Barneys New York is pushing back against reports that it wants to downsize the flagship at 660 Madison Avenue, between 60th and 61st Streets.
“Barneys New York is committed to maintaining the footprint of its Madison Avenue flagship, and continuing to serve its customers within this iconic store,” the retailer said Tuesday. “There are no active conversations regarding the store’s footprint, and all statements indicating otherwise are false.”
The retailer was reacting to recent published reports that it’s having discussions with landlord Ashkenazy Acquisition Corp., which owns the 275,000-square-foot building, to cut its footprint. The reason for the downsizing, according to the reports, is Barneys’ rent for the nine-floor flagship, an estimated $20 million to $30 million. With taxes and other expenses, the amount of $44 million was reported, which Barneys said is “incorrect.”
The retailer said it signed a 10-year lease. Barneys had been paying well below market rates on Madison Avenue when it signed its lease on the space in the late Eighties after emerging from bankruptcy.
“Our Madison Avenue flagship continues to be our largest,” said Daniella Vitale, chief executive officer of Barneys. “The expansion of Hermès and renovation of Celine shows the strength and energy of the avenue. With the recent vacancies, landlords need to create a model that works and is sustainable. We were sad to hear that Calvin Klein will be closing [on the corner of 60th Street], but we don’t expect it to impact our store.
“There are no plans for major shifts at Madison Avenue,” Vitale added. “However, our stores are always evolving as we seek to cater to the lifestyles of our customers with unique experiences.”
The idea that Barneys might want to divest some of its square footage isn’t entirely unfathomable.
The retailer was clearly unhappy with the result of a protracted arbitration with Ashkenazy that in August ended with the arbitrator siding with the property owner. The “baseball” type of arbitration has become popular in fair market rent disputes and lease renewals where the landlord and tenant submit their idea of the fair market rent. The arbitrator chooses one submission and the decision is final, with no room for compromise or finding a middle ground.
“Barneys New York is a creative venue for entertainment, food and experience,” Vitale said. “In addition to our Chanel project, our Madison Avenue store has hosted a number of recent interactive installations, including Burberry, Thom Browne, Rick Owens, and more.”
Vitale said customers are expecting these projects and “we’ll continue to create unique experiences, innovative entertainment, personalized lifestyle services and unique food projects that will keep them coming back to Barneys New York. We’re just simply not in the traditional business anymore.”
Exclusivity in terms of the designers it sells, and its own proprietary brands, is a key part of the retailer’s strategy. “More than 20 percent of our business is exclusives, and we aim to increase the percentage. It’s the fastest-growing part of the business,” Vitale said. “Our customer craves it. We’re about discovering and fostering new brands and talent. There will be so many new brands and pieces for customers to discover this season.”
Barneys launches activations and initiatives across all of its platforms, including stores, digital, events and print. “The High End will launch online soon, giving our customers nationwide the ability to shop select products that are part of this special edit,” Vitale said. “Our new loyalty program, the Barneys New York Influencer rewards program, launching this month, will allow us to streamline the online and in-store experiences even further. We already have one of the highest retention rates in the industry, and this new tender-neutral program is aimed at retaining our current customer, and building stronger relationships with newer customers.”
One avenue Barneys is reportedly interested in amplifying is its successful Freds restaurant franchise. Freds recently opened at Barneys San Francisco flagship and has a strong L.A. franchise, and there could be an opportunity for stand-alone eateries in the future. Freds has a strong vibe with celebrities such as Bruce Springsteen, not to mention fashion industry denizens, as well as a popular designer burger program.
“Retail on Madison Avenue is going through an adjustment as retail is going through its own transformation,” said Rick Friedland, whose family owns multiple retail properties on Madison Avenue.
Sources said relinquishing space to Ashkenazy would be tricky because Barneys is obligated for the space it now has and would probably have to pull off some type of bankruptcy filing.
“This is certainly not a market where a landlord wants to take back possession of any square footage unless the economics warrant it,” said Jeffrey C. Paisner, a national retail real estate consultant. “There aren’t that many tenants that could replace a portion of Barneys. This is not a market that’s rewarding landlords that own buildings on Madison Avenue.”
Paisner, who counted more than 30 vacancies on Madison Avenue between 59th Street and 72nd Street, including the former Calvin Klein flagship at 654 Madison Avenue, pegged ground-floor asking rents on the thoroughfare at $800 per square foot to $1,000 per square foot.
The past year has underscored the reality that there are no sacred retail cows with closures of Lord & Taylor and Henri Bendel’s flagships, and Tommy Hilfiger’s recent announcement that the brand will shutter its Fifth Avenue unit.