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For Barneys New York, it’s been an eventful — and sometimes stormy — year so far.
This story first appeared in the August 6, 2009 issue of WWD. Subscribe Today.
Double-digit sales declines and a customer base hit hard by the recession sparked layoffs, expense cuts, jitters in the market and sharp downgrades by rating agencies. Not to mention the specialty store has been without a chief executive officer for 13 months.
But amid the turmoil, the Barneys ship is still afloat and the waters — for now, at least — appear to have calmed. Parent company Istithmar World Capital has pumped $25 million into Barneys to release vendor shipments and ease liquidity concerns; there have been merchandise initiatives with designers to lower prices and provide greater value, and while there’s no talk of new leases being signed, the domestic expansion appears on track, with a flagship opening in Chicago last April, another set for Scottsdale, Ariz., in October, and Barneys’ first warehouse sale in San Francisco currently under way.
“To us, during this period, it hasn’t felt so weird,” said Judy Collinson, executive vice president and general merchandise manager of women’s, pointing to past extended periods where Barneys has operated without a ceo. “I don’t think we are in a weak position. We are not falling apart at the seams. We are doing things we are supposed to do.”
Now Barneys is moving to further ease the financial pressure, tackling a 500-pound gorilla. On Tuesday, Perella Weinberg Partners, an asset management company, was hired to help restructure the retailer’s debt. On the books, there is about $500 million in long-term debt, including a $270 million term loan maturing in 2014 and a mezzanine loan of about $230 million maturing in mid-2016. There also is revolving credit debt, which, based on available working capital, varies from month to month and matures in 2012. The balance is currently $80 million. Barneys’ lead banks are Citibank, Wells Fargo and HSBC.
Interest costs, depreciation and sales declines put Barneys in the red last year on a net basis, though the chain made money on an earnings before interest, taxes, depreciation and amortization basis. As for 2009, the company, with seven flagships, two regional stores, 19 Co-ops, 13 outlets and three warehouse sale locations, is projected to reach sales of about $675 million, down from $750 million last year, but generate a small operating profit.
Comparable-store sales should improve in the second half since fall 2008 was way down. There was some uptick in the second quarter, with certain pockets of business performing well, including the Chicago store, the Web site and parts of Co-op, which features contemporary labels and denims.
Like other retailers, particularly those purveying luxury, Barneys has been deeply impacted by the recession. However, the store’s current management structure — without a chairman, ceo or chief operating officer — makes it unique.
Instead, a senior operating committee, comprising the chain’s seven executive vice presidents, is running the show. They represent the top tier inside the chain and are all veterans of the organization, with anywhere from 13 to 30 years’ tenure. The committee meets weekly, usually Tuesday mornings, in the 11th-floor conference room at Barneys headquarters at 575 Fifth Avenue in New York, to tackle anything from cost cutting, sales trends and merchandise receipts to advertising or when to break into sale mode. A formal agenda for each meeting is prepared by the chief financial officer with input from the other executives. After going through the agenda, each executive vice president can bring up any significant matter pertaining to his or her area of responsibility.
In effect, these group meetings have replaced one-on-one appointments, known as “touch base” meetings, with the former ceo, Howard Socol, who retired in July 2008. The board and Barneys’ banks sign off on the business plan, downsizings and major capital projects.
The “senior ops” (an inside joke playing on the term CIA operative) say the overwhelming majority of matters have been resolved unanimously without the necessity of taking a formal vote, or taking it to Istithmar ceo David Jackson — although, when necessary, the group votes, with the majority of the seven making the call.
“The only time David would have to get involved was if the group couldn’t decide on a course of action,” said Vince Phelan, executive vice president and cfo. “But there has never been a point where we said we can’t decide on something. It hasn’t happened yet. If you had a ceo, that person would be the final decision-maker. Without a ceo, the committee makes a final decision. If the committee did not agree on something, it would be David. But everyone in the group has Barneys’ interests at heart. There’s no cowboy saying, ‘I am doing it my way or the highway.’ The only thing is, things take longer without a ceo. When you have one boss, he or she makes a decision. It’s made, you move on. This takes a little longer.”
In February, Michael Celestino, executive vice president of store operations, came to a Tuesday meeting with an idea to take the Barneys Warehouse Sale to San Francisco. The committee had to consider that the signature clearance event has never been a rollout strategy and, when it comes to markdowns, Barneys has no intention of being as vociferous as its competition. But with San Francisco a new market and business tough, Barneys could use the exposure and the additional clearance venue.
“We have been very cautious expanding the warehouse sale, but we unanimously approved this,” said Marc Perlowitz, executive vice president and general counsel of human resources and real estate. “I don’t think anyone had an issue with this. There wasn’t any debate. Even without a drop in our business, we would have considered it.”
As a result, Barneys’ first warehouse sale in San Francisco is in progress at the Fort Mason Center. It launched July 30 and runs through Sunday, and merchandise consolidated from Barneys’ stores around the country is being sold at 50 to 75 percent off.
Last fall, when Saks Fifth Avenue unleashed its tsunami of markdowns, Barneys, like the rest of the industry, needed to react. “We had to choose to either hold our ground, or how far to go,” said Celestino. “We held our margins higher than the competition.” Barneys offered an initial 30 to 40 percent off, first with a one-day men’s sales Nov. 3 on selected merchandise, then on Nov. 12, when a private sale throughout the store broke. Six days later, Barneys went public with the sale. “We wouldn’t have done anything different if we had a ceo,” Celestino insisted.
The committee’s toughest meetings, involving expense-cutting and downsizing, came late last year and early this year and were spurred by the Lehman Bros. collapse in September. Seventy-six positions, including 30 that were vacant, were eliminated in April out of a staff of 2,400. “It was the toughest thing to do as a group,” Phelan said. “It was very personal and emotional.” Also, operating expenses were reduced by 10 to 15 percent on an annualized basis, and capital spending was slashed 50 percent.
After Sept. 11, 2001, Barneys downsized, though not by committee. “Howard, myself and [Perlowitz] sat down, determined how much we were spending and how much should be spent. Howard pushed where he thought he could. He went back to the executives, said, ‘Here are my suggestions. What do you think?’ They were part of the process, but Howard was more of a quarterback directing it,” Phelan said.
Since the departure of Socol, “we have grown together as a group of executives; broadened our abilities and expertise,” said Tom Kalenderian, executive vice president and general merchandise manager of men’s and Chelsea Passage. “It’s not just one-on-one. It’s a different format and a different system, with increased brainpower. It’s actually a positive.”
“We really had to articulate our responsibilities and needs to the group to effectively make decisions,” added Celestino. “We always kind of operated as a team — we just expanded on that. We do respect the person who is closest to the business.”
“There’s a familial dynamic with a lot of shared passion,” said Simon Doonan, creative director, who, while the most high profile of all Barneys’ executives, is not a member of the senior ops committee.
“We are not a huge retailer. We are never going to have 50 flagships in the U.S.,” said Celestino. “We have a very personal approach to every store. There is a tremendous amount of communication. I am personally making more visits to stores,” from two a season to three.
While no one said there is no need for a ceo, they don’t seem disturbed working without one. “Barneys has a clear vision,” said Doonan. “Our brand — taste, luxury, humor — is a very resilient concept. I feel our identity is recession-proof. All we are doing is brand emphasizing. We are just turning up the volume on our existing voice.”
In October, Barneys opens its eighth flagship, a 62,000-square-foot unit in Scottsdale, and again all the Barneys calling cards will be there — the rich stone and mosaic floors, the statement staircase and Fred’s restaurant with an interior inspired by the Walker Museum in Minneapolis. “We didn’t cut any corners,” said David New, executive vice president of creative services. “In Las Vegas [which opened in 2008] we felt we had to pull out all the stops. Every level had a patterned stoned floor. It’s intricate, almost Venetian in inspiration, with all kinds of detail. Scottsdale is a little simpler, a little cleaner, slightly different in approach. But the key elements are consistently the same.”
Key men’s labels there will be Battistoni, Kiton, Dior Homme by Kris Van Assche, Rag & Bone and Harris. Women’s includes Givenchy, Lanvin, Balenciaga and Proenza Schouler, and Co-op will feature Alexander Wang, Phillip Lim, Rag & Bone and ALC, to name a few labels. There will be a higher percentage of sportswear, lighter weights and Co-op, compared with other locations, putting greater emphasis on designer and tailored looks.
There’s uncertainty about Scottsdale, considering Barneys’ flagships in Dallas, San Francisco and Las Vegas have yielded less-than-stellar results and questions over whether the retailer’s model is transportable beyond a few big cities have lingered. It’s a decades-old formula based on mixing established designer, artisanal and often rarefied and expensive products, and introducing them first by closely collaborating with vendors and discovering new talent. When it’s all on the floor, Barneys works hard to encourage customers to individualize their look through service, made-to-measure and the limited distribution product.
The formula is so ingrained in the culture that deviating is no option. “Every flagship experience, regardless of the city, has to convey the DNA of Barneys, including Barneys Japan,” said Kalenderian. “Like every business, it evolves. I’ve been here at this company for 30 years. There has been great consistency in the formula. Our mantra is introductions and newness.”
The team believes Barneys’ newer flagships need time to catch on and Barneys is often an acquired taste. “All of them were challenged,” Kalenderian said. “It’s been no different from when we opened in Beverly Hills in 1994 or in Chicago. This is a luxury business. Whenever you enter a new territory, you have to build new clients. You do that through great service, friendly service, great marketing, positioning, the physical presence of the store, the advertising and public relations. It’s a multiprong, 24-hour process building clientele. We aren’t under any delusions. We have to work to build the business in a new place.”
Kalenderian said even without a ceo or positive sales trends, “we are adding to our mix, refining our mix, editing brands. Creativity is the main reason why people are attracted to Barneys. Sales may wane and budgets may be reduced, but none of that effects our zest and quest for creative ideas. We may have fewer events, but the events, advertising or editorial we do must be more exciting. People come to our store with the expectation of discovery.”
Among the upcoming additions, the first ready-to-wear and accessories collection designed by Phoebe Philo for Celine will be sold in November in all stores except the Chestnut Hill and Seattle units. Rochas rtw is shipping now exclusively to the Madison Avenue, Beverly Hills, Chicago and San Francisco units.
Albert Maysles unisex eyeglass frames will launch in November, and other fall exclusives include the Olsen sisters’ Elizabeth and James Collection in the men’s Co-op and their new Row men’s collection in the tailored department, and Chloë Sevigny’s line in men’s Co-op. Paul Smith has created a natty men’s range of suits, separates and shirts exclusively for Barneys, priced 20 to 30 percent lower than the designer’s signature collection and aptly named Exclusive.
“Our customer is excited more by new deliveries than sales,” said Collinson. “Customer spending has declined, but they are still shopping a lot.”
At Barneys, there’s been “an evolution” in the assortment toward emphasizing labels such as Etro, Rick Owens, Ann Demeulemeester, Givenchy and Paul Smith and, at Co-op, Helmut Lang, Rag & Bone, Alexander Wang and Philip Lim. It’s a new layer, adding to the likes of Hugo Boss, Giorgio Armani, Dolce & Gabbana, Versace, Prada, Balenciaga, Ermenegildo Zegna, Lanvin, Fendi, Jil Sander and Marc Jacobs. Barneys is also planning to introduce such avant-garde sportswear as Balmain.
Barneys has never been known for fast turns, though the chain is becoming more cautious with inventory. It’s been reduced for fall this year and spring by about 20 percent. Also evolving are prices and marketing. Designer rtw prices are down 17 percent for fall due to some responsiveness in the market and Barneys editing. The marketing budget decreased by one-third, but, according to Karl Hermanns, executive vice president of marketing: “We were surgical about that — for example, expanding our catalogue circulation cost effectively through the Web and eliminating our least productive books.”
The fall books, launching Labor Day, are more editorial and not the usual one-note story. Terry Richardson shot part of the women’s campaign. Also, Barneys is holding more trunk shows than ever, with spring trunk shows to be held in October.
“Some customers are buying more to wear now, but there is still a customer who buys very early. We haven’t seen that really change,” Collinson said.