Luxury-fashion retailer Barneys files for bankruptcy help
Barneys New York Inc. on Tuesday filed for bankruptcy protection from creditors and laid out plans to close most of its stores after getting squeezed by rising rents and fewer visitors to its luxury-fashion stores.
The Chapter 11 filing in New York allows the department-store chain to stay open while it seeks to sell a slimmed-down business and to negotiate with its landlords.
The company, owned by billionaire investor Richard Perry, said it has secured $75 million from affiliates of Hilco Global and Gordon Brothers Group to help meet its financial commitments. Authentic Brands Group LLC is one party in discussions with the retailer to potentially purchase assets including the company’s name brand and trademarks.
“Like many in our industry, Barneys New York’s financial position has been dramatically impacted by the challenging retail environment and rent structures that are excessively high relative to market demand,” Chief Executive Officer Daniella Vitale said in a statement Tuesday.
Barneys’ proposed bankruptcy loan would allow it to repay $50 million of debt and provide $25 million to help facilitate a sale in the next 60 days, court papers show. Before Barneys arranged that financing, one existing lender — TPG Specialty Lending Inc. — proposed $10 million of new financing that would have required going-out-ofbusiness sales at all but two Barneys stores, other court papers show.
The bankruptcy had been telegraphed for several
weeks as the retailer sought to avert Chapter 11 by finding a partner or buyer. Barneys said its stores on Madison Avenue and downtown New York City will remain open, as well as locations in Beverly Hills, Calif.; San Francisco; and Boston.
The company employs 2,300 people, according to court papers.
Two Barneys Warehouse locations will also stay open, and online operations will continue. Among the locations scheduled for closure are stores in Chicago, Las Vegas and Seattle, in addition to five smaller-concept stores and seven Barneys Warehouse locations.
“Aside from the high price tags on goods, this department store faces the same challenges as any department store,” George Angelich, partner at the bankruptcy law firm Arent Fox, said in an interview before the filing. As rent costs increase and consumers shift to buying online, “it becomes very challenging to maintain profitability,” said Angelich, who isn’t involved in the case.
Founded as a men’s retailer in 1923 in Manhattan, Barneys morphed into a high-fashion icon for women and men by the 1970s. It went bankrupt once before, in 1996, after a falling out with a Japanese partner.
Earlier this year, Barneys sought to downsize the Madison Avenue store to reduce the annual rent, which tripled this year, Bloomberg News previously reported. The retailer was working on a restructuring plan with advisers at M-III Partners and Houlihan Lokey, and with lawyers at Kirkland & Ellis.
The chain listed $200 million of funded liabilities, with $800 million of revenue in 2018, according to papers filed in U.S. Bankruptcy Court for the Southern District of New York. Barneys also says it has about $120 million of federal net operating losses that could be used to offset future taxable income.
Barneys is asking for court permission to reject 15 store leases across the country, including deals with Brookfield Properties Inc. and Simon Property Group Inc. That could save the the company $2.2 million per month in rent and related expenses, Chief Restructuring Officer Mohsin Y. Meghji said in a court declaration.
The picture for most traditional retailers grows worse by the year.
The number of retail stores that closed in the U.S. this year has already surpassed last year’s total, according to Coresight Research, which expects 12,000 will be closed in 2019. Coresight said 7,567 retail stores have closed so far this year, compared with 5,864 in all of 2018.
The escalating trade war between China and the U.S. has intensified that pressure, leaving clothing companies scrambling to find new routes and suppliers. Over the past year, the retail sector has consistently lost jobs.
A strong economy has traditionally boosted luxury sales, but like retailers across the spectrum, Barneys and other high-end stores have struggled to entice people through the door. They’re seeing younger shoppers migrate online to sites like Net-a-Porter, which offers same-day delivery for luxury goods, or resale sites like The RealReal.com. Wealthy shoppers also are going directly to luxury brands’ online sites or shops.
Nordstrom has reported slowing sales. And Neiman Marcus Group, which also operates Bergdorf Goodman, posted a loss amid a decline in sales for its most recent quarter.
After 104 years, Lord & Taylor’s flagship store on Fifth Avenue locked its doors in January, and the property was sold to WeWork.
The prospect of liquidation sales at such a high-end store raised questions about how discounting could affect Barneys’ relationships with its vendors.
“Barneys works with the creme de la creme of vendors, who don’t want their items hitting the market at discounted prices, and are probably not used to their merchants filing for bankruptcy,” said Stephen Selbst, chairman of the restructuring and bankruptcy group at New York law firm Herrick, Feinstein LLP. “Their only possible recourse is to offer to buy back inventory to avoid it hitting the distribution channel, but that’s expensive. It’s going to be a walk into a very cold shower.”