The parent of Barneys New York has decided to pump over $25 million into the luxury chain to ensure fall deliveries and to ease liquidity concerns among vendors and factors, according to sources close to the business.
“I believe Barneys was strong enough to survive without the support, but because vendors and factors were nervous, we elected to put some more capital in to help decrease their level of concern,” David Jackson, chief executive officer of Istithmar World Capital, the Dubai-based parent of Barneys, told WWD.
Jackson would not confirm the $25 million report, but characterized the level of support as “significant,” adding, “It’s what the business needs to continue to grow and develop. In this environment, where everybody is hoarding cash, we are trying to send a signal that we are supporting the business.”
Barneys has been in negotiations with vendors and factors for weeks over payments and shipments. They have also been seeking information from Barneys about the performance of its stores, its plans for the future and how Barneys can help them grow their businesses.
While Barneys maintains a strong identity and continues to carry expensive designer merchandise, it’s been hard-hit by the recession, as have other luxury players such as Neiman Marcus and Saks Fifth Avenue. On top of that, some newer Barneys stores, such as those opened in Dallas, Las Vegas and Boston over the last three years, have reportedly failed to gain traction.
The funds come at a particularly crucial time, considering Barneys is ordering fall goods, and on Thursday will open a 90,000-square-foot replacement store in Chicago, at 15 Oak Street. It’s airier and about twice the size of the store at 35 Oak Street, which has been doing relatively well. Barneys’ top three performing stores are those on Madison Avenue, in Beverly Hills and Chicago.
“Chicago has been a very good market for us,” Jackson said. “It’s been the best performer of the big three over the last couple of years, probably because the store in that market was too small for the volume we were doing. It was doing an disproportionate amount of business for that square footage. Now is a tough time for an expansion, but we still believe in the Chicago market, long term.”
Discussing Barneys’ overall business, Jackson said, “I would still say it’s challenging. We are still seeing some brights spots, some negative spots. Everybody is nervous about what this economy is going to look like through 2009. We [have been] structuring a solution to get through 2009 and position us through 2010. We are convinced that Barneys will be a long-term survivor. The retail environment is difficult. But when we look at the competition — Neiman Marcus, Saks and Nordstrom — we think we are doing better than they are.”
Istithmar’s infusion should ease concerns about the business, which were stoked Monday when Standard & Poor’s slapped Barneys with a downgrade. Asked to comment on the downgrade, Jackson said, “I view it as completely mystifying.”
Jackson said Tuesday’s disclosure of Istithmar’s additional support for Barneys was not accelerated by the S&P rating, which went from “B-minus” down to “CCC.” “We did not make a decision about the injection based on Standard & Poor’s,” Jackson said, notingBarneys had been conducting talks with factors and vendors and had been working on the infusion well before.
“Most of the reaction we have from vendors and factors has been positive,” Jackson said. “It’s not universal, but it’s positive.”
A less positive S&P cited a “deteriorating liquidity position of the company as demonstrated by the need for a cash infusion by Istithmar World.” But according to Jackson, “Barneys is strong and has a strong parent.” The infusion, he stressed, “shouldn’t be viewed as a sign of weakness. It should be viewed as a positive thing.”
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