Lord & Taylor's store in Manhasset, N.Y.

Hudson’s Bay Co. is close to revealing a deal to sell Lord & Taylor to Le Tote, a seven-year-old, San Francisco-based subscription rental web site, according to sources.

The deal would give new life to the struggling Lord & Taylor department store chain by adding a direct-to-consumer rental service to the business model.

Lord & Taylor closed its Fifth Avenue flagship and a few other unproductive locations this year. But the store still has a reputation for broad and appealing assortments in dresses, a category that works well for rental services, particularly with evening styles. Lord & Taylor also has respectable offerings in tailored clothing and suits, which would be attractive to Le Tote.

Richard Baker, executive chairman and governor of the Toronto-based HBC, has a track record for innovative deal-making and a Lord & Taylor-Le Tote hookup would be no exception.

According to sources, Le Tote will pay money and provide some equity in its business to HBC in return for free rent at Lord & Taylor stores for a period of time. Le Tote has never operated stores before, but would take over the Lord & Taylor store teams.

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Lord & Taylor operates about 40 stores, and Le Tote will operate almost all of them, sources said. More specific terms of the deal could not be learned. HBC had no comment on Wednesday.

Significantly, the deal will enable HBC to tap Le Tote’s technology and data analysis resources to develop a vast rental business not only for Lord & Taylor, but also for Saks Fifth Avenue in the U.S. and possibly even the Hudson’s Bay department stores in Canada. “It’s state-of-the-art technology,” said one source.

Last May, when HBC revealed that Lord & Taylor was on the block, the company cited a sale, joint venture or a merger with another company as possibilities. HBC also said strategic alternatives involved the retail operating business of Lord & Taylor, suggesting that L&T’s real estate would be retained.

When HBC initially said it was looking at alternatives for Lord & Taylor, industry speculation centered on the company being sold off piecemeal to different retailers. Though the department store overall has been faltering, it has some suburban locations that generate healthy sales and traffic such as in Scarsdale and Garden City, N.Y. Baker’s solution would not only bolster HBC’s balance sheet, but save an iconic retail nameplate and hundreds of jobs.

“This would be a big morale-booster,” to the store workers, said one of the sources.

“Most of the people will continue working at Lord & Taylor,” said another source close to the company.

Letote.com, launched in 2012, has scores of apparel and accessories brands on its web site and has attracted investors including Azure Capital Partners, Simon Venture Group, Lerer Hippeau, AITV, Epic Ventures, Arsenal Venture Partners and FundersClub.

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Le Tote’s members pay a flat monthly subscription fee to rent the fashions. The business was founded by Brett Northart and Rakesh Tondon, who both previously worked at the investment bank Ridgecrest Capital Partners.

Le Tote made news about a year ago when it became the first U.S. subscription service to enter the Chinese market, considered the largest e-commerce market in the world. It’s been dubbed the “Netflix of fashion” for its rapid growth.

The fashion rental service sends its members a customized box of clothing and fashion accessories they can wear as much as they like, and then send back for a new selection. One of Le Tote’s points of distinction is its maternity division, which relieves the frustration women have spending money on new clothes during pregnancy which only get worn for a short period of time. Le Tote operates on a monthly fee at $79, $89 for maternity rentals.

The transaction with Le Tote furthers a string of other bold maneuvers by Helena Foulkes, chief executive officer of Hudson’s Bay to streamline the company and focus on the Saks Fifth Avenue and Hudson’s Bay department stores.

“This review of strategic alternatives for Lord & Taylor is another example of how we are exploring options to position HBC for long-term success,” said back in May. “Over the last year we have taken bold actions and made fundamental fixes that have resulted in a far stronger, more capable HBC, having returned to positive operating cash flow, increased profitability, and having strengthened the balance sheet.”

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Those actions included closing the historic Lord & Taylor flagship on Fifth Avenue in Manhattan last January and selling it to WeWork, now known as The We Co. At least four other L&T stores have been closed. The company said last year that up to 10 locations could close.

In other downsizings of its retail operations, HBC earlier this year shuttered its Home Outfitters chain in Canada and said it would close up to 20 Saks Off Fifth stores in the U.S. The company is performing “a fleet review” of the 133 Saks Off Fifth chain, could try to sell it, and its senior merchant, Tom Ott, is leaving the business on Aug. 30. Saks Off Fifth has been yielding poor results for several seasons, though in the first quarter of this year it showed some improvement with comparable-store sales increasing 4.4 percent. The off-price sector, led by T.J. Maxx, Ross Stores and Burlington, is among the strongest in the retail industry. HBC also last year sold off Gilt Groupe to Rue La La.

In Europe, too, HBC has been streamlining. Last year, the company sold off a majority interest in its European retail operations to Signa Holdings, which owns the Karstadt department store chain in Germany, and a 50 percent stake in its European real estate. The sale to Signa led to a merger of the Kaufhof and Karstadt department store chains in Germany.

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