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What Barney’s bankruptcy means for luxury retail

LAS VEGAS NV/USA – FEBRUARY 14 2016: Barneys New York exterior sign and logo. Barneys New York is an American chain of luxury department stores headquartered in New York.
Photo by Phillip Pessar, Flickr

Barney’s department store has been synonymous with luxury brands since it was founded nearly a century ago, but last week the US retailer announced it is in the midst of a potential bankruptcy filing.

The cost of renting retail space in prime locations (in this case New York City’s Madison Avenue) is a contributing factor to the American retail conglomerate’s downfall, which has struggled to keep up with changing consumer shopping trends in the luxury goods market.

But although Barney’s is the most recent victim to the retail downturn, it’s not the first. Earlier this year, Sears, another well-known department store giant, announced the closure of over a third of its 700 US stores following a file for bankruptcy.

So what does this mean for the broader luxury goods market, especially for the Australian market?

With the cost of rent rising exponentially, retailers are under pressure to prove the worth of their physical stores and make them work harder. Gone are the days of consumers relying solely on a bricks-and-mortar to enjoy a luxury shopping experience. Barney’s potential filing for bankruptcy underscores the need for department stores and the wider retail industry to truly justify their existence as intermediaries of brand experience.

Brand experiences at your fingertips

In times gone by, highly sought after luxury brands were only available through physical store visits, primarily via department stores. However, as more brands have gone directly after the customer, the role of physical stores in the buying journey has changed. 

In the wake of digital shopping, consumers can have the same experience at their fingertips, be it via a tablet, laptop or mobile. 

Luxury goods are now so much more accessible to consumers. The proliferation of technology means that luxe items not only are available at consumers’ fingertips, but also in every major Westfield and international airport, where they provide a consistent, almost regal experience that far outstrips the dimly lit, big box department stores of yesteryear.

While many high-end shoppers still demand the personal touch of a physical retail experience, foot traffic is undeniably dwindling. ShopperTrak data indicates foot traffic in Australian retail stores saw its worst December on record in 2019, followed by a 4 per cent fall in the first week of January, year on year.

Retailers need to be smarter about integrated shopping, by mixing offline and online channels and optimising the physical space bricks-and-mortar stores possess.

Known as an omnichannel retail experiences, brands keeping up with market changes have adopted a multi-faceted and seamless approach to marketing, selling and delivering goods to consumers all the way from social media campaigns to same-day delivery.

Physical stores not only act as customer experience centres, they can also act as hubs for customer service, click and collect or dispatch centres for online orders.

But that’s not to say luxe brands can only thrive in offline environments.

The rise of online luxury

The Undone is a prime example of a successful online luxury retailer in the Australian market. Born from the fashion blogger Harper and Harley, the site offers a minimal, curated selection of ‘elevated wardrobe staples’ representing Australia’s rising designer brands.

Rather than investing in rental space, The Undone focuses on curated selections of current-season trends through high-quality editorial content. They offer express shipping and same-day delivery in the Sydney metro-area, returns and a live chat to offer advice on sizing through to styling.

Digital marketplaces have filled the void that ageing department stores are leaving in a new generation of retail experiences. Even if department stores follow fast on evolving their online presence, the lack of additional services offered – like on-demand delivery, personalised website journeys and valuable content – makes their competitive advantage unclear.

While Barney’s next move hangs in the balance, it’s clear that if bricks-and-mortar stores want to not only survive, but thrive, they need to create a strong presence in the digital retail space offering unique customer service experiences.

The same could be said for the likes of David Jones and Myer who are at the mercy of the rise of omnichannel shopping. Unless there is significant digital transformation in this space, the role of large format,  luxury goods retailers will continue to come under threat.

Rob Hango-Zada is the co-founder and joint CEO of retail logistics platform Shippit.

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