Will the Union of Barneys & Saks Help Refuel the Department Store Sector?

Authentic Brands Group has emerged as the leading contender to win the Barneys New York business post-bankruptcy. But is its plan a good one for the retail industry?

According to a filing on Wednesday in the U.S Bankruptcy Court in the Southern District of New York, the beleaguered department store has entered into an agreement to sell its assets to ABG and B. Riley Financial Inc. in a cash deal estimated at roughly $271.4 million. Though a final decision won’t be made until a bankruptcy auction scheduled for Oct. 24.

As part of the deal, all of Barneys’ seven stores would be slated for closing, including its storied Madison Avenue flagship that spans 265,000 square feet and 10 floors. Further reports, though, have suggested that the Barneys name would live on, despite the store closings.

As with the roughly 50 other businesses under its large and growing umbrella, ABG has said it plans to run the Barneys digital operations but will license the Barneys name to an expert in the field — in this case, Saks Fifth Avenue and its parent, Hudson’s Bay Co., which are expected to create private-label merchandise and build shop-in-shops within some Saks locations.

Retail experts and brand partners expressed some relief that Barneys would have a future, but questions remain about what a union between two New York retail rivals would look like in reality.

“Barneys is such an iconic brand that it would be a real shame for it to simply go away,” said Cassie Rosenthal, SVP with the retail factoring firm Rosenthal & Rosenthal. “To live on in another form is very interesting. But the key is that it needs to be the right marriage.”

Alain Baume, president and CEO of Giuseppe Zanotti’s U.S. business, noted, “We have a very solid relationship with Saks, and I believe this partnership will have a positive impact on the Giuseppe Zanotti business. But [we would] make sure that the merchandising point of view in the Barneys’ space for our product would reflect the original vision of Barneys’ direction. This is what set them apart originally as a unique retailer.”

For Farla Efros, president of HRC Retail Advisory, the biggest question mark in this proposed deal is actually Hudson’s Bay Co. The Toronto-based company has posted a string of quarterly losses recently, and as a result, opted to close its European operations this fall and in August sold the Lord & Taylor banner to Le Tote — all in order to focus on its namesake stores and Saks, which has been the bright spot in its financials.

“You truly want to be able to fit your current box before you go and start diversifying,” said Efros. “Hudson’s Bay [exited those businesses] because they’re all complete distractions for them. So you hope this is not going to be another distraction on top of it, that’s going to give them another reason to not perform.”

However, she added that a Saks-Barneys union is a strong strategic move for the HBC, for multiple reasons. “I expect that they’re looking at any opportunity where they can possibly find some synergy and get some relationships with exclusive vendors that they did not have.” Additionally, Efros pointed out the Barneys name still has strong brand equity, and its customer lists could be a valuable asset for HBC in today’s marketplace, where it’s increasingly vital for stores to build strong relationships with the consumer.

Rosenthal agreed that the current retail environment demands innovation. “Thinking collaboratively is the only way retailers and brands can change the dialogue around the state of the business. This [plan] could potentially open up more exciting ways other struggling department stores could leverage their brand equity and reinvent how they engage with consumers, while also alleviating the burden of a large physical footprint.”

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