Q: If Barneys New York, one of the highest-profile luxury stores in the world, is facing bankruptcy, what does this say about the luxury market in general? Is it a case of bad management, or something else luxury merchants should be aware of?
Steve Pruitt: It sounds like Barneys has been caught long on leases. This includes not just spending too many dollars per square foot but also having too much square footage overall.
As far a retail management is concerned, Barneys has one of the best teams in the business, and the luxury market continues to thrive, especially in resort areas.
Where we should take caution is in the area of retail rents. You can’t put all the blame on the landlords; Barneys willingly signed leases that stretched their finances. This is surprising for two reasons: 1) we live in an increasingly online retail world where fewer physical stores are required, and 2) with widespread store closures and little to no inflation, why have rents gone up, and why did the merchants agree to them?
What this says to me is that when looking at a new physical space, you should get professional help in negotiating rents and square footage needs. Some merchants simply try on too many hats. To be great at merchandising, marketing, and real estate is a rare thing. Barneys has done a great job in many aspects of merchandising. It’s unfortunate that leases are what have set them back on their heels.
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