This story first appeared in the April 15, 2009 issue of WWD. Subscribe Today.
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, noting Barneys 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.”
Jackson explained the Istithmar infusion is for those vendors “we really wanted to make sure were ready to ship for fall, and where we had been in active dialogue to craft a solution.” For spring 2009, deliveries to Barneys went “more or less as expected,” Jackson said. “The nervousness was for fall.” Barneys receives pre-fall shipments in June, while the bulk of fall begins arriving in August.
He said Barneys has about a dozen vendors it considers “major — representing the vast preponderance of our sales.”
The $780 million Barneys was purchased by Istithmar in 2007 for over $900 million. Istithmar will eventually try to sell the business, but that could be a long way off, considering the difficult state of retailing and declining values. In retrospect, some believe Istithmar overpaid.
Jackson declined to specify Barneys’ top vendors. He did say there are some megabrands on the list, but not necessarily the names customers would think of walking up and down Fifth Avenue. Barneys officials have previously cited Burberry, Hugo Boss, Giorgio Armani, Dolce & Gabbana, Versace, Prada, Balenciaga, Ermenegildo Zegna, Lanvin, Fendi, Jil Sander, Chloé and Marc Jacobs as key vendors.
“The top 10 or 12 vendors were very happy with the information we shared,” Jackson said. “Any requests we viewed as reasonable, they got. Some even got more than we believe they were entitled to. Some information we viewed as proprietary. We don’t want certain information falling into the hands of competitors.”
Earlier Tuesday, Jackson issued a statement that said, “Istithmar World Capital has provided a significant level of additional capital to support Barneys New York. Working closely with management, we believe that this amount allows the company financial flexibility to work with the company’s major vendors and financial intermediaries. The plan enables the company to meet its 2009 schedule of shipments. We will continue to monitor the company’s performance, but we are confident that no further injection is needed at this time.”
Barneys operates what it considers flagship stores in New York on Madison Avenue, Beverly Hills, Chicago, Boston, Dallas, San Francisco and Las Vegas. Barneys also has two regional stores, in Seattle and Chestnut Hill, Mass.; 18 Co-Op stores; 13 outlets, and two semiannual warehouse sales. Established in 2003, Istithmar is 100 percent owned by Dubai World, which is wholly owned by the government of Dubai. In the three years since its inception, Istithmar has invested in over 30 companies in three sectors -— consumer, industrial and financial services — with assets of $9 billion. But Dubai, which has no oil or natural gas reserves, has been hit hard by the recession, with rising unemployment and plunging property values.