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The Rise and Fall of the House of Barneys - Joshua Levine


mjohn707
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[amazonsearch]The Rise and Fall of the House of Barneys[/amazonsearch]

 

Barney Pressman was a hard-boiled type who, according to family legend, pawned his wife’s engagement ring to raise the money to start his business.  He opened Barney’s Clothes in 1923 as a retailer of used men’s suits.  Even by the cutthroat standards of the New York garment trade Barney was considered an aggressive operator.  He used to brag about a coup from his early career where he procured a collection of suits for free from a recent widow, and he was not above using sly sales tactics if it made him an extra sale or two.  He even once hired a group of models to walk up and down Seventh Avenue handing out his flyers wearing nothing but wooden barrels.  Despite his rough edges, Barney was a good businessman.  He liked to remind his salesmen that they were selling his store first and his product second.  His employees respected him, his suppliers knew that once the bargaining finally stopped he paid invoices promptly, and he never allowed a customer to leave the store unhappy with a purchase.

 

As the business grew, Barney became one of the first people involved in discount retailing.  At the time suit manufacturers were very powerful and refused to sell to anyone involved in discounting.  Barney was unusually persistent however, and managed to locate enough grey market goods to become a thorn in the side of his upmarket New York competitors.  Because of careful buying and tightly controlled costs he could make money on a gross sales margin of 30% while his competitors required margins of 36%.  His store did well enough that some manufacturers quietly broke rank and began to sell directly to him, occasionally even with the stipulation that he remove all the labels that identified their brands.  As his sales continued to grow, even the holdouts were forced to open accounts with him, although they complained that he was destroying the industry.  With a reliable supply of inventory, his natural gift for self-promotion, and an army of salesmen trained in his own hard selling methods, Barneys Clothes grew sales to over $6 million by the time of his retirement in 1964.  Barney was a great success and was finally, as he had advertised for years, the “cut-rate clothing king.”

 

In 1946, after a little convincing, Barney’s son Fred joined the business. Fred had different interests than his father however.  While Barney’s strength was sales, Fred was more interested in fashion and merchandising.  Fred learned from his father how to haggle when purchasing for the store, but he was also willing to pay more for better quality merchandise.  In addition, nothing about the store displays or the products could escape Fred’s eye.  Despite his colorblindness, he had unusual talents like the ability to calculate the thickness of a fabric with just a few touches.  He would count the number of stiches in the inside seam of a pair of gloves to make sure that their quality was up to his standards, and stay after work experimenting with different arrangements of the store displays.  He also demanded a similar attention to detail from all of his buyers and department managers.  With Fred in the business, Barney’s began to attract a younger, more style conscious clientele.

 

After Barney’s retirement, Fred realized that the country was changing.  In 1951 the first fashion show was held in Florence, and by 1955 the shows came to America.  Pierre Cardin, an Italian-born French designer, created his first menswear collection in 1960, and had over 900 outlets selling his styles a few years later.  The success of Cardin’s licensing strategy began a structural change in the industry towards the separation of manufacturing and design.  Fred recognized this change and knew he needed to update his merchandise to keep the store competitive, but his suppliers were producing the same designs that they had made for decades.  He tried suggesting changes to his best suppliers, but they were hamstrung by union work rules and insisted that his ideas would drive manufacturing costs to uneconomical levels.  Unable to get what he wanted from America, Fred turned instead to Italy.

 

In the 1960s the manufactured suit business in Italy was undeveloped.  Although Italian men purchased a new suit once every two years on average, seventy percent were still being hand sewn by over 100,000 Italian tailors.  As Italy rebuilt after the war, these tailors gave Italian factories the advantage of producing superior cloth.  In addition, tailors in Rome had begun to experiment with slimmer fitting designs and unusual colors. Fred worked with Italian fashion designers to edit their styles for the American market.  Satisfied with the designs, he then signed exclusive distribution deals for the New York City area and arranged the manufacturing by Italian textile mills himself.  The result was that he could source an Italian suit for about $100, and the suit would sell for $300 or more in America.  In 1970 Fred spent $3.4 million on an expansion of the store.  He called the expansion International House, and filled the space with an inventory of 4,000 imported Italian suits.  Fred’s gamble paid off, and by 1975 sales in the store increased to $34 million, up almost six times in a decade.  He was turning over inventory between 3 ½ and 4 times a year while his competitors turned inventory once a year, and his gross margin were 55%-60%, exceptionally high in the industry.  Faced with new competition, American suit manufactures began to fail in large numbers.  In the 1960s there were about 1200 manufacturers doing between $10 and $100 million in sales each.  By the end of the 1970s, there were only 200 firms left in business and over one-third of the suits sold in America were imported.  The industry’s financial trouble did not affect Barney’s however, and by the early 1980s the store was earning between $5 and $6 million a year in profit.

 

Fred’s son Gene joined the business in the early 70s, and by 1986 he and his brother Bob were in control of company.  Under their direction Barney’s began series of complicated business deals that would lead the company to declare bankruptcy in January 1996, crushed by the weight of $320 million in debt and lawsuits from their Japanese partner.  In the bankruptcy the Pressmans lost control of the store they had run for 73 years.  More than half of Levine’s book is devoted to explaining how the third generation’s overconfidence and inattention, combined with borrowed money and bad accounting wrecked the work of the first two generations, despite the significant momentum the business enjoyed.  Levine is a talented writer and the book is well researched.  I would recommend it to anyone interested in the history of retailing and family business. 

 

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