UPDATE: April 2, 2019: On Monday afternoon a Barneys spokesperson pushed back on reports, which had been swirling for days, regarding downsizing of its main Manhattan store, calling them "incorrect" in an email to Retail Dive. "Barneys New York is committed to maintaining the footprint of its Madison Avenue flagship, and continuing to serve its customers within this iconic store," the spokesperson also said. "There are no active conversations regarding the store’s footprint, and all statements indicating otherwise are false."
Barneys New York plans to give up possibly more than half the space in its flagship Madison Avenue store in New York in order to save on rent, which doubled in January to $30 million a year plus taxes and other expenses, The New York Post reports.
The upscale department store has been battling its landlord for years and the rent hike and new lease were previously in arbitration for a year, according to previous reports.
The retailer boasts about the 1993 opening of the "230,000-square-foot Peter Marino-designed flagship on Madison Avenue" as "the largest new store in New York City" since the Great Depression. Barneys New York didn't immediately reply to Retail Dive's request for comment.
Barneys' predicament is yet another sign of the upheaval of New York real estate, including, most recently, Tommy Hilfiger exiting its Fifth Avenue flagship, but also Ralph Lauren Polo and Lord & Taylor.
"For starters it's the rent — they went from $16 million to $30 million and the thing had to go to arbitration. Are New York landlords living in an alternative universe? Retail on almost every level has been unaffordable there, whether you're a small storefront in Chelsea or on Fifth Avenue or Madison Avenue. They just don't think that economics applies to them," retail analyst and consultant Sanford Stein, author of "Retail Schmetail," told Retail Dive in an interview.
Rents are escalating in New York despite much empty space, according to Mark Cohen, director of retail studies at Columbia University's Graduate School of Business. "Eventually demand will recover or over supply will force rent roll backs," he told Retail Dive in an email. "Many of these 'trophy' flagships in New York (like Tommy Hilfiger, Calvin Klein and Ralph Lauren) were oversized to begin with but now suffer from lagging shopper traffic (as opposed to 'looker' traffic) as the customer no longer is tethered to a store to make a purchase. I'm not so sure that Fifth Avenue has lost its 'cool' as a location as much as Fifth Avenue has lost and will continue to lose tenants who are no longer cool in their own right. This phenomenon seems to be emerging at other iconic shopping locations in other countries such as the Champs-Elysees in Paris."
But, as troubled as the department store sector is in general, Barneys itself is poised to survive, according to Stein. The upscale department store, though heaped with debt from private equity ownership, is leaner and possibly nimbler than Macy's sprawling mid-tier empire, with just a few locations, almost exclusively in downtown centers of larger cities and not trouble malls. Rather than a blow, the mandate to edit its space and the assortment within it represents an opportunity, according to Stein.
"They'll be looking to get rid of the upper floors — those aren't going to do as well as the lower floors anyway," he said. "I'm not sure how recently that store had a major renovation but it's a chance to go back in and do some editing, remix it — cut out some of the things that are not as productive as others, and their dollar-per-square-foot will go up by one and a half to maybe two."
The department store has a history of seizing on opportunity, he also said, noting, most recently, its foray into cannabis with its The High End concept in Los Angeles. "They've always been open to experimentation, they've always known who they are and who their customer is," he said. "They've never chased down a lower price point for a greater volume. They're fundamentally playing in a rarified atmosphere, and they're continuing to reinvent and refine, as opposed to trying to be something they're not, which will always work for a core demographic that wants that."