pittsburgh is a market they are terribly interested in,” said Meyers, an equity analyst with Federated Investors, Downtown. Even if Seattle-based Nordstrom were interested, it would probably prefer a suburban location such as Robinson, he said.

Target and Wal-Mart, two discount retailers, do have some urban stores, “but the economics have to be good, which means a lot of support from the city,” Meyers said. “I think it’s going to be a tough market for the real estate.”

Dusty Elias Kirk, an attorney with Pepper Hamilton who is familiar with real estate development issues, said the announcement could further complicate Murphy’s efforts to redevelop Fifth and Forbes. “That’s not a corner you would want to have empty for long,” she said.

Herky Pollock, a retail broker with CB Richard Ellis/Pittsburgh, agreed.

“The fact that a well-known national department store was unable to be successful in the best retail corner in Downtown, coupled with the fact that Lazarus is not doing well Downtown, does not signify great hopes for the retail corridor as it currently exists.”

A closing of Lord & Taylor, Pollock added, “certainly would cause retailers to pause about the overall vibrancy of the Downtown market. How could it not?”

Retail broker Kevin Langholz with Langholz/Wilson & Associates predicted that with Lord and Taylor’s exit, “Downtown Pittsburgh will continue its downward spiral in the minds of retailers.”

But Midge McCauley, a retailing expert hired by the mayor to recommend changes for the Fifth and Forbes corridor, said she and her suburban Philadelphia-based employer, Kravco Co., remain committed to the project.

“I don’t like to see stores close,” McCauley said, but Pittsburgh “has more department stores than most cities. Even if you lose two of your four department stores, you still have more than most cities.”

Despite the condition of Fifth and Forbes, some big-name retailers continue to mull moves here.

Saks Fifth Avenue has been talking for years about expanding its store on Smithfield. Upscale Dallas department store Neiman Marcus toured Downtown last year, looking for possible locations. And Chicago home furnishings retailer Crate & Barrel has said Pittsburgh is a market on its radar.

Finding a new user for the 125,000-square-foot Lord & Taylor building will be challenging, though.

Real estate experts said May probably will not sell it to a department store competitor, with a May-owned Kaufmann’s still operating across the street. And converting it to office space would be expensive and perhaps unlikely in what remains a soft commercial real estate market.

Before the building became a Lord & Taylor, the previous owners at Mellon Financial tried a number of different things before settling on the retailer. They thought about making it a conference center or a large display area for Mellon’s products. They even considered using it as a small hotel for Mellon employees or working with the Carnegie Museums of Pittsburgh to develop it as a museum.

“There is a use for everything,” said Rob Geiger of real estate brokerage Grant Street Associates, who helped Mellon sell the building to May. “It just takes a little work to find it.

(Post-Gazette staff writers Tom Barnes and Tim McNulty contributed to this story. Len Boselovic can be reached at lboselovic@post-gazette.com or 412-263-1941. Dan Fitzpatrick can be reached at dfitzpatrick@post-gazette.com or 412-263-1752.)

Joe Grata can be reached at jgrata@post-gazette.com or 412-263-1985.

This article appeared in the Pittsburgh Post Gazette. © Pittsburgh Post Gazette