Luxury department store chain Barneys files for bankruptcy

NEW YORK • Barneys NY, the luxury department store chain that once defined a certain Manhattan creative cool, confirmed weeks of speculation by announcing at midnight on Monday local time (noon yesterday, Singapore time) that it was seeking bankruptcy protection in order to restructure its business and pursue a sale.

To stay afloat during its Chapter 11 proceedings, the retailer, which is controlled by hedge fund Perry Capital, has struck a deal for US$75 million (S$104 million) in additional financing with two firms, Gordon Brothers and Hilco Global.

It plans to close 15 of its 22 locations, including stores in Chicago, Seattle and Las Vegas, as well as most of its outlets.

However, its Madison Avenue store in Manhattan, the building that has become synonymous with the brand name, will stay open, and its nine-floor footprint will remain the same.

The company plans to move inventory and some employees from its shuttered locations into the seven remaining stores. It denied that this was in preparation for a liquidation of stock.

"Our goal is to continue serving our customers in key flagship markets and globally through Barneys.com for the long term," Ms Daniella Vitale, the store's chief executive, said in a statement.

"While difficult decisions had to be made, this process will allow us to reset our financial position and maintain our longstanding vendor relationships."

Known originally for its racks of eclectic, conceptual black homeware, and the willingness to follow its own aesthetic compass rather than trends, Barneys was a magnet for new designers. It was a place for consumers to discover talent and a harbinger of the cutting edge. Its singularity and willingness to take chances on new names gave it the power to demand exclusives and a certain - perhaps inflated - sense of its own importance.

The Madison Avenue location, though, is now the immediate cause of the retailer's troubles.

Barneys does not own its real estate, unlike some retailers. Saks, for example, owns many of its stores, including its famous Fifth Avenue location.

In August last year, an arbiter ruled that annual rent at Barneys' Madison Avenue store could be raised to US$30 million from US$16 million.

The ruling, combined with a slowdown in foot traffic and rent increases at other stores, puts enormous pressure on the company. Madison Avenue accounted for a third of the company's revenue and, at its height, brought in US$300 million in yearly sales. For the last year and a half, however, sales have been falling.

For months, Barneys has been in talks with potential partners who could inject fresh capital into its coffers. But many of them wanted to be protected in case Barneys failed, making it difficult for the retailer to secure the capital before filing for Chapter 11, according to an anonymous source.

Barneys plans to use the funds to pay off its financial commitments and has acknowledged that it might have to transition to a "cash on delivery" relationship with brands.

Vendors and designers had become increasingly anxious as Barneys' troubles were reported, and some started withholding orders from the stores because they feared not being paid.

They said a lack of communication from store management about what Barneys was planning to do had contributed to the situation.

Barneys now plans to engage in a formal sales process. It said multiple parties - but no other department store groups - had expressed interest and that one offer had fallen through due to lack of time.

"We look forward to executing a sale that carries Barneys into its next chapter," Ms Vitale said.

This may include using the Madison Avenue store to offer more "experiences" to shoppers - including more restaurants, beauty services and entertainment - in the hope of getting more people to walk through its doors.

Barneys is also moving ahead with previously announced openings in the Bal Harbour shops in Miami Beach, the American Dream Mall in New Jersey and a smaller Las Vegas location.

Whether the Madison Avenue store - once a jewel in New York's shopping crown - becomes a turnaround fairy tale or the poster child for the current woes of the retail world is now the question.

Once-feted stores like Henri Bendel and the Lord & Taylor flagship on Fifth Avenue closed just this year, and there are a raft of empty storefronts in previously desirable locations.

"The real issue is whether, after the dust has cleared, there will be a buyer interested in purchasing the name and remaining goodwill, which would allow Barneys to continue operations either at the seven remaining locations or elsewhere," said Mr Eric Snyder, chairman of the bankruptcy department at Wilk Auslander, a New York law firm.

Barneys has been through Chapter 11 before. In 1996, the store's original owners, the Pressman family, filed for protection after they fell out with their investors, the Japanese department store group Isetan. However, the retail landscape was very different then.

"It was hard on everyone in the store, the vendors and the customers," said Ms Julie Gilhart, who was the fashion director and senior vice-president of Barneys at the time.

"But post-bankruptcy, I think we did some of our best creative work because we had no budgets and had to think out of the box.

"I believe the same could apply now," she continued. "But it's more challenging with online shopping powered by social media, and alternative shopping platforms which didn't exist in 1996."

NYTIMES

A version of this article appeared in the print edition of The Straits Times on August 07, 2019, with the headline 'Luxury department store chain Barneys files for bankruptcy'. Print Edition | Subscribe