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Barneys New York is no longer rudderless.

This story first appeared in the August 24, 2010 issue of WWD. Subscribe Today.

Confirming an exclusive report in WWD on Aug. 5, Barneys on Monday named Mark Lee chief executive officer, ending a 26-month-long search for a person to fill the retailer’s top slot.

The appointment immediately sparked speculation over the future of the luxury chain, which, like most retailers, has struggled with the economic downturn as well as a series of its own unique issues. Likely to be among the priorities on Lee’s agenda:

• Staunching the red ink at the retailer, which reportedly will approach $60 million this year;

• Evaluating the store fleet to determine if any should be closed, since some of the flagships and Co-ops underperform;

• Building a focused growth plan for the Co-op division;

• Bolstering an already sharp, upscale, irreverent image;

• Taking Barneys international.

But in tapping Lee, Barneys has recruited a veteran with international experience whom many consider one of the best in the luxury sector.

“Mark is a dedicated brand manager, an expert marketer and an inspiring executive. His passion and enthusiasm will guide Barney’s to new levels of success,” said Robert Polet, president and ceo of Gucci Group.

“Mark is very capable and very competent. He’s one of the best managers available,” said Domenico De Sole, chairman of Tom Ford International and the former ceo of Gucci Group who put Lee at the helm of Yves Saint Laurent in 1999.

No one is underplaying the challenges Lee faces, however.

“Mark has got to be strategic,” said one former luxury executive who knows him. “He must come in and look at Barneys like a fresh canvas. Everybody knows Barneys has three winning doors and that some of the rest are not working. It’s not the buildout. I don’t think it’s the product mix. At the end of the day, everybody has more or less the same merchandise. Maybe 20 percent of Barneys is unique.

“It’s really about hitting the customer — really grabbing the customer from a marketing standpoint. How do you get into the psycho graphics and grab share from Neiman’s?” the executive added.

Amid the economic malaise, Barneys has been hanging in, beating back rumors of bankruptcy and even showing some improvement in sales this year, but lacking a vision for the future and a clear path for elevating its value. Istithmar World, the investment arm of the state-controlled holding company Dubai World investment fund, bought Barneys in 2007 from Jones Apparel Group Inc. for $942 million. But Barneys is now said to be worth a lot less in light of the recession and the consumer retreat from luxury spending.

Istithmar has been pumping money into Barneys to support the business and satisfy bills to vendors and factors. Like many stores, Barneys experienced significant decline in volume to about $675 million last year, from $750 million the year before. It was in the red last year, pulled down by sluggish sales and interest payments stemming largely from debt, which includes about $500 million, long term.

Gary Wassner, co-ceo of factoring firm Hilldun Corp., said, “I’m pleased they’ve hired someone with experience in this end of the luxury market. I hope his focus is first on assuring those factors and vendors who have supported them these past few years that he has the financial support of Istithmar, and that the uncertainty regarding their commitment to Barneys is finally over. I’d like nothing more than to open the spigot for my clients to ship with comfort. I’ve been a strong supporter of the Barneys franchise and sensibility for years, often swimming against the tide.”

A credit analyst, who requested anonymity due to a confidentiality agreement, said, “Barneys has good trade support and is paying its bills. It is holding its own against the competition.” The analyst said he’s “not worried” about Barneys because hiring Lee indicates “Istithmar plans to continue to invest in the high-end specialty chain.”

Ultimately, Istithmar would like to sell the business.

In addition, the analyst noted that, while Barneys is doing OK given the economy, “There’s probably room to close one or two stores.” Real estate covenants may make that difficult, particularly with large flagships. A few Co-op units, which are much smaller, are stronger possibilities for closures. Barneys operates 10 flagships and 20 Co-ops, with the 21st opening in Brooklyn in October.

Barneys has recently been doing best with private label products. The women’s designer business has been good, too, particularly with Jil Sander, Alexander Wang, Balmain, Balenciaga and Lanvin, and it has been building with Bottega Veneta, Yves Saint Laurent, Nina Ricci, Celine and Ralph Lauren.

Still, Barneys, like other retailers, significantly cut buys and eliminated certain vendors completely, particularly smaller ones.

“I think Barneys sees each vendor filling particular roles,” said an executive from a European brand. “If they see someone as good for suiting, that’s it. If they view you as a dress resource, that’s it. They seem to narrow you into a particular mind-set..”

Though Barneys executives disagree, it’s widely believed the Barneys New York chain is held up primarily by the three flagships, in New York, Beverly Hills and Chicago, and dragged down by newer stores opened in Dallas, Las Vegas, San Francisco, Boston and Scottsdale, Ariz. Barneys executives say sometimes their stores seem lacking in traffic but do more business than what may appear to be the case, with much of it by appointment with personal shoppers, or through home delivery.

Fixing the domestic business will have to be Lee’s primary focus for now, although Istithmar has always hinted it would like to take Barneys overseas at some stage. His international expertise heightens the possibility.

“There is a reason why Bergdorf Goodman is one store,” said Dawn Mello, the former president of Bergdorf’s and subsequently creative director at Gucci. “It’s very difficult dealing in that price structure when you are multistored. It’s really tough, but that doesn’t mean it’s impossible. It takes a lot of work and evaluation. The entire time I was at Bergdorf’s we talked about expansion. We looked everywhere and always the conclusion we reached was that it should be a single-store organization. But Barneys is beyond that and will have to figure out how to manage and grow the business and keep the unique quality of the brand. That’s where Mark will be good. Things are possible. It’s very difficult to find someone who can walk right into the job, but they did with Mark. It’s just a perfect fit.”

Barneys has been an industry curiosity, operating without a ceo since July 2008 when Howard Socol left over disagreements with Istithmar over future directions, notably opening stores in worldwide capitals. With Lee coming on board on Sept. 1, the concept comes alive again. “Mark has great international reach,” the luxury source said. “He will be the guy taking them international. Howard did not want to go there. London could be a possibility.”

In the absence of a ceo, a committee of seven executive vice presidents, all veterans of the store, has been running Barneys. They gave the impression that it was business as usual though certain decisions took longer to reach. With a new ceo, there’s a looming possibility of a shake-up, although observers believe that won’t be Lee’s first priority given the strong reputation of the Barneys team, its high taste level and product knowledge, and the lack of fat seen in the organization after cutbacks a year ago. Also, talented merchants and store operators are difficult to find.

“Howard was the quintessential manager,” said one designer executive. “He knew everybody’s talent and let them act on it…they will be even more comfortable with Mark.”

In their written comments Monday, Lee and Andy Watson, chairman of Barneys and acting ceo of Istithmar World, hinted at continuity in the Barneys team, as well as building the business.

“The appointment marks an exciting new era for Barneys as we look to build the brand and maximize its existing strong platform for growth,” Watson said. “We continue to believe that Barneys is a great business that is well positioned to make the most of market opportunities.” Watson also acknowledged “the outstanding job the existing management team at Barneys has done navigating the business though the unprecedented trading conditions of the global credit crisis without a ceo.”

“Barneys is a unique landmark retailer, store and brand, one that is synonymous with luxury and style, and I am confident that, together with the strong Barneys team, we can take the company to even greater prominence,” said Lee. He will report to Watson. Both were not available for further comment.

Born and raised in San Francisco, Lee began his fashion career at Saks Fifth Avenue in 1984 as an assistant buyer of European designer collections. He went on to work for Cidat USA, the firm that handled U.S. distribution of some Valentino lines, before joining Giorgio Armani for a five-year career, rising to commercial director of its U.S. arm. After that he worked at Jil Sander America Inc. as managing director. In those two jobs, he became acquainted with some of the Barneys team.

He joined Gucci in 1996 as worldwide director of the ready-to-wear business. A key protégé of De Sole’s, Lee deftly broke with the old Tom-and-Dom regime and survived the corporate upheaval that transferred the full ownership of Gucci and YSL to French retail giant PPR.

Lee succeeded Giacomo Santucci at the helm of Gucci in October 2004, and was instrumental in promoting an insider, Frida Giannini, who had been part of a trio of designers in the wake of Tom Ford’s exit, to the brand’s sole creative director overseeing all product categories. Giannini previously oversaw only accessories.

As president and ceo of Gucci, Lee grew the division’s revenues 46 percent and ramped up its presence in Mainland China. He also orchestrated a new Gucci store concept in the post-Tom Ford era that was first unveiled in Hong Kong and Tokyo. Lee and Giannini were active in boosting the brand’s lifestyle concept and the new stores were conceived to accommodate Gucci’s fast-growing categories, such as fine jewelry and eyewear.

When Lee stepped down as Gucci’s president and ceo in December 2008, it surprised the industry and ignited speculation that he was Barneys bound. He was succeeded at Gucci by Bottega Veneta president and ceo Patrizio di Marco.

Lee earlier this year joined the boards of Tory Burch and Italian online retailer Yoox SpA. According to market sources, he spurred advances by other companies seeking to have him join their boards, among them Puig Group and Harry Winston. Lee was also sought after for full-time positions, and recently met with Bernard Arnault, chairman and ceo of luxury giant LVMH Moët Hennessy Louis Vuitton, according to one source. It is understood that Lee entertained, and rebuffed, an offer to head Louis Vuitton’s vital North American business in the wake of the exit of Daniel Lalonde, who took over Moët & Chandon in Paris.

Lee took the last two years off and has yet to meet with the Barneys executives that will report to him.

The dapper and slim Lee is considered a cautious, thoughtful man of action and few words, with a low-key personality that belies a will to succeed. He’s known to contact his staff 24/7 via BlackBerry regardless of the time zone.

“He’s serious. He doesn’t get riled and was very gracious during the negotiations, which were very complex, involving people from around the world,” said Hal Reiter, ceo of Herbert Mines Associates, the executive search firm involved in the hunt for a Barneys ceo. “Mark also writes very well and, like Howard, the left side and right side of his brain are balanced. He can analyze a P&L [profit and loss statement] as well as the merchandise, marketing and social network implications,” Reiter added. “He’s not coming in with any preconceived notions and is anxious to get into the market with fashion week coming up. That’s a huge piece of that business that Mark will not have to learn — the product. He is basically going home again, back into an arena he understands and appreciates. The Zegnas, the Guccis, the Vuittons — these are all part of his posse.”

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