Case 10.2: Barney’s New York: A Case of “Shop and Frisk.”

Please respond in writing to the issues presented in this case by preparing two documents: a communication strategy memo and a professional business letter.

In preparing these documents, you may assume one of two roles: you may identify yourself as a Barney’s New York senior manager who has been asked to provide advice to CEO Mark Lee regarding the issues he and his company are facing. Or, you may identify yourself as an external management consultant who has been asked by the company to provide advice to Mr. Lee.

Either way, you must prepare a strategy memo addressed to Mark Lee, Chief Executive Officer of the company, that summarizes the details of the case, identifies critical issues, discusses their implications (what they mean and why matter), offers specific recommendations for action (assigning ownership and suspense dates for each) and shows how to communicate the solution to all who are affected by the recommendations.You must also prepare a professional business letter for Mr. Lee’s signature. That document should be addressed to all Barney’s employees, explaining the actions the company is taking. If you have questions about either of these documents, Case 10.2: Barneys New York
A Case of “Shop and Frisk”
We are not going to live in a town where our money is considered suspect and everyone else’s money is
respected.
Reverend Al Sharpton, political activist, founder of the National Action Network
Introduction
As the 2013 holiday season approached, Barneys New York (Barneys) quickly found itself embroiled in
controversy. Within the span of a few days, Barneys CEO Mark Lee’s attention shifted from ensuring
record-breaking holiday sales to a lawsuit, an Attorney General’s investigation, a potential boycott and
his company’s biggest holiday contract hanging in the balance. News media and political activists labeled
Barneys a “racist culture.”1 Lee needed to find a way to regain the trust of customers and the public at
large; the Barneys brand, and likely his job, depended on it.
The Incidents
On the evening of April 29, 2013, Trayon Christian, a black, 19-year-old college student, entered the
Barneys flagship store on Madison Avenue in New York City and purchased a $350 Salvatore Ferragamo
belt with money he had earned from a work-study program.2 Shortly after leaving the store, Christian
was stopped by New York Police Department (NYPD) detectives and was questioned, handcuffed and
taken to a local police precinct.
According to Michael Palillo, Christian’s attorney, his client was “told [by police] that his identification
was false and that he could not afford to make such an expensive purchase.”4 Christian also maintained
that officers told him that someone at Barneys had called the police to report that his debit card was
fake.5
Accounts of the incident differ regarding how long Christian was detained by police. An NYPD
spokesperson claimed that he was detained for only 42 minutes, while Christian said that he was kept in
a holding cell for approximately two hours before being released.6 On October 21, 2013, nearly six
months later, Trayon Christian filed a lawsuit against Barneys and the NYPD in state court seeking
unspecified damages and alleging, among other things, unlawful racial profiling.7 The lawsuit quickly
grabbed media attention.
Media coverage surrounding Christian’s lawsuit prompted Kayla Phillips, a black, 21-year-old nursing
student, to come forward with her own racial discrimination grievances against Barneys and the NYPD.
Phillips claimed that on the evening of February 28, 2013, she used a temporary ATM card to buy a
$2,500 Céline bag at the same Barneys flagship store on Madison Avenue that Christian claimed illegally
profiled him.8 Phillips asserted that after she left the store with her new bag, four plain-clothed officers
swarmed and “manhandled” her at a nearby subway station,9 blocking the turnstile in front of her,
pushing her up against a wall and demanding to see her identification.10 She also maintained that
detectives “kept asking how [she] could afford this expensive bag and why had [she] paid for it with a
card with no name on it.”11 Although never charged with a crime, Phillips expressed her intent to sue
both Barneys and the NYPD over the encounter. In fact, less than 24 hours after Trayon Christian filed
his lawsuit, Phillips filed a $5 million notice of claim with New York City, formally conveying her intent to
sue the NYPD.12
Barneys
Barneys is among the oldest and most prestigious of luxury department stores in the U.S. Barney
Pressman opened the first Barneys New York store in 1923 at 17th Street and Seventh Avenue in
Manhattan with $500 obtained from pawning his wife’s engagement ring.13 His philosophy was to offer
the lowest price possible on the most popular brands. Barneys sold clothing at discounted prices by
purchasing showroom samples, retail overstocks and manufacturers’ closeouts at auctions and
bankruptcy sales. It also offered free alterations and free parking to attract customers.
Barney’s son, Fred Pressman, took over the company in 1958, and in the 1970s changed the direction of
the company from bargain store to boutique. He slowly transformed the store from a discount house to
a purveyor of fine Italian designers, but continued to offer the same amenities, such as free alterations,
that initially gave Barneys its reputation.14
In 1993, Barneys abandoned its Seventh Avenue flagship, moving to the current 226,040-square-foot,
nine-story, Kohn Pederson Fox-designed Manhattan store on Madison Avenue at East 61st Street. When
it opened, it was the largest store built in New York City since the Great Depression. The store is
currently located in a 22-story building with 14 floors of offices above it. With its marble mosaics and
gold-leaf ceilings, its value is estimated at $270 million.15
Headquartered in New York, Barneys owns flagship stores in New York City, Beverly Hills, Chicago and
approximately 40 other locations throughout the U.S. and Japan. The company filed for Chapter 11
bankruptcy in 1996 and was forced to close many of its boutique stores. In 2004, the Pressman family
sold its less-than-2 percent remaining ownership interest to the Jones Apparel Group, which in turn sold
the company in 2007 to Dubai-based private equity firm Istithmar PJSC. In 2012, a majority of the
company was acquired by Perry Capital.16 Barneys is a privately held company.
Department Stores
Department stores retail a broad range of general merchandise, such as apparel, jewelry, cosmetics,
home furnishings, general household products, toys, appliances and sporting goods. The origins of the
modern-day department store can be traced back to the Industrial Revolution at the turn of the
nineteenth century. This period was characterized by a rapidly expanding economy and a resulting
increase in the size and wealth of the middle class. The rise in prosperity and social mobility increased
the number of people with disposable income and transformed shopping into a leisure activity enjoyed
by the masses rather than a chore performed by the lower class. Department stores were established to
serve this new market.17
Consumer spending and fashion trends drive demand in the department store industry. By the early
2000s, department stores had lost their cutting-edge appeal to specialty shops and brand-specific stores
that could move in and out of fashion trends quicker and more efficiently. In addition, competition from
e-commerce and discounters accelerated their decline. During the five years leading up to 2013,
industry revenue fell an average of 4 percent per year; revenue was expected to continue falling over
the next five years, though at a slower rate.18
Today, the industry is highly concentrated with the top eight companies generating about 95 percent of
industry revenue.19 However, there appears to be a sharp divide between department store chains that
are ready to embrace change, and those unwilling or unable to reinvent themselves. The latter retailers
will likely disappear from the industry, either through consolidation or bankruptcy.
Retail Loss Prevention
Retail loss prevention is a set of policies and procedures employed by retail companies to preserve profit
by preventing the loss of inventory or monies due to theft. U.S. retailers lose an average of 1.3 percent
of sales through preventable business losses caused by deliberate or inadvertent human action,
commonly known as “shrink.” In 2013, shrink cost U.S. retailers approximately $42 billion. Of that $42
billion, 37 percent, or $15.5 billion, was lost to shoplifting.20
Retail theft is even more of a problem in struggling economies. As a growing share of the population
struggles to meet its financial obligations, the occurrence of retail theft rises. Shoplifters generally target
expensive and popularly branded items. These items include perfume, cosmetics and small leather
products, all of which are sold in department stores.21 Traditional approaches to retail loss prevention
include visible security measures coupled with various forms of technology, such as closed-circuit
television (CCTV) and radio-frequency identification (RFID) sensors. Most department stores have a
department dedicated to retail loss prevention, which is staffed with investigators sometimes referred
to as Loss Prevention Officers (LPOs). It is also common for a department store to have policies and
procedures in place to deter and identify retail theft.
Similar Scandal at Macy’s
On October 25, 2013, just days after Trayon Christian and Kayla Phillips publicized their experiences at
Barneys, Robert Brown, a black actor who was at the time playing a role as a musician on the HBO series
“Treme,” filed a lawsuit in state court against Macy’s. He alleged that staff and police officers in the
Macy’s flagship store in Herald Square, New York City, had racially profiled him. Brown claimed that on
June 8, 2013, he was “paraded” through that store in handcuffs and placed in a holding cell after
purchasing a $1,350 gold Movado watch as a gift for his mother.22 Officers reported suspicion that
Brown’s credit card was fake and that the identification he had provided to them was false.
According to Brown, officers gave him conflicting reasons for their involvement. One officer allegedly
told Brown that a suspicious Macy’s employee had called the police, while another officer told him that
the NYPD was already conducting a sting operation in the store in pursuit of a crooked clerk at the time
of his apprehension.23 After being released with no charges, Brown voiced his frustration on his Twitter
account, tweeting statements that criticized both Macy’s and Barneys. For example, one tweet read: “If
anyone knows Trayon Christian’s email please DM me. #Barneys #falsearrest.”24
On October 27, yet another black shopper came forward with racial profiling allegations against Macy’s.
Art Palmer, a 56-year-old fitness trainer from Brooklyn, told the media that after he had purchased $320
worth of Polo dress shirts, he was surrounded and questioned by police officers only a few blocks from
the Macy’s store in Herald Square.25
Allegations of racial profiling are nothing new for Macy’s. In 2005, the company paid $600,000 to settle
claims that a number of its New York locations had profiled blacks and Latinos, unlawfully targeting
those groups as a strategy to prevent shoplifting.26
Barneys Responds
On October 23, 2013, two days after Trayon Christian filed his lawsuit against the company, Barneys
posted the following statement on its Facebook page:
The following statement can be attributed to a Barneys New York spokesperson:
Barneys New York typically does not comment on pending litigation. In this instance, we feel compelled
to note that after carefully reviewing the incident of last April, it is clear that no employee of Barneys
New York was involved in the pursuit of any action with the individual other than the sale. Barneys New
York has zero tolerance for any form of discrimination, and we stand by our long history in support of all
human rights.27
This initial statement, which received over 1,500 comments from Facebook users within the next few
days, was met with outrage and disappointment. Many users criticized the statement for its lack of an
apology, and a substantial number of comments vowed to never shop at Barneys again.
One day later, Barneys posted a statement signed by CEO Mark Lee on the company’s Facebook page
(see Exhibit 10.1 at the end of this case). In that post, Lee apologized to customers and announced that
Barneys had retained civil rights expert Michael Yaki, a member of the United States Commission on Civil
Rights, to assist in a review of company practices and procedures. Lee also noted that Barneys had
reached out to community leaders to discuss the issue. This second post received a similar negative
reaction from Facebook users. It received over 800 comments, with users voicing much of the same
criticism that was directed at the company’s initial statement.
The NYPD Counters
In response to these allegations of racial profiling, both Barneys and Macy’s initially, either directly or
indirectly, took the stance that NYPD officers had acted without the direction of store employees.
However, NYPD spokesman John McCarthy countered those accusations by saying that in three of the
four incidents, officers were acting on information that was provided to them by store employees.28
McCarthy also confirmed that, “in both instances, NYPD were conducting unrelated investigations”
within the stores.29
The Attorney General Steps In
The high level of public attention given to these possible examples of racial profiling by local department
stores prompted the New York State Attorney General’s Office to launch an investigation. On October
28, 2013, Kristen Clarke, Bureau Chief of the office’s Civil Rights Bureau, sent a letter to Barneys CEO
Mark Lee requesting, among other things, that Barneys provide: (1) its policies and procedures for
stopping, detaining and questioning customers; the number of stops and detentions of customers of
each race within the past year; (3) its policies and procedures for contacting law enforcement regarding
customers; and (4) any training materials concerning the aforementioned policies and procedures (see
Figures 10.1 and 10.2). A similar letter was sent to Peter Sachse, Chief Store Officer of Macy’s, that same
day. Both letters requested that the recipient contact the New York State Attorney General’s Office
within the next two days to schedule a meeting in order to further discuss a potential pattern of racial
profiling.
The Grand Larceny Problem
Grand larceny, which in New York is theft of property valued over $1,000 or theft of a debit or credit
card,30 is a major problem in New York City, accounting for more than 75 percent of the crime in the
precincts that have jurisdiction over the Barneys and Macy’s stores at issue.31 Two years prior to these
incidents, grand larceny rose 31.6 percent in the NYPD’s Midtown North precinct, an area that includes
the Macy’s flagship store in Herald Square; grand larceny also increased nearly 4 percent in the NYPD’s
Upper East Side 19th precinct, which houses the Barneys flagship store on Madison Avenue.32
Furthermore, at the time of the Trayon Christian allegations, NYPD officials claimed they had received 53
grand larceny complaints within the last year for credit card fraud from the Barneys store on Madison
Avenue, leading to 47 arrests.33
Stop and Frisk in New York City
In 1968, the Supreme Court of the U.S. endorsed the use of brief seizures by police officers, commonly
known as the “Terry Stop.” Pursuant to the Court’s decision in Terry v. Ohio,34 officers may lawfully
initiate a “stop” if they have “reasonable, articulable suspicion that criminal activity is afoot.” In making
such a stop an officer may frisk, or conduct a cursory search of the person, if there is reasonable
suspicion that the person is armed and dangerous. Reasonable suspicion is a lower standard than
probable cause, which is the standard required to make a lawful arrest. In the mid-1990s, the NYPD
began using stop and frisks intensively, sparking a heated debate over its reliance on that crime
prevention strategy. Consequently, in 1999, the New York State Attorney General’s Office ordered the
first comprehensive empirical analysis of the NYPD’s stop and frisk practices. Since that initial analysis
was conducted, stop and frisks by the NYPD have steadily increased over the years, with city officers
conducting 97,000 stop and frisks in 2002.36 That number rose to nearly 700,000 stops in 2011. All of
these stops were part of the city’s strategy to stop and frisk suspicious persons, primarily with the aim of
locating illegal firearms and deterring their possession and use. Of those stops initiated in 2011, only 12
percent uncovered evidence of wrongdoing. In addition, an overwhelming majority (90 percent) of the
stops recorded that year were minority males.37 Approximately 83 percent of the stops between 2004
and 2012 targeted blacks and Hispanics, despite those populations making up approximately 50 percent
of the city’s residents.38
The disproportionate racial impact of these stops led to public and political scrutiny, ultimately
prompting the filing of a federal class action lawsuit in United States District Court against New York City
and the NYPD as the city’s agent.39 The suit alleged violations of the Fourth and Fourteenth
Amendments of the Constitution. Following a two-month bench trial, on August 12, 2013, Judge Shira A.
Scheindlin ruled in a 195-page decision that the stop and frisk tactics of the NYPD had violated the
constitutional rights of minorities. Judge Scheindlin ordered various remedies, including, but not limited
to, an immediate change to certain policies and activities of the NYPD, a trial program requiring the use
of body-worn cameras in one precinct per borough, and the appointment of an independent monitor to
ensure that the NYPD’s use of stop and frisks be carried out in accordance with the Constitution as well
as the court’s opinion.40
Public Reaction
Concurrently, as Trayon Christian’s lawsuit was filed, Reverend Al Sharpton, a prominent political activist
and founder of the National Action Network, conducted a rally at National Action Network headquarters
in Harlem, New York City, where he announced that he would be meeting with Barneys officials the
following Tuesday. At that rally, Sharpton also threatened a boycott if the store’s response to racial
profiling allegations were to be inadequate.41
Also, on October 30, 2013, a group of protestors gathered outside of the Barneys storefront on Madison
Avenue to express their outrage over the shop and frisk scandal. Although only consisting of a few dozen
demonstrators, these sign-toting activists purportedly wanted to deliver a message to Barneys CEO
Mark Lee, giving him two days to respond.42
Jay Z Contract
In late September of 2013, Barneys announced that it had partnered with hip-hop artist Shawn “Jay Z”
Carter for a collection of limited-edition products. The partnership was called “A New York Holiday,” and
it was the latest in a series of high-profile holiday promotions undertaken by Barneys. The line of
products would be named BNY SCC (short for Barneys New York and Shawn Corey Carter, respectively)
and would feature holiday pieces created in collaboration with Jay Z and luxury labels such as Balmain,
Lanvin and Balenciaga. Barneys announced that 25 percent of the sales from the project would go
toward the Shawn Carter Scholarship Foundation, a charity providing educational opportunities to
disadvantaged youth.43 Similar projects had led to record-breaking December sales at Barneys, and the
BNY SCC contract was estimated to be worth millions of dollars. The collection was scheduled to hit
stores on November 20, 2013.44
Shortly after the “shop and frisk” allegations attracted media attention in October, Jay Z faced pressure
from his fans and civil rights leaders to end his upcoming holiday partnership with Barneys. In following
weeks, more than 50,000 people signed a petition that called on Jay Z to end his partnership with the
department store.45 On October 26, Jay Z released a statement in which he said that he was reserving
judgment on Barneys until he learned more about the allegations, while also emphasizing the good
cause to which a portion of the partnership’s proceeds would be directed.