The financial vise is tightening on Barneys New York, with some factors no longer approving spring orders as a result of uncertainties over the luxury chain’s future.
Barneys’ costly expansion of the past three years has failed to gain traction; the retailer has been without a chief executive officer since last July, and the severe downturn in retailing, particularly the luxury sector, has hit the retailer and its cash flow hard. Its owner, Dubai-based Istithmar, has been quietly trying to sell the chain at a price no one wants to pay as the Middle Eastern emirate faces its own economic meltdown.
All those factors are making certain vendors and suppliers skittish over Barneys and less inclined to take risk, though the luxury chain appears current on its bills.
“I’m not commenting,” David Jackson, chief executive officer of Istithmar said Friday when asked about the factors. “I’m on the road at the moment. I was just on a flight for 14 hours.”
Jackson suggested calling Barneys’ headquarters, but there’s no one clearly in charge there. Since the departure of former ceo Howard Socol, the store is being run by a committee of five veteran executive vice presidents on the merchandising, marketing and financial sides.
Rosenthal & Rosenthal and Hilldun Corp. are said to be among the factors that last week stopped approving orders. Rosenthal & Rosenthal could not be reached for comment and Hilldun declined comment.
However, factoring sources said the decision to stop approving orders to Barneys was only temporary until the retailer provides more information on its finances and plans. The update is expected to come at the beginning of March.
Meanwhile, executives at major fashion houses said they are continuing to ship to the store. “Barneys is current [on its payments] and shipable,” said Patrick Guadagno, president of Versace in the U.S. “It’s business as usual.”
One sportswear designer who requested anonymity said the store paid this season. Major stores have been good on their payments, but some smaller independent retailers are facing challenges in paying, the designer said.
Executives at many smaller fashion firms said they, too, were getting paid, although at least one said payment was slower than usual.
One factor said a temporary halt on approving spring orders has more to do with wanting to know what Barneys’ owner has in mind for the future of the chain. He explained that, essentially, factors just want to know “how much ongoing support Barneys will get from Istithmar going forward.”
If the information is satisfactory, orders will start being approved in March, factors said.
A second factor said when these kinds of decisions are made, paying the bills is just one criterion in the decision-making process.
“Are you making any money? Is the cash flow sustainable? Are the bills paid with borrowed funds or from cash flow from operations?” he asked, adding that answers to these questions help decide whether to take on risk and extend credit.
The questions surrounding Barneys are twofold, he said: “Is the retailer being sold?” and “How bad are they getting hit by the slowdown in the luxury market?”
One financial source said he doesn’t believe the retailer is “seriously up for sale.” Considering the economic backdrop, “now is not the time to sell Barneys,” the source concluded. He also added, “But if someone had a billion [dollars] to spend and was willing to use it to buy Barneys, I could see the retailer being sold.”
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