Will Fortunoff Buy Bring Good Fortune to NRDC?

News about the retail market is mixed these days, but NRDC Equity Parters L.L.C. apparently sees significant upside in its $100 million acquisition of Fortunoff, the venerable but vulnerable Northeast retailer. Earlier this month, NRDC Equity Partners L.L.C. confirmed plans to buy the struggling Fortunoff chain from Trimaran Capital Partners and Kier Group. Since its founding 86 years ago in Brooklyn, Fortunoff has grown to include 20 jewelry and home furnishings stores in New York, New Jersey, Pennsylvania and Connecticut. But in recent years Fortunoff has lost ground to newer chains and discount retailers. “Fortunoff is great in this market, but they’re not big enough,” said Deborah Jackson, executive managing director for Weiser Realty Advisors L.L.C. “It’s hard to compete on this level.” The acquisition marks the third acquisition of a major chain in the past two years by NRDC Equity Partners, a joint venture of NRDC principals Robert Baker and Richard Baker, and William Mack and Lee Neibart, partners of Apollo Real Estate Advisors L.P. In Oct. 2006, NRDC closed on the acquisition of the Lord & Taylor fashion store chain, and two years ago this month, NRDC bought Linens ‘N Things, the home furnishings store. To Jackson, the Fortunoff acquisition sale makes perfect sense in several respects. “The kind of goods that Fortunoff (sells) are the kind of goods that Lord & Taylor needs to broaden its base,” she said. In particular, Lord & Taylor may begin stocking jewelry and other selected products carrying the Fortunoff brand. NRDC may also have picked a good time to add Fortunoff to its holdings. Troubled assets with strong potential may be available at good prices, and qualified investors are in a good position to get favorable rates on financing, Jackson noted. NRDC’s leaders have suggested in various published reports that they may try to expand Fortunoff’s footprint. Yet other retailers are cutting back. During the same week that NRDC’s deal for Fortunoff emerged, Charming Shoppes Inc. disclosed plans to shutter 150 of its nearly 2,500 stores. While Jackson said that uncertain economic times do tend to expose weaknesses among retailers, she cautioned against oversimplifying today’s situation. “The chains that are doing well are doing a focused expansion,” she explained, naming Sephora USA Inc. and Gymboree Corp. as two examples. NRDC itself has previously shown its willingness to expand its holdings. Last June the company revealed plans to redevelop the Lord & Taylor store in Stamford, Conn. The project will expand the existing store by 150,000 square feet, bringing in a 93,000-square-foot Whole Foods outlet, and adding another 55,000 square feet of retail. If NRDC does decide to expand Fortunoff, it has plenty of options. Fortunoff might be a good fit for a conventional mall looking for a new anchor tenant. But Jackson pointed out that new stores could take on other forms, such as a smaller, free-standing pad at a power center. Rather than targeting specific regions or locations, NRDC will likely explore markets offering demographics similar to existing Fortunoff locations, Jackson predicted.