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Was the Writing On The Wall For the Demise of Luxury Retailers All Along?

Goodbye Henri Bendel, Goodbye Barneys, Goodbye Lord AND Goodbye Taylor

by Evan Ross Katz
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Aug 26 2019, 1:56pm

Luxury department stores, a staple of classic cinema (see: Mannequin, Bad Santa and The Muppets Take Manhattan) and of course, like, shopping, seem to be experiencing what we’ll generously call a slump. Earlier this year, in January, Henri Bendel closed the last of its 23 remaining stores after 123 years in business. That same month, Lord and Taylor shuttered its flagship Fifth Avenue store after 104 years “to shift its focus toward online sales.” Then came perhaps the biggest blow: Barneys, the “Global Symbol of Creative Cool," as an August 6 New York Times headline called it, filed for bankruptcy. The article blamed a “challenging retail environment and rent structures that are excessively high relative to market demand” for that brand’s Chapter 11 bankruptcy protection filing. Has the luxury department store, once a beacon of affluence and je ne sais quoi, done a reverse nada to Prada?

For Tina Sharkey, co-founder and co-chairman of Brandless, an e-commerce company that manufactures and sells products ranging from cruelty-free beauty to biodegradable home goods, her first reaction to the Barneys news, both visceral and emotional, was sadness. Like so many born and raised New Yorkers, she’d grown up going to stores like Barneys and Bendel. But then her second reaction was, well, not surprised at all. “They would fall into what I call the ‘too little, too late,’ category, meaning that they were really early on the vanguard of reimagining the retail experience—or not reimagining, they created it: dynamic, transformational, destination retail experiences.” But, she says, when social media and curation became the new ethos and Instagram became the new shop windows, “they did not transform into their windows on the web and actually invite their community in to amplify and express the extraordinary experiences that they were creating in their physical spaces.”

So was the writing on the wall all along? There certainly were, to borrow the name of M. Night Shyamalan’s only good film after The Sixth Sense, signs. It began in 2000 when Natalie Massenet, who started her career at Women's Wear Daily and Tatler, launched Net-a-Porter, the first online sales portal for designer clothes. Seven years later, in 2007, Gilt Groupe would launch and help popularize the flash sale model. Initially, the flash sales were distressed inventory that would otherwise be unsold. And though this would not directly affect Barney’s department store, it would affect another prong of their business that they were known for: their warehouse sale. In the nearly two decades since Net-a-Porter’s launch, a profusion of internet companies of all ilk selling luxury goods have sprung up and exploded: ShopBop in 2000, Yoox in 2006 (which merged with Net-a-Porter in 2015), Farfetch in 2007, and Moda Operandi in 2010. And one cannot deny the disruption that Instagram has brought about in shifting our eyeballs from stores to people as a means of curation. If indeed there is a "global symbol of creative cool" these days, it is likely found in an @, not a building on the Upper East Side.

And despite the fact that Barneys.com predated all of these companies, according to Sucharita Kodali, a retail analyst at Forrester who works with companies to help them with their strategies, being first in the door may have proved a weakness. “The great irony is that Barneys was pretty early to launch an e-commerce site, but it’s sometimes very difficult to pivot to the newest and easiest way to sell,” she explains. “I wonder if Barney’s was just caught in this weird time where they weren’t early enough to be the first mover but they weren’t late enough to have the best technology.”

There’s also an economic issue that these companies face with the current strength of the US dollar. Stores like Bendel and Barneys were New York staples. Luxury department stores like these tend to be very dependent on tourist dollars, and when the dollar is strong, you don’t have tourists spending as much—especially the Chinese tourists, who have fueled a lot of the luxury economy for years. And yet another factor: A lot of successful luxury brands have their own store distribution, while a lot of the lesser known luxury brands have sellers like a Net-a-Porter or a Farfetch that are just as likely to sell their products. These brands also have massive reach and influence on social media, and the ability to convert followers to buyers. “Where Bendel and Barneys left their own brands and their own ethos at the altar, was by not bringing in the right people to become the next amplifying megaphones to their communities,” Sharkey says.

There’s also the reality that most of the hot fashion brands online, unlike these legacy retailers, have some sort of venture capital or private equity financing backing them. What that typically means, according to Kodali, is that there’s often a heavy investment in the business. “That’s where these guys struggle: they’re just old legacy businesses that are used to buying inventory and putting it in stores and exposing that inventory in an imperfect way to the internet that checked the box for their e-comm strategy, when in fashion these days, e-commerce strategy has to be much more robust.”

It’s not as though e-commerce on the whole is without problems: return rates are high and good product photography can be tricky to master, for instance. Plus, there’s the never-going-away reality that many shoppers still want to touch and feel the product before deciding purchase. But many of these e-tailers allocate heavily on problem solving. “I just don’t think a lot of these luxury retailers have the talent or the budget to compete with a Farfetch or a Net-a-Porter,” Kodali says.

So is “the death of the department store,” as Axios called it in January finally finding its way up to the luxe sector? It’s too early to tell. Kodali is skeptical. “Luxury is broadly available everywhere and these stores don’t have any competitive advantage other than a brand that resonates with some people. But that brand doesn’t mean anything if it’s the same merchandise that’s available in 150 other stores. That’s fundamentally their challenge.”

But what all of these stores have in common is their roots: New York City, a place best described through the Emma Roberts “Surprise bitch. I bet you thought you’d seen the last of me.” GIF. In other words, count them down, but not out.