Barneys New York, the quintessential arbiter of cutting-edge fashion and design (also notorious for its exposure on TV series Sex in the City for its iconic women's shoe department), is on the auction block, having filed for bankruptcy in August of this year. As of October 20, two groups are bidding for the property – with very different visions for the future of Barneys New York. One buyer could mean the liquidation of all of the retailer’s stores, while another could preserve at least some of the Barneys shoppers know today. What happened? The Barneys of 2020 (ok, 2019) is a far cry from the must go-to temple of avant-garde fashion, scrumptious footwear, eclectic collections of homeware and best-of-class men’s suiting that made its reputation. Coresight Research visited Barneys locations in Chicago, Los Angeles, Las Vegas and New York over the past 24 months, in addition to visits to Barneys Warehouse stores at premium outlets in New York. We found the full-price locations reminiscent of European cathedrals, vestiges to an obsolete lifestyle, interesting as a study of a previous time – but not necessarily culturally relevant today. These large stores were mostly empty. According to bankruptcy filings, Barneys had $790 million revenues in 2018, about 30% of which was online. Department stores in general are fighting to maintain relevance in the digital age, and that includes luxury department stores. The narrow niche of Barneys and its relatively large footprint of more than 10 namesake stores, along with a handful of concept stores and outlets, makes Barneys particularly vulnerable as consumers continue to migrate to online platforms. Digital did not help – not Barneys, in any event The Barneys shopper was always ahead of the curve in fashion discovery and adoption: But Barneys did not keep up. Today, digital platforms such as Farfetch and Orchard Mile, along with social media, allow shoppers to discover, shop and buy new designers 24/7 on their own terms. There’s no need to visit Barneys in person. Coresight Research believes the shopping experience is one of the most important things brand must get right, as outlined in our BEST framework, which is designed to help retailers frame their approach to physical retail around four themes: Brand building, Experiences, Service and Technology integration. While the flagship New York location continues to attract shoppers, on our (anecdotal) store visits in other Barneys full-price locations, we found the stores pristine but empty, creating an uncomfortable shopping experience. High rents and few shoppers crimped Barneys ability to offer fashion the digital experience marketplaces can. The economics of retail have changed, and the department store model has been slow to adjust. Add to that the growing resale and rental businesses that offer fashion shoppers access at a fraction of department store prices, and it is easy to see the challenges an iconic luxury department store faces in 2019. And Barneys isn’t alone: Neiman Marcus and Saks Fifth Avenue fell victim to the same forces. However, with fashion points of view that are more broadly accessible to luxury shoppers, we believe the pool of potential shoppers is larger for these two luxury department stores, for now. Bidder number one: Authentic Brands Group Authentic Brands Group (“ABG”) filed its $271 million bid on October 20, which includes a plan to license the Barneys name to Saks Fifth Avenue (owned by Canadian-based Hudson’s Bay, which on October 21 announced plans to take the company private) for in-store pop-ups and private collections. ABG owns the intellectual property to approximately 50 brands (entertainment, fashion, lifestyle and luxury) that it licenses to retail and operating partners. ABG provides brand, marketing and social media strategy support and has a dedicated data team analyzing 242 million social media followers. Some of ABG’s brands are Aeropostale, Elvis Presley, Frederick’s of Hollywood, Hart Schaffner Marx, Herve Leger, Hickey Freeman, Jones New York, Judith Leiber, Juicy Couture, Marilyn Monroe, Mohammed Ali, Nautica, Nine West, Spyder, Thalia, Tretorn and Vince Camuto, among others. According to industry experts and given ABG’s expertise and history, Barneys under ABG would have fewer – if any – stores, although we believe the Madison Avenue flagship store in New York is likely to remain open if a reduced rental agreement can be reached, currently at approximately $30 million annually. ABG would operate a Barneys e-commerce site and Saks would continue the physical retail experience of Barneys via shop-in-shops. However, Coresight Research believes it is questionable whether the quintessential Barneys shopper would shop Saks to discover the next avant-garde designer. The shopper profiles of a Saks and a Barneys shopper are significantly different, aptly described as “upper east side” and “downtown cool,” respectively. ABG’s brand portfolio could find an outlet in Barneys, similar to the Elvis Presley and Marilyn graphic tees available at Aeropostale. However, Barneys is a favorite of the fashion cognoscenti, many of whom are reluctant to see Barneys go to Authentic Brands Group, expecting the new owners may hollow out the brand out to a shadow of its former self (although admittedly that process began more than a decade ago), as ABG is likely to leverage the power of the Barneys brand and use it on a myriad of products to deliver a faster ROI – but in so doing diluting brand equity. This sentiment is reminiscent of the response of Chicagoans when Macy’s bought Marshall Fields and proceeded to change the culture and the personality (the local relevancy) of the downtown flagship store. Bidder number two: Sam Ben-Avraham’s Consortium Sam Ben-Avraham, cofounder of streetwear brand Kith, is putting together a consortium of fashion industry investors for a competing bid. According to the New York Times, he has raised $70 million in equity, has plans to raise another $150 million and had secured commitments for $200 million in debt financing. Ben-Avraham has a very different vision for Barneys that includes continuing to run two of the Barneys locations, including the nine-floor Madison Avenue flagship in New York. His expertise at the intersection of streetwear and luxury is more in keeping with what “downtown cool” has morphed to and what could potentially bring new life and new customers to Barneys.