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No more Christmas windows at Lord & Taylor

June 7, 2018

lord and taylorI can’t imagine that there is a New Yorker that hasn’t seen the Lord & Taylor Christmas windows at least once. My wife and I see it every year. I also trust that most Christmas season tourists also stop by the short lines to view the imaginative, attractive and elegant windows. Never again! The flagship store will be closing with no plans to relocate in Manhattan.

I do a considerable amount of consulting with clients about how much their business is worth and what the value drivers are. On some basis it all comes down to the value being mostly determined by cash flow. Clients kick, yell and scream because many times the value based on cash flow doesn’t reflect the replacement cost, brand value, customer base, market share or years of hard work building the company. I commiserate with them understanding their positions and feelings, but it is cash flow, cash flow and cash flow that matters. There are some exceptions such as “franchise” value, strategic value, ego value or the value from a cult-like following of the company’s CEO, but, by and large, the predictability of cash flow is the primary factor.

Lord & Taylor had a premier reputation, strong brand, longevity, a great Fifth Avenue location and was highly recognizable, yet the Fifth Avenue store is closing and not relocating. What happened? It ran out of cash flow. Further, the real estate value far exceeded any value that could be attributable to the store. There are the typical reasons and rationalizations and fault assignment, but regardless of why, the cash flow could not support the business. We can still shop in the Lord & Taylor locations in the malls, and Walmart will have a Lord & Taylor webstore, but the Fifth Avenue store will be no more.

A lesson here is that cash flow is paramount, necessary and the primary basis for any valuation. In Lord & Taylor’s case the proceeds from the sale of the real estate will provide a windfall of cash and a far greater cash flow than the retailer could generate from its business operation and so it is being liquidated.

BTW, I will be presenting a 50 minute program analyzing the market values of Johnson & Johnson and Amazon.com and will discuss how cash flow interacts with the stock price that determines (or should determine) market cap. I also will “project” the value of Amazon.com. This program will be the final program in an eight hour continuing education program for accountants presented by the Withum Partners’ Network [that’s how my blog got its name]. You are welcome to attend as my guest. It starts at 3:40 and will end at 4:30 and will be held at the Hilton by our office at One Tower Center Boulevard in East Brunswick on Tuesday June 26 and at our NYC office at 1411 Broadway, 9th Floor on Wednesday June 27. Further I will be presenting a 55 year career retrospective providing insights to colleagues from 4:50 to 6:30 that you are also welcome to attend, also for free. Just email Ashley in NJ akrompier@withum.com or Jessica in NY jforenza@withum.com to register and a security pass will be provided at the front desk of each building.

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