Who’s to blame for Barneys bankruptcy? Try Barneys

Barneys

When something big, even shocking, happens, we naturally want answers. And in this online news cycle, we want them now.

Take the recent bankruptcy of Barneys, the iconic luxury (don’t call us a department store!) department store. According to the flurry of stories written over the past week, Barneys owes its unfortunate demise to 1. the emergence of online shopping, leading to decreased foot traffic to stores  2. high priced urban leases 3. competition from its own brands and 4. hedge fund ownership.

In a statement, Barneys went with reasons 1 and 2: “Like many in our industry, Barneys New York’s financial position has been dramatically impacted by the challenging retail environment and rent structures that are excessively high relative to market demand,” CEO Daniella Vitale said.

Nowhere in any of these reasons/excuses lies the most likely culprit of Barneys’ problems and subsequent bankruptcy: the company itself.

Let’s start with a big caveat. Barneys is a private firm, which means the company has not had to disclose financial figures up until this point. The lack of transparency makes it hard to analyze the company’s situation.

With that said, I offer exhibit A in indicting the company’s leadership circle: the broader luxury market, unlike the mid-tier market, is absolutely killing it right now. Last year, the global luxury market grew a robust 5 percent to an estimated $1.36 trillion, with positive performance across most segments, according to a report by Bain consulting firm.

If Barneys can’t succeed in such a favorable market, when can they succeed?

Since the Great Recession more than a decade ago, wealth inequality has widened, with the rich getting richer and the middle class shrinking. Therefore, it’s no accident that the two retail segments that have performed relatively well in the United States during this time have been luxury and discount/dollar stores, the top and bottom ends of the markets.

Meanwhile, mid-tier retail chains, especially department stores and mall-based apparel specialty shops, have struggled as shopping has migrated from physical stores to the Internet.

Over the past few years, we’ve seen several once prominent chains have filed for bankruptcy, including Borders, Payless Shoes, Radio Shack, Toys ‘R Us, Sears, David’s Bridal, and Nine West to name a few. In most of these cases, these retailers were either too late or inept to build a viable e-commerce strategy.

Here’s why the “blame it on the Internet” excuse doesn’t work for Barneys. Yes, online sales are important for all types of retailers but less so for luxury goods. Rich people still like to see the merchandise up close and personal, aided by highly trained and capable sales staff.

And unlike the mid-tier retailers that have struggled, Barneys does not directly compete with Amazon, the 1,000 pound juggernaut of online retail. People go to Amazon for price and convenience while people go to Barneys and its kin for quality, status, and exclusivity.

Are rents high in New York City? Well, duh. There’s a reason why the rents are rising: affluent people want to live in New York. That’s why you need to sell more stuff to those people to keep paying the bills.

So if Barneys is not selling enough very expensive merchandise to keep the lights on, then that’s the company’s fault.

With all of this talk about leases and the Internet, we sometimes forget that the raison d’etre for luxury stores like Barneys to exist is to convince people to buy stuff. That’s called merchandising and marketing.

More specifically, since Barneys’ does not make the goods it sells, it must work with luxury brands to generate sales. As CNBC noted, luxury brands are increasingly looking to sell their products to consumers.

Why is that? Trust me, brands don’t really want to run physical stores or websites because that’s not their core business. Plus, judging by the leases in New York, these operations are expensive.

That’s why they need retailers. So if retailers are failing to get the job done, then brands will take matters into their own hands.

Barneys’ arrogance probably hurt them too. In a 2016 interview with the Business of Fashion, then CEO Mark Lee poo-pooed the ongoing trend of allowing brands to directly operate stores-within-stores inside Barneys, a concept popular in Asia and increasingly so in America.

“We’re not a landlord for brands,” Lee sniffed. “People come to us for the Barneys choice; the Barneys point of view.”

Prior to 2012, Best Buy thought the same thing. The consumer electronics retailer had long felt it was pretty good at selling things. But falling same store sales and changing leadership prompted Best Buy to eventually adopt the store-within-a-store model. Today, against all odds, Best Buy is once again thriving.

Barneys appears to have recognized its error. In recent years, bag maker Goyard, which sells $1,150 handbags, had begun to rent space in Barneys Madison Avenue store. It was probably better for Barneys to swallow its pride and at least generate some revenue from rent than not earn anything from lack of consumer interest.

Yes, it’s a difficult time to be a retailer these days. The Internet is a disruptive force that has transformed retail. And global economics can be wacky.

But sometimes, the demise of a retailer comes down to this simple reason: the company just failed to execute.

Perhaps journalists and analysts want to instinctively absolve Barneys of responsibility because they cater to rich people. After all, struggling mid-tier retailers like JCPenney don’t get that kind of deference.

But even rich people and companies that cater to rich people can still screw up.

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