The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
Hello BoF Professionals, your exclusive 'This Week in Fashion' briefing is ready, with members-only analysis on the key topic of the week and a digest of the week's top news.
What a week it's been for Barneys New York. After filing for Chapter 11 bankruptcy protection in the early morning of August 6, the luxury retailer, which owed brands millions of dollars in back payments, announced that it had secured $218 million in financing that would allow it to keep operating while searching for a buyer. (It has until October 24 to find a partner or face liquidation.)
All week, Chief Executive Daniella Vitale has been issuing messages reassuring employees, updating them on new developments and thanking them for their patience during the uncertainty. “Please know that we understand the personal impact the closing will have on some of you and your families, and we are working hard to make the transition as smooth as possible by giving you as much advance notice as we can,” Vitale wrote in an August 7 memo. “I appreciate your continued support, commitment and tenacity. I am personally extremely grateful.”
If Barneys does find a buyer, it’s clear that the company will need to evolve. Yes, Barneys has a great brand and a still-devoted customer base. But depending on what kind of company gains control, a “reboot” could mean anything from a complete management turnover to an entirely new business model.
A licensing firm, for instance, may want to reduce the inventory of luxury goods Barneys actually sells, opting to shill branded merch at airport kiosks and boost its presence overseas à la Fred Segal or Harrods. However, if the new owner is eager to bring back the Barneys magic and make the retailer a fashion leader once again, it will have to make serious changes to the company’s approach.
Here’s what Barneys needs to consider:
Step 1: Shrink to Grow
As part of its financing deal, Barneys already has plans to shutter eight mainline stores as well as seven outlets, leaving open five physical “flagships” and two off-price locations, as well as its two e-commerce sites. There are clear advantages to having a tighter retail network: it keeps both focus and productivity high. Instead of opening a new store at the American Dream Mall in New Jersey — which is still in the retailer’s current plan — it should focus on these five locations and consider shrinking its footprint even further while it recalibrates and figures out a new value proposition.
Step 2: Reimagine the Floor Plan
While reducing its number of doors is critical, what Barneys does with its remaining square footage is equally important. Does Barneys really need all the floor space in its nine-story, 230,000-square-foot Madison Avenue flagship? Surely downsizing is critical to both reducing the burden of high rent and improving retail productivity. That said, small doesn’t always mean beautiful. Barneys’ 9,266-square-foot unit at The Grove, a popular outdoor mall in Los Angeles, is a tenth of the size of its 108,000-square-foot flagship in Beverly Hills. But the Grove location is boring — bad merchandising, awkward layout — while the much larger Barneys Beverly Hills is the second-highest-grossing store in the group (after Madison), and probably its most productive per square foot. It’s a fun store: there’s the restaurant Fred’s, but also a beautifully laid out shoe floor and an easy-to-navigate ready-to-wear department. It’s also a little more crowded than Barneys’ other locations, making for a buzzier shopping experience. Selfridges, Le Bon Marché, Dover Street Market: these successful retailers have large stores, but they are not spare; they’re genuine destinations, filled with things to keep the eye busy.
Step 3: Double Down on Digital
Physical retail isn’t dead. But online touchpoints are increasingly the beginning and end of the customer journey. Barneys may have missed its opportunity to become the American equivalent to MatchesFashion, the London-based retailer which went all-in on digital more than a decade ago. It certainly can’t get back the $200 million it’s poured into physical retail in recent years. But Barneys clearly needs to allocate greater funds to boosting its e-commerce presence and turning this channel into a more significant revenue driver for the business.
Step 4: Better Integrate Physical and Digital
Retailers like Nordstrom and MatchesFashion might not be opening new stores, but they are opening new service- and experience-focused spaces linked to online inventory. Last year, MatchesFashion, which placed far less focus on its physical footprint as its digital business took off, opened the widely lauded 5 Carlos Place, a five-storey townhouse in London's Mayfair area, to host events, offer personal shopping services and showcase an incredibly tight edit of its overall offering, with the ability to order from the full catalogue with the flick of a finger. The Los Angeles iteration of Nordstrom's zero-inventory "Local" concept — part events space, part "click-and-collect" centre for online orders — has been so successful that the department store plans to open two in New York City this fall. Barneys already has a leg-up on experiences: its events, from a recent Chanel pop-up in Manhattan to The Drop, a streetwear-driven concept, often generate significant sales. The Drop LA — a weekend-long event hosted in May 2018 with streetwear site Highsnobiety that included a surprise musical performance from Wu-Tang Clan as well as several designer appearances — generated $1.2 million in retail sales along with $440,000 in online sales.
Step 5: Make Men’s a Bigger Focus
Barneys started out, in 1923, as a 500-square-foot men’s suiting store and was the first to bring Giorgio Armani’s big-shouldered blazers to America in 1976. To this day, it remains a leader in luxury menswear, a market that is growing and diversifying thanks to the rise of millennials and the changing tastes and looser gender boundaries they have embraced. (The men’s designer fashion and footwear market continues to expand and is projected to reach $46 billion by 2023, according to data from Euromonitor International.) Barneys should run with this, championing young designers by offering favourable contract terms and increasing its marketing moments dedicated to men’s fashion.
Step 6: Shake-up the Creative Team
Barneys has had multiple heydays: Fred Pressman took it upscale in the 1960s and 1970s. The late Glenn O'Brien, who joined in 1988 to run advertising, brought his signature irreverence to luxury. As fashion director from 1992 until 2010, Julie Gilhart made sure the best, newest brands were sold at Barneys, and former creative director Simon Doonan devised the most inventive holiday windows imaginable. In order for Barneys to rise up again, it will need a confident creative team with a strong sense of the current zeitgeist, how to generate cultural relevance and what the retailer needs to be now, from its buys to its windows to its digital marketing.
How this all plays out remains to be seen. Even with the right buyer, strategy and management team, Barneys New York has a lot of catching up to do. And unlike its 1996 bankruptcy, which was covered in print, this time around, consumers have been following the fall of Barneys online, play by play, eroding its once shiny brand. But everyone loves an underdog; especially one with good taste. Don’t count Barneys out just yet.
THE NEWS IN BRIEF
FASHION, BUSINESS AND THE ECONOMY
Farfetch outside the New York Stock Exchange | Source: Shutterstock
Farfetch buys Off-White partner New Guards Group. On Thursday luxury marketplace Farfetch announced that it acquired New Guards Group, a Milanese holding company that operates brands like Off-White, Heron Preston in cash and stock worth $675 million. The deal, expected to close in the third quarter of 2019, is seven times its earning before taxes and twice its overall revenue. Farfetch plans to grow distribution for the group through directly operated retail stores and e-commerce, relaunching e-commerce sites for the brands and setting up direct online sales through Farfetch's marketplace. The online luxury retailer reported second-quarter revenue of $209.3 million, up 43 percent from the same period in 2018.
Boohoo acquires fashion chains Karen Millen and Coast. The fast-fashion line paid £18.2 million in cash for the brands, putting hundreds of jobs at risk for Millen and Coast. The two brands' 32 UK store locations and 177 concessions, as well as their online businesses, had combined direct sales of £28.4 million in the 12 months ended February. Boohoo's sales jumped 39 percent in its latest quarter, totalling more than £250 million.
Capri Holdings Ltd misses quarterly revenue estimates. The fashion house cut its full-year forecast on Wednesday as its Michael Kors brand struggles at department stores and retail outlets. Capri Holdings is trying to reverse the damage, rolling back discounts and inventories to push full sale prices. Michael Korse revenue decreased 4.8 percent to $981 million, while sales at Jimmy Choo, another Capri brand, fell 8.7 percent to $158 million in the reported quarter. Versace beat analyst estimates with revenue of $207 million.
Over 100 models sign letter to Victoria's Secret calling for protection from sexual misconduct. The letter was sent to Victoria's Secret Lingerie Chief Executive John Mehas, calling on the brand to make legally binding commitments to protect contractors like models from sexual misconduct. The petition, spearheaded by non-profit research and advocacy organization Model Alliance, cited headlines about L Brands CEO Leslie Wexner's close friend and business associate Jeffrey Epstein, as well as sexual misconduct claims by photographers like David Bellemere, Timur Emek and Greg Kadel. Models including Doutzen Kroes, Christy Turlington Burns, Gemma Ward, Iskra Lawrence, Edie Campbell and more signed the letter.
THE BUSINESS OF BEAUTY
Shiseido's Waso range | Source: Shiseido
Shiseido and Tory Burch announce longterm partnership. Through the deal, Shiseido will have exclusive worldwide license covering the development, distribution and marketing of Tory Burch beauty brands. The opportunity also allows Shiseido to expand its fragrance portfolio and grow its presence in North America.
Kolmar Korea issues a public apology after online protests. The South Korean cosmetics firm shut its website down and put out a public apology after its chairman showed employees a video praising Japan's prime minister amid rising tensions between the two nations. This comes after a South Korean court ruling that forced Japanese firms were ordered to compensate forced labour during Japan's occupation. The company was the most searched word on Naver, South Korea's most popular search engine, on Friday, while its shares fell 6.2 percent.
Elf Cosmetics raises prices under new tariffs. The Oakland-based cosmetics brand known for its affordable and cruelty-free beauty products is currently in the process of raising its prices in response to tariffs on Chinese imports. The company first opted to absorb the 10 percent tariff, closing 22 retail stores in April, but after rising to 25 percent the brand has chosen to increase prices.
Victoria's Secret executive Ed Razek with models Lais Ribeiro, Sara Sampaio, Martha Hunt and Gigi Hadid at a book launch in 2018 | Photo: Getty
L Brand's Chief Marketing Officer Ed Razek resigns. This comes after a rocky year for the company, including outrage over Razek's comments arguing against casting plus-size and transgender models in the annual runway show. Meanwhile, transgender model Valentina Sampaio revealed on social media that she was working on a Pink campaign, a first for the company.
Debenhams appoints new CEO after chairman steps down. Stefaan Vansteenkiste, Debenhams chief restructuring officer, has been named as chief executive of the retailer. Vansteenkiste fills the role after Sergio Bucher's departure in April, replacing Group Chairman Terry Duddy who acted as interim CEO. It was also announced that Duddy will exit the company next month.
MEDIA AND TECHNOLOGY
Online payment platform Klarna valued at $5.5 billion. The brand said on Tuesday that it had raised $460 million in funding, making it Europe's most valuable fin-tech start-up. San Francisco-based Dragoneer Investment Group put more money into the company, pushing it to the high-priced valuation. The company allows consumers to buy online without having to provide merchants with their payment details, paying for the item and giving customers an extended amount of time to settle the purchase. Klarna plans to invest the money in expanding its US market, building partnerships with merchants like Acne Studios, ASOS, Sonos and Toms.
Stock X hack affects millions of users data. On Thursday, a general password reset email sent out to its users citing "system updates" was revealed to be part of a larger data breach. In a report by TechCrunch, an unnnamed seller reached out to the publication claiming that data from 6.8 million users was stolen from a breach on May 14th. The stolen information includes names, email addresses and passwords, as well as profile information like shoe size, trading currency, and user's device type. This data is already being sold on the dark web. In a recently released statement, StockX CEO Scott Cutler stated that the company is working with law enforcement to find the hacker, and will offer free fraud detection and identity theft protection for 12 months.
Reliance Industries Ltd. buys Google-backed e-commerce startup. The Indian conglomerate will invest up to $42 million in order to acquire a majority stake in Shopsense Retails Techologies, the company that operates Fynd. The company is part of a larger set of acquisitions billionaire Mukesh Ambani has bought in order to compete with Amazon. Fynd will be a part of Reliance's consumer business and mobile phone services, as the company works to transition from grocery and neighbourhood stores to an online e-commerce empire. Ambani says the technology will help empower small store owners by improving sales and customer service capacities.
Goldman Sachs and Apple start issuing Apple cards. The two companies partnered up to release a virtual credit card on Tuesday, in a push to diversify sales and expand the bank's consumer business. The card hopes to attract iPhone users with 2 percent cash back on purchases with Apple Pay, no fees and an app to manage finances. A physical card will be an option for customers, but the number is stored on a secure chip in the iPhone. Both Apple and Goldman Sachs stated that data regarding purchases will not be available to either company.