Sam Ben-Avraham’s last-minute — and underfunded — push to buy Barneys New York ultimately came up short on Thursday as the company and the unsecured creditors committee decided to forgo a planned auction on Monday.
That sets the bankrupt retailer up to be sold to Jamie Salter’s Authentic Brands Group, which plans to liquidate its inventory while installing shop in shops in Saks Fifth Avenue and potentially keeping some stores open.
But — as has been the case all along in the bankruptcy — hope springs eternal. Ben-Avraham, a trade show veteran and Kith backer, is still working to improve his bid in order to try to submit it before the Oct. 31 hearing that will ultimately decide Barneys’ fate. One source said it was still premature to “count anybody out.”
A representative for the retailer said: “Barneys is continuing to work toward a value-maximizing going concern transaction, including in relation to a potential transaction led by Sam Ben-Avraham and his group of financial, operational and strategic partners, up to and including the Oct. 31 sale hearing.”
The stakes are certainly high for Barneys employees. The retailer entered the bankruptcy proceedings with more than 2,000 employees and has already closed 15 stores, cutting that number dramatically. The New York-New Jersey Regional Joint Board of Workers United, which represents some 800 Barneys employees including sales staff, clerks, warehouse workers and tailors, still hopes to see the retailer continue on as a going concern.
In bankruptcy, companies have a duty to maximize value by selecting the highest or best bid. Ben-Avraham’s initial bid, although it came in below ABG’s $271 million offer, envisioned keeping Barneys open as a going concern.
When Barneys filed for Chapter 11 protection on Aug. 6, it said it was keeping seven locations open and its web site running. Ben-Avraham’s initial bid on Wednesday had sought to keep around five stores open, including its Madison Avenue and Beverly Hills locations, according to a person familiar with the matter.
But the bankruptcy process is also geared toward assessing the debts owed and gauging the best way to repay them. Barneys’ debtor-in-possession financing alone included a roughly $217 million loan. The retailer also entered the bankruptcy proceedings with roughly $100 million in unsecured debt owed to vendors, landlords and others. Given those obligations, ABG’s higher dollar value bid carries a certain obvious appeal.
New York bankruptcy judge Cecelia Morris will issue a final decision during next week’s hearing, where ABG may yet face rival bids from Ben-Avraham or others.
“It’s not over until it’s over, anything can happen,” said attorney Doug Hand, partner at Hand Baldachin & Associates who represents a number of Barneys vendors. “But getting as many people paid back is primarily the goal in a bankruptcy. There are other constituencies, like employees and vendors, and their interests can be considered, but a big question is, ‘How much is owed and how much gets paid back?'”
While some uncertainty remains, ABG pushed ahead, saying it expects to its deal to buy Barneys to close by Nov. 1.
Salter, who is ABG’s founder, chairman and chief executive officer, said: “Barneys is one of the most recognizable and iconic names in luxury lifestyle, and we see an incredible opportunity to extend the brand’s equity in current and new markets around the world. We are also excited to join forces with Saks Fifth Avenue, the preeminent luxury retailer that continues to bring innovation and fashion authority to the industry.”
Once the deal is done, the branding company plans to:
- License the brand globally to support the Barneys-branded merchandise program.
- Maintain the retailer’s current licensing deal with Seven & I Holdings, which operates 12 Barneys stores in Japan.
- Grow the brand’s presence in other international markets, especially in Asia.
Ben-Avraham’s laborious efforts to assemble his bid speaks to investors’ wariness about brick-and-mortar retail and the difficulty translating Barneys’ cultural cachet into a profitable business.
“My sense is that the market value of tradition, consumer affection and nostalgia isn’t what supporters of Barneys as a going concern had hoped, at least in the current retail environment,” said Susan Scafidi, director of the Fashion Law Institute at Fordham Law School. “If a buyer could expect to monetize the positive economic spillover and cultural value of keeping Barneys open as the brick-and-mortar heart of Madison Avenue, then we’d see suitors lining up around the block.”
Hand added that the function of brick-and-mortar stores has itself evolved, as many brands have come to view them less a revenue source measured by sales-per-square foot, and more as an advertising opportunity.
And there is still plenty skepticism over whether or not Barneys would be able to sustain itself even without its debt load.
“It was not successful before, and it may not be successful even debt free,” Hand said.
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