The collapse of Barney's, a legendary Manhattan clothing retailer, will cost its owners plenty--but its bankruptcy offers valuable lessons that won't cost you a penny, just the time it takes to read this post.

Barney's was a high-end Manhattan clothing retailer founded in 1923 by Barney Pressman "as a cut-price men's retailer," according to the New York Times. By November 1, 2019, Barney's had filed for a second bankruptcy--the first one took place in 1996--and its high-end inventory was in the process of being liquidated.

During the intervening 94 years, generations of Pressmans turned Barney's into "an elite and expensive purveyor of New York style." After its first bankruptcy, a 2010 renovation swapped out its distinctive "fish tanks and mosaics" with generic marble that made it look just like its rivals, noted the Times.

In 2012, a former hedge fund manager took control but remained "hands off." And ultimately, Barney's also "struggled with the move to online retail, perhaps too obsessed with the mystique of its own influence to understand influencer culture," the Times reported. Due to high rents locked in years ago, the rise of online ultimately proved fatal, as rents rose faster than profits from selling clothing. 

I see four critical business lessons in this story.

1. Succession in a family business can be fatal

Family businesses are famous for going from shirtsleeves to shirtsleeves in three generations. What this means is that if the founding entrepreneur creates a successful business, sometimes the children of that entrepreneur can succeed in making the business even more successful.

But the founder's grandchildren are often so coddled by their parents that they lack the drive and talent needed to keep the business going. While I don't know if that contributed to Barney's first bankruptcy, there is an important lesson for founders: Don't put a family member into your business unless that person is more qualified than an outsider would be.

This is a lesson I learned well from interviewing the CEO of Polar Beverages, a Worcester, Massachusetts-based purveyor of seltzers, several times. As fourth generation CEO Ralph Crowley told me, in developing the fifth generation of Crowleys, he had a strict policy that gave his children an opportunity to prove their mettle--without any guarantee that they would ultimately grab the brass ring.

As he said, "I have a son in management who worked for Nestlé for 10 years and a daughter who worked at New Balance before coming here. But I won't hire a family member unless they have energy, enthusiasm, fire in the belly, and an understanding that what worked in the past may not work in the future."

2. Only the paranoid survive

Crowley's comment brings to mind a favorite phrase--which is the title of a book by former Intel CEO Andrew Grove: Only the Paranoid Survive. The way I would put this idea is that in order to be successful in this rapidly changing, highly competitive world, a CEO must maintain intellectual humility.

This means always assuming that what worked in the past may not work in the future. It looks to me that Barney's may have been so caught up in the idea that it was a Manhattan style leader that it did not need to pay attention to what was going on outside the company. Barney's seems to have lost touch with its customers and the way that social media was influencing their purchasing behavior.

3. Expect obsolescence 

This does not mean that you should always operate in fear of new technology and upstart competitors. It does mean, however, that you should expect that eventually your business strategy will become obsolete if you do nothing to change it.

So you should always sniff out weak signals of change--fast-growing upstart competitors, powerful new technologies, and evolving customer needs--to which your company must respond in order to strengthen your customer relationships.

For example, social-media celebrities influence many consumers. Barney's should have been noticing such trends when they were first starting to take off.

4. Experiment with new ways of operating

Just noticing change is not enough. You must do something to capture its opportunites and avoid its threats.

Barney's could have experimented with its business model to take advantage of social media, ordering online, and picking up at a store. It should also have lowered its costs by shedding some of its expensive real estate.

Take these four lessons from what happened to Barney's, and your business will be better off. If not, you could end up exactly where Barney's is today.

Published on: Nov 6, 2019
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