Bankrupt Barneys? Inside Luxury’s Growing Pressure to Evolve

Barneys New York might become the latest retailer to file for bankruptcy.

The luxury department store chain made headlines over the weekend when Reuters, which cited unnamed sources, reported that Barneys was in the middle of exploring options, including a bankruptcy filing, to address its struggles with skyrocketing rents and changing consumer demands.

“Our board and management are actively evaluating opportunities to strengthen our balance sheet and ensure the sustainable, long-term growth and success of our business,” the company wrote in a statement to multiple media outlets. (It did not confirm whether these options included bankruptcy.)

In early April, Barneys refuted reports that it had intended to downsize more than half of its flagship store in Manhattan. A New York Post story suggested that the high-end retailer was in talks to shed as many as five of its nine floors to cut down on its annual rent of $30 million.

“Barneys New York is committed to maintaining the footprint of its Madison Avenue flagship and continuing to serve its customers within this iconic store,” a company spokesperson wrote via email at the time. “There are no active conversations regarding the store’s footprint, and all statements indicating otherwise are false.”

The purported bankruptcy filing comes as expensive leases and the rise of e-commerce are forcing anchor retailers out of the country’s fashion capital. Other luxury names, including PVH Corp.-owned Tommy Hilfiger and Calvin Klein as well as Polo and Henri Bendel, have already closed flagships in the city, while Lord & Taylor shut down its historic 11-story home on Fifth Avenue late last year.

“Luxury is actually doing well; the issue is luxury department stores. Because all luxury players have stand-alone stores, there is little need for consumers to go to a Barneys [store] unless they have a relationship with a salesperson who can provide the same level or better service experience,” said Farla Efros, president of consulting firm HRC Retail Advisory.

The American luxury market has also taken a hit from a slowdown in tourism from China to the United States — the National Travel and Tourism Office reported that travel from China to the U.S. dropped 5.7% to 2.9 million visitors last year — amid trade war uncertainties and other macroeconomic factors.

Meanwhile, according to a recent study from management consulting firm Bain & Co., Chinese consumers make up more than 45% of the luxury sector’s sales across the globe, but they’re increasingly opting to use their earnings on local buys as the country supports more domestic spending through VAT and import tariff cuts.

On the domestic side, the luxury market is challenged to prepare for the next generation of consumers — millennial and Generation Z shoppers — who value social responsibility, prefer experiences over products and gravitate toward strong brand messaging. What’s more, the growing popularity of resale and rental services as well as digital-first retailers has disrupted the traditional luxury retail business model.

“The larger competition for Barneys has been all the luxury digital sites, including Net-a-Porter, Zalando, Farfetch, Revolve and MyTheresa,” added Jane Hali, CEO at investment research firm Jane Hali & Associates LLC. “These sites are engaging the millennial and Gen Z demographics purchasing the most luxury… [They] have great customer service as well as great influencers.”

As it reevaluates its physical footprint, Barneys has announced store openings in New Jersey’s soon-to-open American Dream Mall and Miami Beach. (The company operates 28 locations, according to its website.) It also continues to offer experiential retail opportunities through The Drop program, which brings together art installations, panel discussions and exclusive product capsules at its department stores.

“At Barneys New York, our customers remain our top priority, and we are committed to providing them the excellent services, products and experiences they have come to expect,” the retailer said.

FN has reached out to Barneys for further comment.

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