By and
with contributions from Evan Clark
 on September 28, 2016
Richard Perry


NEW YORK — Though Perry Capital is a sinking ship, that’s not the case with its luxury retail asset held in the portfolio, Barneys New York, according to Barneys executives.

The retailer’s performance is tightly guarded due to its status as a private company owned by Perry Capital. Yet on Tuesday, in the aftermath of the decision by Richard Perry to close his primary hedge fund, executives at Barneys were eager to point out that the luxury chain’s fortunes are not tied to those of the fund, which owns a majority stake in the retailer.

And while they didn’t open the books on Barneys’ numbers, they were quick to dispel speculation about the company’s performance in the current tough retail climate — even as Perry continues to try to sell all or part of his Barneys holding.

“We are profitable. We are not in distress. We don’t depend on Perry Capital to pay our bills,” Mark Lee, Barneys’ chief executive officer, told WWD from Paris Fashion Week.

Many upscale retailers and designer brands have been losing ground amid the worldwide luxury malaise. On Monday, for example, the Neiman Marcus Group reported a fourth-quarter net loss of $407.3 million including noncash impairment charges. Hudson’s Bay Co. earlier this month reported improvement in its adjusted operating earnings, although rents brought the net into the red and its Saks Fifth Avenue division reported negative comparable store sales in the latest quarter, as did Neiman’s.

In an exclusive interview Tuesday, Lee characterized Barneys’ business as “very healthy,” drawing a sharp contrast to some of its rivals. “There is no long-term debt on the company, unlike our competitors,” the ceo said.

Still, the decision to close Perry Capital appears to be having a ripple effect on Barneys. According to one Seventh Avenue source, factoring firm Rosenthal & Rosenthal is “investigating the situation.”

Another source said Rosenthal was “not factoring or covering until they have visibility on the effect of Perry Capital closing. That means anyone who continues to ship to Barneys will do so at their own risk. For many, this will mean they may not ship unless paid up front.” Officials at Rosenthal & Rosenthal could not be reached for comment.

Gary Wassner of Hilldun Factors, which also factors some designers selling to Barneys, said, “It would be helpful if Perry Capital gave us some insight as to what their plans are for their Barneys investment to ease concerns in the fashion marketplace. I’m not concerned about the financial stability of the company — just curious as to what’s next in terms of leadership and ownership.”

Financial sources, primarily lenders to many Barneys vendors, noted that every now and then, the high-end chain might be a week or two late on payments due to bookkeeping issues, not liquidity issues. Another financial source said earlier this summer, when the rumblings started that some vendors received late payments near the quarter’s end, that the parties were negotiating chargebacks. Another factor said such negotiations at Barneys were no different than those occurring generally in the retail sector.

“In my opinion,” Wassner said, “Barneys is probably sheltered somewhat from the significant downturn that Neiman’s has been experiencing — the company is less impacted by the oil belt issues — even though tourism has dropped and international money is not flowing in as it used to.”

Consultants and investment bankers were brought in about seven months ago to help Perry determine a valuation for Barneys. In July, Perry hired Goldman Sachs to sell a stake in the retailer. Goldman Sachs had no comment on Tuesday.

Lee referred questions about a potential Barneys sale back to Perry who, through a spokesman, said, “Barneys is well positioned, both financially and strategically. Perry Capital has the capital and the team in place to evaluate strategic decisions that will deliver appropriate value to investors.”

Sources said the Qatari Investment Fund, the investment arm of the Al Thani family, is said to have expressed an interest in acquiring the chain. Executives at the Qatari fund could not be reached for comment Tuesday.

“There’s not going to be a fire sale,” said one financial source familiar with the situation. “There is not a crazy amount of pressure right now to do something dramatic.”

Financier Ronald Burkle and his Yucaipa Cos. vehicle already have a stake in Barneys — a business he’s long been keen on — and could potentially increase his holding as Perry unwinds his fund. A source close to Burkle said, “Barneys has been a great investment and is something Ron would certainly look at increasing his stake in.”

“The price of Barneys clearly dropped today because if you’re closing your fund, you’re not holding out for a great return, you’re trying to get liquidity,” said one financial source.

Perry is likely to dispose of the more liquid assets in his fund this fall, while longer-term investments will be unwound through at least next year. In addition to Barneys, Perry has held a wide array of investments, including stakes in fashion factor Capital Business Credit, The Weinstein Co., Corus Construction Ventures, Juniper Pharmaceuticals Inc. and Endurance Specialty Insurance.

With his other operations closing down, Perry might also have more time to focus on Barneys. And while it could be a long shot, the source noted that the billionaire “likes defining himself in association with the company” and could decide to take it on as a personal investment.

Perry’s fund fell victim to broader trends in the hedge fund market, which has seen many investors heading for the exits. He had $11.6 billion under management in March, but saw that kitty shrink to $8.3 billion as of June, according to regulatory filings.

During the interview, Lee said, “Market conditions have not been easy. Nonetheless, Barneys continues to grow. We’re profitable. It’s absolutely untrue to suggest Barneys is unprofitable.

“We have a thriving e-commerce business,” he added. “E-commerce will be our number-one source of revenues. It’s running  more than 20 percent ahead, year-to-date. Within the next 12 to 15 months, e-c0mmerce will be our number-one source of revenue,  overtaking the Madison Avenue flagship.”

Some vendors believe Barneys e-commerce could eventually account for about half of the luxury chain’s volume, due to its international reputation and its having only eight full-price stores to shop from.

Asked how the Barneys stores were faring, Lee replied, “The total Barneys business is still growing and it’s up for the year.”

The retailer benefits from its more youthful image and ability to attract a higher percentage of Millennials compared to competitors. In addition, Barneys buyers have discerning eyes and are able to read trends as fast as any retailer’s buyers. The merchandising is strong, and easy to read in the stores across different lifestyles. Wassner said, “Barneys is better curated than Neiman’s and its customer is more specific.”

“It’s product first with Barneys buyers,” said the supplier. “They have an in-depth understanding of product. Business discussions are secondary to product.”

Barneys has been dogged by reports that its rents at the Madison Avenue and Beverly Hills flagships will dramatically increase in a couple of years, as terms expire. The retailer has benefited from low rents for many years, set just after Barneys emerged from bankruptcy in 1999.

“There is no news on that subject,” said Lee, when asked about the rent situation. “We have still a few years ahead of us. It is not factually correct for anyone to suggest we are in jeopardy on Madison Avenue. Any discussion or speculation is not news for today. It will be dealt with in due course,” he said.

Lee said the Chelsea store is running 35 percent above budget.  The 58,000-square-foot, four-level store, opened in February, is small and intimate compared to the 230,000-square-foot Madison Avenue flagship or the former 120,000-square-foot Barneys on the same Chelsea site, which closed in 1997, four years after the Madison Avenue store opened.

Of the company’s 16 stores, the “flagships” are on Madison Avenue and now Chelsea and in Beverly Hills, Chicago, Seattle, Boston, San Francisco and Las Vegas. Barneys also operates 11 outlets. No more openings are on the agenda.

Perry first invested in Barneys in 2007 and became the majority owner in May 2012, partnering with Burkle’s Yucaipa, in a debt-for-equity swap that cut the luxury retailer’s borrowings down to $50 million from $540 million, enabling the company to invest back in the business, such as with renovations.

“Richard always had a long-term view of Barneys as an investment,” Lee said. “He’s been an incredibly supportive owner.”

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