By David Moin
with contributions from Evan Clark
 on November 4, 2019
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The numbers didn’t work at Barneys New York for years.

Its high cost structure — exacerbated by this year’s steep rise in rents — too many oversize stores with too little traffic and insufficient business; elaborate marketing campaigns, and a revolving door of owners and management wore down Barneys to the point of bankruptcy. And now, there’s another new owner in the form of Authentic Brands Group that’s radically altering and paring down the business.

“It’s a sad, sad story. Barneys had a terrific group that was so loyal to that company,” commented Allen Questrom, the former chief executive officer of Macy’s Inc., J.C. Penney Co. Inc., Neiman Marcus Inc., and Barneys, which he ran from May 1999 to September 2000, helping stabilize the business.

Beyond the lack of liquidity, there’s another explanation for the demise: Barneys lost its cool and its edge. In a fast-moving digital world, Net-a-porter, Matchesfashion, Farfetch, Moda Operandi, ShopBop and other emerging web sites took the wind out of Barneys, which was very much a Johnny-come-lately to e-commerce. And Barneys’ whimsical windows that routinely satirized pop culture figures like Madonna or Oprah Winfrey eventually got played out.

“There’s only so much cool to go around,” said one retail ceo, who requested anonymity. “For Barneys, it was image over commercial viability. They had the icing, not the cake.”

“Cool is different nowadays. To be cool you have to be inventive and being inventive means taking risks. One thing that happened over the last eight years in big store retailing is that risk-taking became a bit more considered than before, and that’s not necessarily a good thing,” observed Julie Gilhart, the former Barneys fashion director who is now president, Tomorrow Consulting and chief development officer, Tomorrow Ltd.

“I was at Barneys when they started their online business,” said one Barneys source. “There wasn’t a lack of desire to go forward. But it was a very expensive endeavor to invest in and there were questions about how much money do we have to fund it. People were very practical. No one knew what was coming with the Internet.”

According to the source, Barneys veered away from how it approached the market. “There was a time across all retail when handbags became front-and-center on the main floor and the bigger your shoe floor, the better. With social media and the Internet, retailers were really chasing these businesses. But one fundamental rule we had at Barneys is ‘chase’ is not the thing you do first. You have to look and create first, then you chase. But all retailers were chasing,” and Barneys joined the pack, diluting some of its alchemy in the mix of its designer discoveries.

The beginning of Barneys’ end goes back to 1993 when the retailer, still owned and run by the founding Pressman family, opened the 230,000-square-foot flagship on Madison Avenue and 60th Street. A VIP crowd including Calvin Klein, Bianca Jagger and Ian Schrager packed the opening, Barry White performed, and Barneys made an indelible impact on the avenue. Designer brands like Tom Ford subsequently saw an opportunity to open stores nearby and capture the overflow from the big boy on the block.

“Barneys really stood for this artisanal, fashionable kind of presentation and it was imbued throughout the store, so you had this mosaic in-laid flooring and very sparse layout,” said Doug Teitelbaum, managing principal at Homewood Capital, who bought Barneys out of bankruptcy in 1999 as head of Bay Harbour, along with Whippoorwill Associates. “The store design played an important role, obviously alongside the merchandising, in creating that unique Barneys customer experience. The product wasn’t really in your face, it was given air to breathe and really enabled people to experience and see the product.”

Yet in essence, the store on Madison Avenue felt like another big box, another department store that lacked the intimate charm and specialty character of Barneys’ historic location on Seventh Avenue and 17th Street in the Chelsea neighborhood. That was the original Barneys site that evolved from a men’s discounter to a stylish men’s and women’s emporium for fashion, accessories and beauty.

The business was founded by Barney Pressman, who, as the story goes, launched his namesake men’s wear discount store in 1923 by pawning off his wife’s engagement ring for $500. His son Fred elevated the store by starting to sell full-price, importing European designers and developing a knack for introducing designers to New York shoppers, including being the first to launch Giorgio Armani men’s wear in the U.S.

Women’s wear was introduced in 1976, with a dedicated women’s store opening in 1986 in a row of six town houses and two larger adjacent buildings on the same block at the original Barneys. Fred’s son Gene led the development of the women’s business and he did it with bravado. He also started the ill-fated  Barneys rollout to cities around the country, principally in the Nineties and post-bankruptcy, continuing in the Aughts under different ownerships, with stores in such cities as Dallas; San Francisco; Scottsdale, Ariz., and Las Vegas.

“Gene was this extraordinary talent who could go to market so to speak and look at the various offerings, whether it was an emerging talent who wasn’t sold in America or whether it was his edit of a given designer’s collection,” said Teitelbaum. “He could bring that point of view to Barneys’ customers, to America, and people appreciated that access. They appreciated that edit.”

“Gene was really the guy with a vision, but no sense of proportion,” added Questrom. “You need creativity and financial discipline,” for a fashion business to work.

With its most costly move uptown to Madison Avenue, Barneys ran into major debt with its Japanese partner Isetan, and plunged into its first bankruptcy filing in 1996. Consequently, its beloved location in Chelsea shut down a few years later, and became a Loehmann’s. Whippoorwill rescued Barneys from bankruptcy, and brought in first Questrom, then Howard Socol as ceo’s.

There were further expansions under Barneys’ next owner, Istithmar, but most locations ultimately flopped, though Barneys made a surprising return to Chelsea in 2016 with a fancy store with polished bronze door handles, a sweeping Oscar Niemeyer-inspired spiral staircase, and marble display fixtures. Yet it didn’t quite match up to the character and charm of the first Barneys on the site, which had that striking Andrée Putman-designed winding staircase and intimate charm.

“If Barneys only had two stores, it would have been profitable,” said Questrom. “Barneys had a unique situation. A very unique assortment. But the Pressmans wanted to be uptown where the big boys were and they spent a fortune, way over the budget, getting there. Everybody says ‘we’ve got to move forward and grow the business’ instead of saying, ‘let’s figure out how to make money in a small business.'”

Sources placed the performance of the Madison Avenue store at peaking around $200 million and without a revenue increase in years. The Chicago flagship at one time generated an estimated $50 million or $60 million and has seen its volume reduced roughly in half, according to a source. Boston makes money, but not a lot. New York and Los Angeles also made money, but would have lost some profitability once the rents rose. According to Barneys’ landlord, Ashkenazy Acquisition Corp., the New York and L.A. stores produced approximately $20 million and $30 million in profitability, respectively, for Barneys a year, even after this year’s rent increases.

Barneys’ merchants did develop some stronger ongoing businesses with the likes of Dries van Noten, Lanvin, Balenciaga and Azzedine Alaïa. Barneys also has had an outstanding private-label business, almost entirely made in Italy.

On the other hand, the store lacked several big brands, such as Louis Vuitton, Ralph Lauren and Chanel, that other luxury stores could reliably bank on for business. Barneys never conformed to demands by major European luxury brands to house leased shops, or concessions, inside the stores.

Another impediment seemed to reside in the atmosphere on the selling floors. The sense of discovery and of-the-moment fashion was there, though not in a particularly warm, inviting way. According to one new Nordstrom employee who just left Barneys, there’s a “night and day” difference in the retailers’ salespeople. While Nordstrom has a reputation of welcoming visitors and extending extra service, Barneys salespeople were often seen as unmotivated and aloof, possibly a byproduct of its sinking fortunes and changing leadership.

Despite that, there are certainly Barneys loyalists, who say they will miss being in the store. The landlord now says the Madison Avenue flagship will be around for 12 months more and in a shrunk-down format. It’s to be determined whether the flagship lasts longer. “There’s a social aspect that we share throughout all of our stores,” Daniella Vitale, Barneys just-departed ceo, once told WWD. “Barneys becomes a meeting place for everyone. People want to linger, spend a day or half-a-day here.”

However, many customers preferred to spend their hours at Freds, a lunch-hour destination inside Barneys Madison Avenue for VIPs and people-watching, rather than shopping.

“The DNA of Barneys is experiential. The store knows how to create experiences and still has such a good name for developing new talent,” observed Gilhart, who left Barneys when the management changed in 2011. “That was what the culture of the store was built on. I think it still really works though there has to be a different way of managing it. There has to be this vision of how you work through all the channels, whether it’s online, social media, or smaller stores or pop-ups. License the name globally. There are so many more pathways to do business. You have to be open to things. The key to going forward is to create things that haven’t been done before. There needs to be radical change.

“Barneys still has a reason for being,” Gilhart stressed. And it will still exist under Authentic Brands’ ownership, though greatly pared down. Also, Saks Fifth Avenue has an agreement to open a Barneys shop inside its flagship on the fifth floor.

“I remember so clearly when Barneys was bankrupt in the Nineties and bought by vulture funds, everybody was saying this was not going to work. But we did turn it around. You have to hold that turnaround possibility.”

“I needed to really nurture, not change, who Barneys was, but added this measure of, there’s nothing wrong with making money,” said Teitelbaum. “I was able to keep Simon Doonan, who, in the post-Gene era [the Pressmans were ousted after the 1996 bankruptcy filing] became the emblem and flag-bearer of the Barneys DNA. I was able to hire Allen Questrom and then Howard Socol, both exceptional operators who understood the need to maintain Barneys’ DNA, but with profitably and operational disciplines. We had a plan that would get to $50 million of EBITDA [earnings before interest, taxes, depreciation and amortization] in year three, and while the difficulties after 9/11 delayed our progress, we achieved that goal by year five.”

Teitelbaum sold Barneys to Jones Apparel Group, which later sold the business to Istithmar, a state-run investment firm based in Dubai, which eventually turned over the business to investor Richard Perry, who took majority control through a debt-for-equity swap.

“From what I have heard, Richard Perry become an involved leader, literally calling the executives to his apartment to meet with his family to start the process of his ownership, rather than meeting in their offices. It seemed as though Richard wanted to double-down on the Istithmar/Mark Lee direction, one with a narrow-focused aesthetic,” said Teitelbaum, referring to Lee, the former Gucci executive who became Barneys’ ceo in 2010.

“When I refer to the DNA of Barneys, I am describing Barneys’ unique presentation of a range of tasteful, artisanal, cool products that had very different looks to them and appealed to different tastes but with similar qualities, and what I mean when I say abandoning their DNA is that they became more and more focused on a narrower range of style, both in the look of the stores and the brands and products they offered,” said Teitelbaum.

“I don’t think Barneys went bankrupt because of the rent increase or the changes in the retail landscape.…To me, it was that change to a narrow statement. It is a mono-line appearance and vision of the customer and I didn’t understand why people would come in when it looked the same as a mono-line airport store. You had this exceedingly loyal customer and I think those customers were in many ways turned away. They’ve offered very little of the discovery and the artisanal stuff that they used to offer,” Teitelbaum added.

“That store in Chelsea that Richard Perry opened [in 2016] only drained the business out of the store on Madison,” said Questrom. “There’s been no net gain. Barneys has a very narrow customer profile. There are not that many with that kind of taste for small, very unique vendors. People who shop Saks Fifth Avenue or Neiman Marcus want to buy Chanel. Barneys is the opposite. They want something nobody else has, something very unique, very fashion-forward — and that’s a very small percent of the population.”