With Barneys in Financial Trouble, Can Iconic Department Stores Be Saved?

Will New York keep its status as a fashion capital?

Barney's New York sign on building
Madison Avenue used to be the heart of the fashion world, thanks to its many luxury retailers.
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New York City’s department store landscape has long been defined by one letter: B. That could stand for Bloomingdale’s, Bergdorf Goodman, the recently shuttered Henri Bendel and, of course, Barneys New York.

Now, the latter of those famous Bs is in trouble. Barneys New York is grappling with evolving customer tastes and high rents and is weighing several possibilities for its future, including a potential sale, securing outside financing or, in a worst-case scenario, filing for bankruptcy. The 96-year-old retailer is reportedly working with international law firm Kirkland & Ellis LLP to determine its financial options.

If Barneys does go the bankruptcy route, it won’t be the first time. In 1996, Barneys New York filed for Chapter 11, which led to a reorganization and two years of bankruptcy protection. If Barneys goes in the other direction this time—Chapter 7—it means the brand would follow the path so many retailers before it have taken: liquidation.

Trouble for Barneys, once the ‘cool’ fashion retailer

That would be a major shakeup not just for luxury retail, but for New York City’s department store scene. Since its founding in 1923, Barneys has become one of the most storied names in luxury, known for its early embrace of designers who became household names like Jonathan Adler, Jonathan Simkhai and Eugenia Kim. Its customer base is “narrowly focused,” according to Steve Dennis, a former retail executive and president of SageBerry Consulting, “going after a subsector of the high-end customer, particularly one who is more contemporary or ‘edgy.'”

In becoming synonymous with downtown cool—a reputation boosted by its iconic flagship on 17th Street and Seventh Avenue—Barneys occupied a different space than competitors like Bergdorf Goodman, which catered more to shoppers with deep pockets. But, Dennis said, that specificity likely played into Barneys’ troubles, creating an identify crisis.

“I always refer to Barneys as a ‘really big specialty boutique,'” Dennis said. “That can work in a few of these really huge luxury markets, like New York and Los Angeles, but doesn’t travel particularly well.”

In terms of expansion, Barneys has settled somewhere between Neiman Marcus, which operates just over 40 stores nationwide, and its nearby neighbor Bergdorf Goodman, which still only has two locations on Fifth Avenue (a men’s and a women’s store). Barneys currently operates 22 stores including its outlet mall-friendly Barneys Warehouse locations. In the ’90s, it added to its Chelsea shop and took over uptown, too, with a second flagship on Madison Avenue. Since then, Barneys has moved into other major markets, including Chicago, San Francisco, Los Angeles, Las Vegas and Japan.

But even such relatively modest expansion was too much for a more niche store like Barneys, which has to compete with department stores, Dennis said.

“Fundamentally, that’s their challenge. They’ve overexpanded without widening their customer appeal,” he said. “But if you widen the customer appeal, then they’re basically a slightly different Neiman Marcus or Saks Fifth Avenue.”

Market for luxury fashion isn’t what it used to be

Which brings us to the dreaded M-word. It looks like Barneys is another victim of millennials’ murderous spree. Shawn Grain Carter, an associate professor of fashion business management at the Fashion Institute of Technology, said that like many of its competitors, Barneys hasn’t kept up with young people’s changing shopping habits. And online, Barneys faces competition that it didn’t 25 years ago thanks to the emergence of luxury ecommerce retailers like Net-A-Porter, Shopbop, Mytheresa and FarFetch.

“Think about how young millennials shop—even those with money, they shop online,” Carter said. “You have to set your business model so the revenue generation is more online than it is in your physical store now.”

The millennial question plagues many retailers, and bankruptcy talk comes at a time when New York City’s legacy retail market is standing on shaky ground. Last year saw the closures of Lord & Taylor and Henri Bendel’s flagship locations, two of the city’s best-known department stores.

Dennis said a major problem for all these retailers comes from the fact that many of their prices are prohibitively high for most shoppers, particularly those under 35, who have 35% less wealth than consumers of the same age back in 1996, according to Deloitte’s Center for Consumer Insight. But high prices are part of what makes luxury, well, luxurious.

“Luxury, in general, is a very mature market, and a lot of the high-end luxury players have not figured out how to attract younger customers without lowering prices considerably, so they’re sort of boxed in from that high-priced position,” Dennis said.

The bottom line for these New York department stores, which occupy several floors of space in some of the most desirable real estate in the city, is that consumers’ changing habits mean retailers have fewer and fewer reasons to justify the pricey Manhattan rents. As Carter put it: “So many of these stores are really showrooms for the merchandise these days because there’s so little foot traffic in them.”

Beyond their customers, the mere presence of these high-end retailers shaped New York City’s reputation as a mecca of fashion and style. Shoppers once flocked from all over the world to visit them, but now their exclusive merchandise is available anywhere with the click of a button.

“As we look at the New York City landscape, you already see that real estate has shifted, even though it is a fashion capital,” Carter said. “Look at Lord & Taylor—they sold their flagship to WeWork. Who would think that the oldest department store in America would be sold to a company that’s not in fashion?”

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