The department store sector might be struggling but Barneys is once again bucking the general trend, just as it has throughout its history. In an exclusive interview with WWD, Howard Socol, Barneys chairman and chief executive, divulged plans to open a new Co-op store at 116 Wooster Street in SoHo, Prada Sport’s former digs, at the end of March. This is the first part of a larger expansion plan the company will roll out over the next several years. It is looking to open another Co-op store at an undisclosed location in the fall of this year and, more importantly, more flagships throughout the U.S. during 2003 and going forward. The flagships are likely to range from 60,000 to 100,000 square feet.
The 7,000-square-foot Co-op store opening in March will be the first of a new format. The new store will feature only women’s wear, shoes and beauty. The merchandise will closely mirror what Barneys currently houses on their seventh and eighth floors at their Madison Avenue flagship, including designers such as 2 Katayone Adeli and Magda Berliner and strong jean selections from Seven and Earl among others, and t-shirts from Three Dots and Juicy. Future stores will feature both women’s and men’s wear.
As for the decor, “it’ll look like Barneys. It will have the taste, luxury and humor of Barneys inside it,” said Socol. “We’re really excited about it because we haven’t opened a store in a long time. But this is not just a store, it’s a concept.”
Socol sees the new format Barneys filling a void in specialty-department stores. “The Co-op is not a store that is out there right now. With its interesting mix of classification and young designers it has a reason for being in the customer’s mind. We feel it is going to be very successful, also for us in terms of profitability of stores,” said Socol.
Although opening downtown in SoHo, in a retail market that is clearly suffering, may seem like an enormous risk, Socol remains optimistic and indeed philanthropic. “We feel its important to open this in the downtown area, to help it become rejuvenated,” said Socol. “It’s good community spirit to invest in downtown New York.”
But is this deja vu for Barneys? A similar type rollout in the mid-90s helped drive the retailer into bankruptcy, from January 1996 to January 1999, and it still hasn’t recovered financial strength. Barneys missed earnings and sales plans last year. In December, the company reported a loss for the third quarter, but also announced that it had an amended credit facility. Like many other luxury retailers, Barneys took more markdowns earlier and deeper than normal in the quarter, as sales slowed.
The retailer, owned by the vulture funds Whippoorwill and Bay Harbour, has been dogged by speculation about its fate, from buckling under the weight of debt and weak sales, to being sold. Barneys had to renegotiate with Citibank after missing its sales and earnings plan, putting it in violation of bank covenants. A new agreement reflects bankers being reasonably confident in the new Barneys management, as well as the company’s ability to service debt, capital improvements — such as the new restaurant on the ninth floor of the Madison Avenue flagship — and the transformation of the basement for cosmetics selling, as well as new systems and expense cuts.
Barneys, which did around $400 million in sales last year, has been hurt by the recession as much as other upscale chains. Barneys’ three flagships are in New York, Beverly Hills and Chicago, and it operates three smaller stores, in Chestnut Hill, Mass.; Manhasset, N.Y., Seattle, and the Co-op in Chelsea, as well as 10 outlets and two semiannual warehouse sales. The World Financial Trade Center store has not operated since Sept. 11, and no decision on whether to reopen it has been made yet, the company has said.
The new store isn’t the only initiative Barneys is taking to build its business and beef up sales and earnings. As reported, the company is scheduled to open in late March or early April its first true beauty floor — called The Foundation — at its Madison Avenue flagship. Barneys is more than doubling the space for cosmetics, going from 3,700 square feet to 8,000 square feet and giving it a new home and adding many new products. In addition, Barneys had earmarked about $12 million for capital expenditures over a two-year period, which is drawn from the revolving credit and proceeds from the exercise of options and warrants granted to Whippoorwill and Bay Harbour. The capital expenditures budget for fiscal 2001 was $7.75 million.
And Socol remains confident the retailer can grow and thrive.
“Barneys wants to grow again. We accomplished a lot last year. We focused on profitability and merchandising issues and we’ve come out of 2001 ready to grow and be financially sound….We are cautious, but we’re in a position to do good things if the economy and our customers support us.”