The cofounder of the rental startup that bought Lord & Taylor reveals its secret weapon and shares its plan to reverse the department store's decline

Le Tote

A Le Tote rental studio at a Lord & Taylor store.

• Clothing rental startup Le Tote recently bought Lord & Taylor for $100 million in a surprising acquisition.
• While rental startup Le Tote would bring digital expertise to Lord & Taylor, the latter's physical retail experience and brand loyalty, Le Tote co-founder and president Brett Northart said.
• Le Tote's secret weapon is its data platform, which Northart believes will turbocharge Lord & Taylor's growth.
• Northart also predicted that there could be more such deals rocking the retail industry.
• Click here for more BI Prime stories.

Seven-year-old clothing rental startup Le Tote shocked the retail industry when it shelled out $100 million for beleaguered department store chain Lord & Taylor this past summer. But while the two may seem like an odd pairing, they have much to gain from each other, said Brett Northart, cofounder and president of Le Tote.

Speaking to Facebook's North America vp of marketing solutions Nada Stirratt at the Interactive Advertising Bureau's Direct Brand Summit this past week, Northart said that while Le Tote would bring digital expertise to Lord & Taylor, the latter offers physical retail experience and brand loyalty.

"Digitally native brands reach a certain scale where you tap out on those early adopters, and you've got to go and find customers at scale," said Northart. "Instead of trying to become an offline retailer, we thought it'd be interesting if we could take our prowess, expertise and technology and take Lord and Taylor's iconic brand and loyal customer base... and bring the best of both worlds to the table."

Le Tote thinks it's in the logistics business

Le Tote's secret weapon is its data platform, which personalizes clothing offers for customers and makes returns easy, Northart said. Le Tote tackled returns at scale since its inception and as a result, only about 20% of the company's inventory sits in a warehouse, which is lower than traditional retailers, he said.

"We are very, very good at handling returns and turning inventory quickly, which is the lifeblood of our business," said Northart. "So we're not sitting on a bunch of stuff that's a liability, and we're trying to move all the time."

Being in the rental business means Le Tote has more data than the typical retailer. It has frequent interactions with its customers and they rate 80% of the items they rent, he said.

"The reason they do that is because there's a built-in incentive, so when they give us feedback on the fit, the style and the condition, that next box is getting even more personalized, the recommendations are going to be more relevant for them," he said. "And it gives us this very deep data, structured data."

How Le Tote's data will fuel Lord & Taylor

Northart said by continuously tracking consumer sentiment and adapt to it, it can help Lord & Taylor break out of its quarterly cycles and grow.

"From a brand perspective and merchandising standpoint, we can zoom way out and say, 'What is the emerging trend here? What are we seeing that other people aren't?'" he said. "Basically, we have the goldmine of data that every retailer is trying to triangulate to, but we're just getting that directly from our customer."

Direct brands typically spend a lot of money on Facebook to acquire customers. Lord & Taylor for its part has physical stores that will bring Le Tote into the physical environment for the first time and help it target a new set of customers.

"It's really expensive to go out and acquire customers at scale; we're powering the Facebook stock," he joked. "And so instead of giving all of our money to Facebook, can we give some money to Hudson's Bay Company [Lord & Taylor's former parent company], get access to its really loyal customer base and, and build a business together?"

One of the first priorities for the combined business is to expand Lord & Taylor's e-commerce footprint and also think about how to fit Le Tote's rental business into Lord & Taylor's physical stores, said Northart. Since the deal closed, Le Tote has launched a rental studio at the Ridge Hill Lord & Taylor in Yonkers, and is set to roll out three more in the next few weeks.

Ultimately, the idea is to offer a seamless shopping experience across channels, as customers are platform-agnostic, Northart said.

An impending shake-up in retail

In a follow-up interview with Business Insider, Northart predicted there could be a shake-up in retail with more deals like Le Tote's Lord & Taylor acquisition.

That's because while the overall stock market was trading at all-time highs, the retail stocks were at all-time lows, which means that the chances of one retailer acquiring another weren't high. So a direct-to-consumer brand could sweep in and go after another legacy retailer, he said.

"We're not an anomaly, and this isn't the last one [such deal]," he said. "If you can play that arbitrage game - and add a competency, feature set, or geographical footprint in a meaningful way, then why not?"

He also said he expected to see more traditional retailers adopt the rental model because of the access to depth of data that it provides that regular transactions don't. Macy's and JCPenney's recently teamed up with ThredUp to sell resale apparel in select stores, for example.