INDUSTRY SAYS BARNEYS LOST TOUCH
Byline: David Moin — with contributions from Rusty Williamson and Holly Haber, Dallas, and Michael Marlow, Los Angeles
NEW YORK — If the mood at this week’s National Retail Federation Convention is any indication, the heat could intensify at Barneys New York.
A volley of criticism was hurled at the embattled upscale chain, now facing a $168 million suit from and an ugly skirmish with its Japanese partner, Isetan. According to retail executives interviewed between NRF sessions, Barneys’ problems run deeper than the company has suggested. They questioned recent sales figures reported by Barneys, as well as its merchandising and expansion strategies.
They believe Barneys merchants try to force-feed New York style and attitude to cities that won’t bite. Furthermore, they claimed, Barneys goes overboard with pricey merchandise, and too much of it is in black.
Barneys says it filed Chapter 11 to restructure its relationship with Isetan and that Isetan defaulted on an agreement to nurture Barneys’ international business. Barneys is also suing Isetan to recoup $50 million.
Isetan’s suit was filed Friday, after Barneys stopped making payments on $233 million of a total of $587 million Isetan put in for Barneys expansion. Questions are being raised about why Barneys failed to pay. One reason could be that the stores are not generating enough volume to cover real estate costs, though Barneys claims the stores are running strong.
Unlike the satellites, Barneys New York on Madison Avenue can pack them in, particularly on the main floor and the restaurant. However, it’s never been elbow-to-elbow crowds at Barneys in Beverly Hills or at its 12 other U.S. stores. Even the downtown store here has recently appeared light on traffic.
“They had a gold mine downtown,” said Gil Harrison, chairman of Financo. “But when they opened uptown, downtown took a big hit.”
The Dallas unit, opened in 1990 at NorthPark Center, got off to a slow start because it brimmed with black, minimalist fashions and low-heeled shoes at a time when Dallas was still into bright hues, high heels and glitz. Even the store’s hair salon infuriated local women by refusing to style big hair and insisting patrons don short haircuts.
The momentum did pick up as Barneys added more whimsical merchandise, such as Moschino Cheap & Chic, and shoppers began accepting cleaner styles.
Some also said that while the stores are architecturally stunning, they wonder how they could be as productive as Barneys executives suggest and believe Madison Avenue has a long way to go to become nearly as productive as the Saks Fifth Avenue or Bergdorf Goodman flagships. Barneys has said volume at the 230,000-square-foot flagship will hit $180 million in the current fiscal year.
The Madison Avenue flagship is also a costlier plant to operate, they noted.
Hal Reiter, president of the Herbert Mines Associates executive search, said, “I’ve seen very few customers in Barneys’ Westport [Conn.] store. Rent must be at least $65 a foot. It’s some of the most expensive real estate in New England.”
He added that Westport’s Mitchells, which has a reputation for fine men’s wear, “is killing Barneys in Westport. Mitchells is very deep and wide in merchandise.”
“The question is, ‘Is there a crisis at Barneys.’ You just don’t know, when you listen to the Pressmans,” said one accountant at the NRF. “I don’t know who the shopper is. Who can afford those $2,000 suits?” said one consultant.
“Every city has its own perspective on fashion, and I don’t think that was ever brought into play,” said another pundit. “All the buying was done from New York without regard for the various markets they expanded into.”
Elsewhere around the country, executives and consumers were fixated on Barneys. “One of the issues in their expansion is it’s been awfully high profile, but has the same attention been paid to developing their customers?” said Carl Youngberg, president of Concepts 3, a retail marketing firm in Dallas and a former marketing specialist for Neiman Marcus. “It’s a very small percent of the population, and you win them and their business through the basics. Yes, they’re looking for sizzle, but they want steak. They want style, but they want service and attention and everything that goes with it.”
Stanley Marcus, Neiman’s chairman emeritus, said he was surprised at the bankruptcy and didn’t understand how it would protect Barneys from an investor. Marcus said Barneys didn’t adequately merchandise the men’s wear departments of its satellite stores: “Their biggest reputation was in men’s wear, and people in Chicago and Dallas who had experienced Barneys wanted the real thing, not ersatz.” The 20,000-square-foot Houston store was said to be strong last November and December, though the store’s annual volume reportedly hovers around $5 million.
But satellite stores aren’t the crux of the issue, one source said. “Barneys biggest problem has nothing to do with whether they do $2 million or $5 million in Houston. The big problem is that they owe as much as they sell a year.”
On Friday, it was business as usual at Barneys in Dallas. The sleek 19,000-square-foot store stands across from Neiman Marcus. Though few customers were present at Barneys or in the mall, devotees could still be found.
“Barneys is it for cool clothes,” said Marcia Aylock, a film producer, at the Dallas store. “I don’t care about the Chapter 11 filing as long as they don’t close. I read about it in the paper this morning. I just got into town and wanted to shop while it was quiet. I almost bought a Dries Van Noten black and white outfit for spring, but I’m still thinking about it. I’ll be back.”
Anne Haim, a lawyer from New York, said, “I usually buy Prada at Barneys in Manhattan. Barneys has a history, and they’ve got a future. They may have expanded too fast. It may require some rethinking of their national plans.”
Barneys in Beverly Hills has never attracted elbow-to-elbow crowds. Usually, no more than a few dozen shoppers are spread throughout the five floors. Sales associates insist they don’t need the crowds, because their shoppers — many connected with Hollywood — spend more. Ironically, on Saturday, more than a hundred shoppers were on the floors by midday, giving the atmosphere a jolt.
Women’s designer apparel, women’s shoes and cosmetics drew the most customers, and in many departments there were checkout lines, three or four deep. Still, purchases were dominated by end-of-season designer markdowns. Some of the traffic could also have been generated by all the headlines in local papers about the bankruptcy. Sales associates came to the defense of the store, blaming the bankruptcy on Isetan. “It’s not about business,” said an associate in women’s shoes at the Beverly Hills store. “Business is great. It’s about trying to get out from under Isetan.” A sales associate in men’s sportswear told customers the store will remain open and that Barneys will go ahead with its expansion. “We’re not even close to real bankruptcy, but we gotta do what we gotta do.”
Customers in Beverly Hills, however, were baffled by the filing. “I was in shock,” said Leslie Schwebel, a businesswoman and “devout” Barneys shopper. “I mean this is one of the last family stores. It has personality.” “It’s such a great store. How could this happen?” asked Elena Torres, a student, who carried a Barneys bag.
Robert Burrick, partner in Pitney, Hardin, Kipp & Szuch, a law firm in Florham Park, N.J., offered an explanation. “Their philosophy is to offer more than just a shopping experience. It’s a whole entertainment concept, to be seen and who can we see. But rather than walking out with the little black bag that says Barneys, people walk down the street to Bloomingdale’s and Saks. See and be seen will only take you so far.”
Meanwhile, Gene and Robert Pressman, co-ceos and owners of Barneys, have maintained a low profile, leaving Charles Bunstine, president and chief operating officer, on the run, dashing from interview to interview to face the press.