Barneys New York’s search for a new investor is taking it to the moneyed crowd in Silicon Valley.
Goldman Sachs, which has been hired to sell at least a stake in Barneys, is said to be pitching the uberluxe retailer partially as an e-commerce play to tech investors.
That flips the script on one of fashion’s most revered brick-and-mortar retailers, which has long been at the pinnacle of style even as it suffered perennial money woes.
While Barneys as a digital play drew some skepticism from the fashion financial crowd, the idea of fusing the firm with some tech-savvy money resonated with other experts. One source familiar with the process said Goldman was still selling the company as a retailer and looking at a range of buyers, all while highlighting its digital chops.
“[Barneys] believes digital will become their number-one source of revenue in the next couple years,” the source said. “Looking at barneys.com, looking at their other platform for sales, it’s making sure that investors are aware of that.”
Barneys and its majority owner Richard Perry did not respond to an inquiry about who Goldman is pitching the company to and if the retailer’s e-commerce and digital platform are important selling points. A spokeswoman for Goldman declined to comment.
Perry Capital gained control of Barneys in a 2012 debt swap, but is seeking to cash in on at least part of its investment and looking for a win after logging a 12 percent loss in its overall portfolio last year.
Although some observers saw a courting of the Silicon Valley crowd as a stretch or an effort to approach all possible investors, the push to go after tech might not be the brainchild of Barneys or even Goldman. One financial source said Barneys was receiving unsolicited interest from tech players in San Francisco and Los Angeles last year, before Perry began shopping a stake.
Even as Barneys passed from one owner to the next — Perry gained control from Dubai investment fund Istithmar World, which bought the company from Jones Apparel Group in 2007 — it has always been considered a prestige holding. In the case of Jones, it was also seen as a high-fashion guide that helped shine a light forward for the rest of its brands.
“I could see Barneys being a portfolio value for people and I wouldn’t be surprised if someone with tech money invested in it,” said fashion veteran Ari Bloom, chief executive officer of retail tech firm Avametric. “Is it relevant going forward? Who’s going to make it relevant? Probably somebody with some real tech know-how. I actually think the smartest sale they could make would be somebody tech-focused.”
Barneys’ web business is seen as solid.
Katie Smith, senior fashion and retail market analyst at big data firm Edited, said of the retailer’s online business: “With only 17 percent of their current offering discounted, Barneys is in a healthy spot in luxury retail. That becomes even more apparent when compared to Saks’ entire offering, including outlet, which sits at 25 percent reduced, and Neiman’s online offering including outlet, currently at 41 percent reduced. At the same time as securing a good full-price life span on products, Barneys has confidence in successful lines that they’re able to replenish. Their replenishment rates outstrip Net-a-Porter and Bergdorf Goodman.”
Barneys is a relative newcomer to e-commerce, which it uses to tap into a broader audience, for instance, selling to shoppers in areas that don’t have enough demand to support a Barneys store.
Within the brick-and-mortar realm, Barneys has on occasion opened stores where there is little consumer interest, only to see some close. The Barneys concept is most successful in areas such as New York and Beverly Hills. All together, the chain has 16 regular stores and 11 outlets with no more openings on the agenda.
Barneys does have the advantage of having one team for all channels, rather than operating by silos. That helps to create a more seamless shopping experience. Barneys.com has a clean backdrop, like the Barneys stores, is big on personalization, and is supported by a popular blog, or microsite, called “The Window,” which drives some e-commerce. The Window has garnered participation from celebrities and top designers, and has a lifestyle, cultural editorial bent.
But the retailer’s tech expertise goes beyond just selling online. Barneys claims to be the first luxury department store to launch iBeacon technology within a bricks-and-mortar space. It enables shoppers, as they wander the store, to see videos, look books, interviews with designers, and probably most importantly, discounts, all helping to enrich the experience and personalize it for those who opt in. The retailer sends personalized product recommendations to consumers’ smartphones.
The Chelsea store also has a custom system linking online and off-line shopping and showing sales associates preferences of Barneys’ customers. Associates use the clienteling application on iPads, which double as mobile point-of-sale devices with Apple Pay.
Barneys is said to generate somewhere between 15 and 20 percent of its sales via digital channels, not too far off the percentages seen at larger rivals Nordstrom and Neiman Marcus.
“As more e-commerce companies recognize the need for a blended online/off-line strategy, legacy retailers with significant real estate assets become attractive partners,” said Clara Sieg, a partner at Revolution Ventures. “Nordstrom’s, Hudson Bay and other ‘old-school’ retailers have been active in the other direction — often acquiring and partnering with online-first companies, who are flipping the traditional retail model, but are able to leverage those legacy platforms.”
She added that: “Next-generation companies like Bonobos, Warby Parker and Rent the Runway are recognizing the benefits of an off-line touch point with customers and scaling their own versions of pop-up shops and experiential-driven strategies, so it’s not hard to imagine many online-first companies seeing a partnership with Barneys and the opportunity their off-line platform provides as attractive.”
John Bowden, a partner at Coalition Ventures, added: “Brick-and-mortar retail will continue to struggle due to increasing rent prices, an increasing consumer turn to online retailers, overextended and costly store build-outs, high inventory requirements, and an evaporation of credit availability.
“Perry’s turn to Silicon Valley investors is yet another signal to the sector’s need (out of mere survival) to incorporate and strengthen their e-commerce businesses alongside their brick-and-mortar locations as margins and profits will continue to depress,” he said.
Bowden said the trick would be to translate the Barneys experience for the web and added that, “Silicon Valley might be apt for the challenge.”
Richard Kestenbaum, partner at Triangle Capital, said tech investors at one time saw unlimited potential in retail.
“But in the last 10 years, there’s been a distinction made among investors, between companies that sell stuff and companies that sell software,” Kestenbaum said. “With rare exceptions, it’s hard to get a tech valuation for companies that sell stuff.”
One venture capital source who’s sees Barneys’ tech potential nonetheless said a sale along those lines could be an uphill climb.
“We’re entering into the first phase of broader market realization that e-com [is not the same as] tech,” the source said. “A lot of venture firms are learning this the hard way and have gotten burned by one next-gen brand or another, which has led to a massive market correction on retail valuations from early stages through [mergers and acquisitions] stages. As someone on the sideline, it will be interesting to see whether or not Perry-Goldman Sachs are able to convince the market (or just one acquirer) that Barneys is different.”