Barneys New York filed for bankruptcy in the early hours Tuesday, sunk by soaring operating costs and shifts in the luxury market.
The drama leading up to the filing captivated the fashion industry for months as the 96-year-old luxury retailer scrambled to fix its finances after rent at its Madison Avenue flagship nearly doubled to $30 million — only to fail and leave unpaid bills with a long list of designer names.
There were questions up until the end over whether the company would try to reorganize under a Chapter 11 process or liquidate under Chapter 7. Ultimately, it was a Chapter 11 filing in the Southern District of New York’s Poughkeepsie’s office. Barneys listed assets between $100 million and $500 million.
The company is being represented by Kirkland & Ellis LLP, whose attorneys have also advised on the high-profile retail bankruptcies of Toys ‘R’ Us, Payless ShoeSource Inc. and the Gymboree Corp.
The luxury retailer said it has more than 5,000 creditors including Jenel Management, which is owed $6 million; the Row ($3.7 million), Celine Inc. ($2.7 million), Thor Equities ($2.2 million), Yves Saint Laurent America Inc. ($2.2 million), Balenciaga America Inc. ($2.1 million), Givenchy Corp./LVMH ($1.9 million), Gucci ($1.8 million), Google Inc. ($1.7 million), Prada ($1.6 million), Rakuten Marketing ($1.6 million), GGR US ($1.5 million), Azzedine Alaïa ($1.4 million), Margiela USA Inc. ($1.4 million), Moncler USA Inc. ($1.2 million), Chloé ($1 million) and many more.
Barneys said it has sales of about $800 million, 2,300 employees and about $200 million in funded debt obligations. Last month, the company said it was “actively evaluating opportunities to strengthen our balance sheet.” And while that included searching for a new investor or another way to restructure, industry sources worried about the growing possibility of another bankruptcy. (The company slid into insolvency in 1996 after a failed expansion bid.)
While some vendors stood by the company — as is clear from the list of marquee brands owed big money in the bankruptcy — many grew increasingly wary of shipping goods just as fall merchandise was due to start flowing to the stores.
Factors who supply trade financing stopped signing off on Barneys orders. So-called “fall two” shipments for August delivery and “fall three” shipments for September delivery seemed much more and more uncertain.
While the filing takes away some of the uncertainty around Barneys, the company’s future is still murky. Authentic Brands Group, which specializes in intellectual property, is said to be near the process and could jump in after a filing, which would mean a change of business model for the retailer.
The chain, which named Mohsin Meghji as chief restructuring officer, has been struggling with the broader trends that have reordered retail overall. It faces the still-growing trend toward e-commerce and brands that are increasingly establishing direct relationships with consumers and trying to bypass traditional gatekeepers like the tony retailer.
Brands that sell to Barneys have been preparing for trouble for some time, but some small players that are overly reliant on the company could also be brought down by the bankruptcy.
The filing is also another blow to investor Richard Perry, who took control of the retailer in a 2011 debt-for-equity deal, but in 2016 unwound his fund, Perry Capital. He held on to Barneys and tried to sell the chain, but ultimately couldn’t find a new buyer or make the company’s finances work.
Perry is listed as owning 72 percent of the company’s equity, while Ron Burkle’s Yucaipa Cos. owned 20 percent and Istithmar, which previously controlled the chain, still held an 8 percent stake.
The bankruptcy is also a blow to the traditional fashion system that has rapidly eroded, but once relied on the cutting-edge chain to spotlight new talents and offer a window on where style was headed.
Now, a bankruptcy court judge will decide Barneys’ future.
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