Earlier this week Barneys filed for chapter 11 bankruptcy, which allows the company to reorganize its debts before pursuing a sale. While the retailer first entered bankruptcy in 2012 and also came close to filing in 1996, the latest instance is both more telling and fatal. Barneys will close all but seven out of its 13 namesake stores, as well as nine warehouse stores (these should have been a bright spot since Nordstrom Rack is Nordstrom’s fastest-growing business). All told, the store closures will save the company $2.2 million per month.  

Barneys had almost $800 million in 2018 revenue, with $200 million in outstanding debt, according to the bankruptcy filing, which is down from the $500 million in debt it held between 2007 and 2012. Today, the company has between five to ten thousand vendors that it owes somewhere between $100-500 million. 

In the months leading up to the bankruptcy, articles pointed to the recent rent hike for the retailer’s flagship Madison Avenue store—it doubled from $16 million to almost $28 million—as the key factor that sent the company into a tailspin and warranted the restructuring. But for a retailer with over $800 million in revenue, this relatively small cost increase is not the reason the company is in bankruptcy today, especially because saving only $2.2 million a month by closing 15 stores doesn’t move the needle. While the debt load was also an issue, the company still had cash to invest in rebuilding its business for the twenty-first century, but it didn’t spend wisely.  

Barneys is the latest in a long line of legacy department stores that ignored how the internet reshaped the consumer landscape and did too little, too late to structurally change their businesses. Every department store operating today needs to answer a crucial question: Why would someone buy from me versus someone else? The answer should inform every facet of a department store’s operations. While Barneys has many issues—it lacks a unique product assortment, has declining levels of service and increasing competition from digitally-native department stores such as Yoox, Net-a-Porter, Farfetch, Matches Fashion, Moda Operandi and many others—Barneys had one key problem that triggered all of its others: its stores were way too big. 

This matters for a simple reason: The internet became the largest department store in the world by democratized access to an infinite number of products. As a result, pairing fulfillment centers with an ecommerce store now provides more product selection and inventory depth in a much more economical way than a legacy department store can provide. This enables—and frankly forces—traditional department stores to radically shrink the size of their physical stores, since they no longer need to stock everything on the sales floor. While this is a drastic change, there is plenty of opportunity if a company can get physical stores, warehouses and ecommerce to all work in tandem and be right-sized for the future. But if any of these elements are out of balance, as they are with Barneys, it spells trouble. 

Furthermore, store size informs the customer experience, since a company needs to fill and service the space it inhabits. Creating a unique offering in 5,000-10,000 square feet is a lot easier and economical than trying to do so with 150,000 square feet. Barneys Madison Avenue store is 275,000 square feet, its Chelsea store is 55,000 square feet, and its Co-Op store at The Grove in LA—a street-level concept that will now be closed—is 9,200 square feet. By comparison, the new Neiman Marcus at Hudson Yards is 188,000 square feet and the new Nordstrom’s Men’s Store near Columbus Circle is 47,000 square feet, both of which opened in the last two years. While the Neiman Marcus store has mixed performance right now and the Nordstroms Men’s Store is still maturing, it’s simply easier to make a small store succeed economically and experientially. While department stores are slowly realizing this, Barneys decision to cling on to its cavernous spaces for too long drastically reduced the room it had to maneuver. It wasn’t the cost of rent itself—it was the size of its stores.  

While Barneys is closing its smaller LA store, which could have been a blueprint for the future, it still has plans to open its 50,000 store at the new American Dream mega-mall in New Jersey. This is a small ounce of proof that Barneys knows its future will require a much smaller footprint than its past. Even so, the stubbornness to hang on to its Madison Avenue Flagship—because it’s “iconic”—is a classic case of a legacy player failing to change its business before the market forces change upon it. Barneys, like many of its rivals, banked on the elegance and elitism of its brand to overcome consumer shifts and its own significant shortcomings, which was never going to be enough. Instead, it should have shrunk its footprint and invested in ecommerce a decade ago before it ever took on $500 million in debt, which only limited its optionality. 

While Barneys’ future as an independent business looks bleak, there is upside for some select buyers. Amazon, which has struggled to figure out fashion for a number of reasons, could snap up Barneys like it did Whole Foods, using it as its high-end brand extension to take over a category where it lacks expertise and recognition. Amazon could buy Barneys on the cheap (it reportedly looked at buying the company a few years ago) and gain access to both Barneys’ digital and physical properties. 

While there’s a big difference between Barneys and Whole Foods—the latter was performing much better as an independent business and also was a gateway to grocery, which is a much bigger market than fashion—Amazon’s fulfillment and digital capabilities are exactly what Barneys needs to regain its footing. If the price is right, the cost of Amazon taking a chance is low enough to justify the risk. One person’s trash can always be another person’s treasure.