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Barneys New York Looking for Downtown Flagship?

Sources said the retailer is looking for multiple real-estate options in lower Manhattan.

The new deal will reduce Barneys' long-term debt from $590 million to $50 million.

NEW YORK ­— Barneys New York wants to recapture some of its downtown glow — and may do it with a second Manhattan flagship.

Sources said the retailer is looking for multiple real-estate options downtown, including the potential of a new flagship with its own Co-Op department. The moves come as Barneys confirmed plans to close its Co-Op on West 18th Street on March 1.

Co-Op stores average about 8,200 square feet. Its longer-term and ultimate goal would be to have a second major New York flagship.

“While we have no immediate plans to replace the Chelsea store downtown, we believe that there remains significant opportunity for Barneys in downtown Manhattan to replace and expand upon this store closing, and our historic business, and are continuing to look at multiple real estate options for the medium to long term,” a Barneys spokeswoman said.

Finding a flagship-sized location in Manhattan isn’t going to be easy. The former flagship at Seventh Avenue and 17th Street had 100,000 square feet of space and the current Madison Avenue flagship, between 60th Street and 61st Street, has 230,000 square feet. Nordstrom had been looking for a flagship site here for a decade before finally finding a 285,000-square-foot space near Columbus Circle in June.

The West 18th Street Co-Op is near to Barneys’ former flagship on Seventh Avenue and 17th Street. In addition to the Chelsea unit, there are three more Co-Ops in New York: SoHo, the Upper West Side and Brooklyn. Sources believe they will not be closed. Barneys in 2011 closed the Co-Op at the Galleria in Houston, and in 2012 shuttered Co-Ops in Dallas, Chevy Chase, Md., and San Diego. In June, a Co-Op store at Phipps Plaza in Atlanta will close.

That leaves a dozen Co-Op locations.

While some Co-Op units outside of New York have had mixed results, the downtown Co-Op here is said to have had a strong performance, including record sales in 2012, and Barneys was “extremely pleased with the holiday season.” The Chelsea Co-Op is a bastion of bargains twice a year when the warehouse sale takes place. Customers line up around the block for the opportunity to buy Jil Sander and Alexander Wang designs at 50 to 80 percent off. There will be one more warehouse sale at the West 18th Street location in mid-February and a sale in a new location one block away in August or September.

In an interview with WWD in May
, when he first bought the company, the hedge fund manager Richard Perry, Barneys’ chairman, denied a report that the 18th Street Co-Op was closing.

The downtown Co-Op’s closure coincides with the expiration of Barneys’ lease and the landlord’s redevelopment plans for the building. The owner is planning a complete overhaul, which is estimated to take up to a year, and all of the building’s tenants are required to vacate. Sources close to Barneys said the retailer felt there was no opportunity to extend the lease.

Barneys has done well with full-line stores in large cities such as New York, Beverly Hills and Chicago. The retailer may be trying to capture some of the magic of its former Seventh Avenue and 17th Street flagship, which reached new heights in 1986, when founder Barney Pressman’s grandson, Gene, then co-chief executive officer, added a women’s store to the original men’s store. The Pressman family ultimately lost control of the business, and in an ironic twist, off-pricer Loehmann’s opened its flagship right next door in part of the building that had once been occupied by Barneys in better days.

The Co-Op celebrated its 25th anniversary in October 2010. But the retailer has blended more Co-Op-type merchandise within its offerings in recent months. Barneys.com, which displayed Co-Op products separately, has shown a mix of flagship and Co-Op items since May, when the e-commerce site was updated.

In the long term, Barneys also faces a sharp rent increase at its Madison Avenue and Beverly Hills flagships. It has renewal options beginning in 2019, but that’s when the rents are subject to market-rate adjustments and could skyrocket.

That seems like a long way off. However, in retail and real estate time, seven years is around the corner. Barneys does have 10-year renewal options on the Madison Avenue and Beverly Hills sites, meaning it can stay put, but the company will have to contend with the “fair-market” adjustment.

“Even with the lease up for renewal in 2018, they should start negotiating very soon,” said one real estate ceo. “Perhaps they can negotiate a new 10-year or 20-year lease, with increases that start in 2013 so they don’t get penalized so much in 2018. In any case, they’ve got to start negotiating next year or the year after.”

Barneys has not started negotiations with landlords yet. “It’s up to them,” Jack Dushey, manager of Flagship Capital, the real estate partnership that owns the property at 660 Madison Avenue, told WWD last year. “They have to exercise [the renewal] and then we determine the rate. If they want to come in and negotiate, we are willing to do that. That hasn’t happened. They are as good a tenant as anyone. We haven’t had an ounce of trouble. I don’t think they are going anywhere. We would be very happy to work on something with them.”