How Barneys And Other Big Retailers Can Survive This Market

How Barneys And Other Big Retailers Can Survive This Market

In just four years, it will have been a century since Barneys New York opened its doors on Seventh Avenue and 17th Street. The store originally sold discounted men’s clothing acquired from various sources such as overstocks, bankruptcies, showroom sample sales and auctions. Barneys was known for its free alterations and high level of customer service.

In the early 1970s, the company abandoned the discounted business amid stiff competition and reduced margins and began focusing exclusively on designer clothing, mostly imported from Europe. Barneys quickly became the New York destination for high-end clothing for both men and women.

Today, according to a recent Bloomberg report, Barneys is approximately $250 million in debt. The company filed for bankruptcy on August 6, 2019, while I was writing this article. According to CNBC, the company will close its stores in "Chicago, Las Vegas and Seattle, as well as five smaller concept stores and seven Barneys Warehouse stores," but not Madison Avenue. Barneys has recently lost a suit with the current Madison Avenue landlord that was planning to increase the rent from the current $16 million a year to $32 million.

Retailers are under pressure from changing markets, e-commerce and an explosion of small labels, both low-end and luxury. Most of these brands are direct-to-consumer businesses with very limited retail expenses, born online and created by tech-savvy entrepreneurs or celebrities who are fluent in social media marketing.

Barneys at its core is not exactly a department store, but more of a boutique for a very specific segment of luxury consumers. Its collection is highly sophisticated and definitely not for a wide audience. Its price point is also extremely high, and the spending power of the younger generation is much less than it was for their parents in the 1980s and '90s. Barneys' customer base is getting older, while the younger generation is more attracted to new brands and spends less on possessions.

Furthermore, the recent crackdown on corruption and billionaire capital flight in China and the tensions with the Trump administration have resulted in a slowdown in spending that has been felt throughout the industry. These customers haven’t been replaced by anyone else.

What could Barneys and its peers do to survive these hard times for big retail?

In a shrinking market, large historical retailers should seriously consider reducing their physical presence. They should focus on smaller, highly curated spaces that can attract the attention of a new generation of customers.

Some retailers are already ahead of the curve, as you can see by visiting Dover Street Market, 10 Corso Como and the newly opened Forty Five Ten in Hudson Yards. All these stores have a very interesting selection of clothes, limited edition items and, in the case of Forty Five Ten, even vintage pieces. Their interior design is top-notch, unique and engaging.

These brands are proof that retail isn’t broken; it has just changed into something new.

At the current rent rates, conventional retail stores cannot survive, and the results are more than obvious if you walk around New York. Landlords are betting on the market to come back to the levels it was at a few years ago but, in my opinion, this is just wishful thinking.

Barneys will have to close most of its retail locations and go back to what made it the fashion destination it was until just a few years ago. Many of the current locations are built in places that are not receptive enough to the exclusive fashion trends the company sells.

Only by closing the least productive locations or those that are too expensive to run (such as Madison Avenue) could the company have had a chance in such a troubled market.

There’s no room anymore for large retail stores if the rent is so high, at least until landlords understand that their demands cannot be met.

I believe the company should keep the Chelsea store and frequently create new inventory so customers are curious and stop by periodically to see new collections and limited edition items (similar to Zara's business model). In parallel, the company should start planning a series of highly designed temporary stores to be opened in different locations throughout the country. These stores could target a younger audience that is eager to discover new trends and share experiences on social media.

As easy as it may sound, this is not a simple task. Building a cool pop-up shop or a successful Instagrammable location without merely copying others is extremely complex.

Nobody knows where the market is going or what customers will be interested in buying in six months or in six years, assuming they will still be interested in owning something as opposed to borrowing it. Predicting trends, changing markets or spending power is risky, but if brands want to remain relevant, there is no other option on the table.

Sergio Mannino

This article first appeared on Forbes

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