In Finance, Insight, Retail

As Neiman Marcus and Nordstrom enter Manhattan, retail icons Henri Bendel and Lord & Taylor have closed, and now NYC icon Barneys has filed for bankruptcy protection—again. The Pressman family, the founders of Barneys, filed for Chapter 11 in 1996 and the company was sold in a leveraged buyout in 2000. The current owner Richard Perry’s hedge fund Perry Capital gained control in a debt-for-equity deal in 2012. He tried to sell the chain, but ultimately couldn’t find a new buyer or make the company’s finances work.

Barneys New York voluntarily filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York on August 6. Can a leaner Barneys make a go of it? I guess time will tell, but below are the details and what experts are saying on the topic.

The Numbers: 

  • The retailer said it has sales of about $800 million, 2,300 employees, and about $200 million in funded debt obligations.
  • Rent on the Madison Avenue store has surged from $16 million to $30 million.
  • Barney will be closing 15 of its 22 stores.
  • Barneys secured $218 million from Brigade Capital Management LP and B. Riley Financial Inc., replacing the $75 million agreement from affiliates of Hilco Global and the Gordon Brothers Group, which, combined with operating cash flow, will help Barneys New York to meet its go-forward financial commitments.
  • Richard Perry’s hedge fund Perry Capital owns  72 percent of the company’s equity, Ron Burkle’s Yucaipa Cos. owned 20 percent, and Istithmar, which previously controlled the chain, still holds an 8 percent stake.

Staying:

  • Manhattan Madison Avenue and 17th Street in Chelsea
  • Beverly Hills
  • San Francisco
  • Copley Place in Boston
  • Two outlets: Woodbury Common in Central Valley, NY, and San Francisco Premium Outlets in Livermore, CA
  • barneys.com
  • barneyswarehouse.com

Closing:

  • Chicago
  • Las Vegas
  • Seattle
  • Philadelphia
  • Brooklyn
  • The Grove
  • Santa Monica
  • Glendale
  • Seven outlet locations including Riverhead, Carlsbad, Cabazon, Camarillo, Rosemont, Sawgrass, and Waikele

What Barneys Says: 

“For more than 90 years, Barneys New York has been an iconic luxury specialty retailer, renowned for its edit, strong point of view, creativity and representation of the world’s best designers and brands,” Daniella Vitale, Barneys Chief Executive Officer and President said in a statement. “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. In response to these obstacles, the Barneys New York board and management team have taken decisive action by entering into a court-supervised process, which will provide the company the necessary tools to conduct a sale process, review our current leases and optimize our operations. While doing that we are receiving new capital to help support the business. Pursuing a sale under the court’s supervision provides the quickest and most efficient means of maximizing value while ensuring we continue serving both new and loyal customers.”

Vitale went on to express her “deep appreciation and profound gratitude for the continued support of our employees, vendor community and customers—truly the lifeblood of Barneys New York.” She expressed hope that Barneys will continue well into the future, despite the uncertainties that come with being a bankrupt company.

What the Experts Say:

“When Barneys went into bankruptcy the first time it was tough on not just the store, but all the vendors and loyal customers,” said Julie Gilhart, a former Barneys senior vice president and fashion director, now running Julie Gilhart Consulting, said to WWD . “It caused the team to really think about the ways we had been doing business and how we could do it better. Moving forward and past bankruptcy, we were obviously on limited budgets but we produced some of our most creative work. We were forced into thinking how to create experiences for the customer with highly edited curated merchandise. Essentially we got rid of all the noise and excess and became even more pure. We never followed but led. If Barneys can survive this current financial crisis, to move forward it will take a relook on how the business is run, but also new innovative thinking on how a store can reinvent itself in the current changing retail landscape.”

“Those pre-petition claims are not secure and typically in a Chapter 11 reorg, those pre-petition claims get 10 to 20 cents on the dollar, but often zero,” attorney Douglas Hand, who is a founding member of Hand Baldachin Amburgey and has many designer clients, told WWD. “When you look at some of those amounts that are owed, that’s a punch in the face.”

Hand described the filing as “interesting” in that the “restructuring plan is really to come” still and that “they don’t have a signed purchase agreement,” what’s known as a stalking horse buyer who would provide a baseline offer to take the company. “They’re really just hoping that with time they can find that stalking horse,” Hand said.

“I look at this bankruptcy as a leverage play to bring Ashkenazy [owners of Barneys flagship Madison Avenue store] to the table again,” Richard Johnson, co-founder of retail real estate firm Odyssey Retail Advisors, told BOF. “We see it as a way for Barneys to fix their books and push themselves back to profitability.”

“If they can get their footprint right and continue to do a good job with e-commerce, that will help get them back on track. They could have a future,” Coye Nokes, Partner, retail and consumer practice at OC&C Strategy Consultants, told WWD. “But I wonder if they are going to have to rethink their buying somewhat. A lot of big brands operate concessions which Barneys doesn’t have. Would they consider a different range of brands and the way they operate? Hopefully, Barneys is having those discussions. They’ve been around a long time. Remember 10 years ago when it was rumored they weren’t paying vendors? They did pull it together. I’m optimistic.”

“Barneys are not challenging their customer, the edit of labels is safe,” London-based fashion PR specialist Mandi Lennard said to WWD. “They feel the need to check what other stores have before making a decision. There’s no foil to the labels they buy, so it all looks very heavy. Barneys can’t justify the new, and still carry the tired and dated, resulting in trying to be all things to all people, which eradicates ‘direction.’”

Downsize its current 275,000-square-foot Madison Avenue space. “They could keep the ground floor and then part of the second floor and give back the rest of the space to the landlord,”  Robin Abrams, a retail broker at Compass, told BOF. “They could also maintain half of the ground floor for what they were paying before.”

Relocate the current Madison Avenue flagship. “There are a number of large spaces they can relocate to. Would it be as iconic? Maybe not, but if they’re nimble, Barneys could find a new home and be able to recreate their magic somewhere else,” Abrams said.

Large retailers that lack a strong presence in luxury might see Barneys as a good fit, David Tawil, president of Maglan Capital, a hedge fund specializing in distressed assets, said to BOF. “If it was an Amazon type, I could buy it,” he said. “I could put a couple-hundred-million dollars into luxury to see if I could make it work. Maybe also Target or T.J. Maxx. None of these guys have a niche in luxury and it could be a start for them.”

“The name ‘Barneys New York’ will survive in one shape or form,” said Gary Wassner, founder of factoring company Hilldun, said to BOF.

The path Barneys chooses—or is forced to choose—could determine the livelihood of the many small and independent vendors that depend on it as a source of revenue, said Wassner. “Particularly those who are young and small and undercapitalised, in this situation, they’re quite desperate,” he said. “Barneys has always supported young brands with exclusive relationships. When you lose your main wholesaler, there’s a big hole to fill and it’s not easy to turn a ship like that around.”

Photo: David Brevard via Flickr

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