RICHARD A. BAKER dashes through the Lord Taylor store here like Willy Wonka on a chocolate high.
Look at these sweaters!
Check out this Ralph Lauren!
Just wait till you see our store in Yonkers!
He squeaks to a stop at a table stacked with derrière enhancers. “How is this doing, Charlie?” he asks the store manager.
Then he surveys his domain: “This building alone could be a $100 million property!”
If Mr. Baker sounds like a rich kid playing with his new toys, well, that’s because he is a rich kid playing with his new toys. Only the toys happen to be two of the oldest department store chains in North America: Lord Taylor, the grande dame that used to anchor the Ladies’ Mile in Manhattan, and the Hudson’s Bay Company of Canada, which traces its roots back to the 17th-century fur trade.
How Mr. Baker, 45, came to own these baubles is a story for our financial times. He’s not exactly a self-made man. His father, Robert C. Baker, owns a giant shopping mall development company. But in 2006, just before the recession, the younger Mr. Baker took a flier and bought Lord Taylor, and later the Hudson’s Bay Company, putting down almost no money and borrowing more than $1 billion to finance the deals. Just about everyone in retailing wrote him off. Many whispered that he would get hammered, like several investment hotshots who set their sights on this business.
But a funny thing happened on the way to the comeuppance. It turns out that Mr. Baker wasn’t so bad at running department stores. In 2010, sales at Lord Taylor’s 46 stores rose 12.2 percent from the previous year, and are now higher than they were before the recession bit. And Hudson Bay’s flagship Bay stores posted their first increase in same-store sales in a decade. Earnings at the combined companies totaled $450 million last year, before taxes, up from $330 million in 2009.
In January, Mr. Baker solved the company’s debt problem, striking a complex deal to sell the rights to leases on an underperforming division of the Hudson’s Bay Company to Target for about $1.8 billion. There are discussions about an initial public offering of the combined companies as soon as this fall.
“Richard shocked everybody,” says Matthew E. Rubel, the chief executive of Collective Brands, which runs businesses like Payless ShoeSource.
REMEMBER that kid in high school who was always hawking T-shirts or trading baseball cards, rather than hitting the books? That kid was Richard Baker. He grew up in moneyed Greenwich, Conn., where he still lives. His high-school shtick was running his own high-end catering business. At 15, after taking courses at La Varenne, the Paris cooking school, he employed his private-school classmates as waiters and was hired for parties around Greenwich.
“He was more interested in business than in being the captain of the basketball team,” his father recalls. “He was making money for the sake of making money.”
His parents divorced when he was 12, and he spent most of his weekends with his father, visiting potential strip-mall sites. The Bakers grew up comfortably; they now live very comfortably. Richard Baker declined to show reporters his Greenwich house — he does not want a “Richard Baker’s palatial estate” article, he says, and one swimming pool is under renovation — but the 10-acre property features loads of conceptual art that he and his wife, Lisa, commissioned, including a James Turrell pool.
He also has houses in Telluride, Colo., and on the North Fork of Long Island.
His father’s lifestyle provides a glimpse of how Baker fils lives. In addition to houses in Greenwich and in Palm Beach, Fla., the elder Mr. Baker, 76, owns a floor-through apartment on Fifth Avenue and 63rd Street, looking out onto the Central Park Zoo. His view is of swimming sea lions, lolling polar bears and the exhibit housing a king penguin named Robert. (Richard and other family members, who had donated to the zoo, had him named in his father’s honor.) A Degas and a Motherwell hang in his living room, and he owns Dublin, a thoroughbred that was in the Kentucky Derby in 2010.
He recruited his son into the family business after Richard graduated from the school of hotel management at Cornell. Richard had wanted to build a chain of chicken-wing restaurants, but his father talked him out of it during a walk along the beach near his summer rental in Quogue on Long Island.
“I said, ‘You know, in a chicken-wing restaurant, you’ve got to be up early in the morning, you’ve got to work late at night,’ ” Robert Baker recalls. “ ‘Maybe you should see if the real estate business is for you.’ ”
Richard agreed — and soon, working for his father, came up with the idea of courting Wal-Mart to lease space at their malls; until then, the chain had not opened stores on the East Coast. His father remembers flying to the retailer’s famously spare headquarters in Bentonville, Ark. “We were in this room for three hours, sitting, without anyone offering coffee or water,” he recalls. Finally, some lower-level executives came in, he adds, but little was accomplished.
Richard stayed with it, and Wal-Mart eventually did its first East Coast deal with the Bakers’ company, the National Realty Development Corporation, opening a store in Canandaigua, N.Y. Though Kmart would offer a dollar a foot more for a space, Robert Baker says, his son preferred Wal-Mart, believing that it had better growth prospects. Today, Wal-Mart has 35 stores in Baker-developed malls.
BUT by 2005, after working for his father for nearly two decades, Richard Baker grew restless. As a friend puts it, “He didn’t want to spend the rest of his life renewing Wal-Mart leases.”
The real money, by then, was in another kind of deal. Banks were heavy with cash and were lending billions to Wall Street investors to acquire giant companies. It was, as the dealmaker Henry Kravis would later call it, “the golden age of private equity.”
In real estate private equity circles, retail companies became the hot investment, as their property holdings often made them worth more than their balance sheets suggested.
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