Barneys New York bankruptcy: Another luxury retailer bites the dust

In a shocking announcement, Barneys New York is the latest retail giant to succumb to the insurmountable pressure of luxury retail as it filed for bankruptcy on 6^th August.  Continuing its global domino effect, popular brands like BCBG Max Azria, Diesel, Roberto Cavalli and many more have folded; shutting down their brick and mortar stores across cities.  Barneys filed for chapter 11 bankruptcy which allows the brand to continue operating while it executes a reorganization plan. CEO Daniella Vitale cited the changing retail environment, sky high rent structures along with muted demand from consumers that led to its fall.  

The opulence and grandeur of a luxury brand is evident in its prime location at metropolitan cities such as New York’s Madison Avenue or London’s Bond Street making them global institutions. A brand like Barneys is as iconic to New York City as Times Square. The rent at its Madison Avenue flagship alone skyrocketed from roughly $16 million to about $30 million in January 2019, draining nearly all its earnings before interest, taxes and depreciation.

The luxury retail space has seen a significant shift from in store sales to online sales with each brand offering e-commerce services through their respective websites. Having arrived late to the party, luxury brands are now trying their level best to catch up to the global digital revolution. LVMH, parent company of world renowned handbag brand Louis Vuitton, launched its own multi-brand website known as 24 Sevres while maintaining separate websites for its house brands. Barneys too was able to expand its online sales to $200 million from $18 million since February 2017.

With the emergence of multi brand platforms like Shopbob, Moda Operandi and Net-a-Porter, high end brands prefer to showcase their products as it eliminates overhead costs while directly targeting their consumers. A Consumer Insight Report published by Deloitte reveals that millenials, which account for 83.1 million people, have made the switch to online shopping.

Changing cultural tides too have posed a serious threat to retailers. Capgemini defines the High Net worth Individual (HNWI) as those with investible assets of $1 million or more, excluding primary residence, collectibles, consumables and consumer durables. As the rich get richer, there is a glaring divide between the rich and poor across the globe. Luxury is no longer defined by expensive products or flashy cars. Instead, new age millionaires prefer to live a more subdued and low-key existence. Privacy and security have become the new keywords that now define well heeled individuals which makes it even more difficult for luxury brands to establish a connection with them. The rise of conscious and mindful spending on experiences rather than products has put luxury retail brands on the back foot.