The scramble isn’t over for Barneys New York.
The retailer’s bankruptcy filing in the wee hours of Tuesday morning answered at least one question — it couldn’t survive as currently structured — but stirred a slew of others and even more worries among vendors, including: will previous vendors be paid, will brands continue to ship merchandise, and, more importantly, does Barneys have a role to play at all in today’s retail landscape?
Despite what the company described as “around-the-clock efforts — and some very close calls,” the Chapter 11 filing in the Southern District of New York’s Poughkeepsie’s office had less of the feel of a fresh start and more a sense that the roller-coaster ride of the past few months is more than likely set to continue, just under the watchful eye of bankruptcy judge Cecelia G. Morris for now, and then potentially under a new owner down the road.
Barneys was able to secure an offer of at least $75 million in financing to operate while in bankruptcy and laid out plans to close 15 of its 22 stores.
The company said it will continue to operate five of its flagships: Madison Avenue, 17th Street in the Chelsea section of Manhattan; Beverly Hills; San Francisco, and Copley Place in Boston, as well as two warehouse locations in Woodbury Common in Central Valley, N.Y., and San Francisco Premium Outlets in Livermore, Calif. In addition, barneys.com and barneyswarehouse.com will continue operating, the company said. Barneys also has plans for future stores at the American Dream entertainment and retail complex in East Rutherford, N.J., and at Bal Harbour Shops in Miami. With the bankruptcy proceedings involving a review of leases and locations, it’s highly unlikely that the American Dream and Bal Harbour projects move forward.
But despite those plans, the company has laid out an aggressive timeline for its restructuring, requiring someone to step in to acquire the business by the end of September, even though it doesn’t have one lined up yet. In an afternoon court hearing on Tuesday, the company’s lawyers said Barneys had also lined up other financing arrangements after the filing, although the details were still being worked out.
Still, most experts struggle to see how the retailer is viable if it doesn’t solve the problem that pulled it into insolvency — steep rent hikes at key locations, which saw the lease at the Madison Avenue flagship balloon this year to $30 million, up from $16 million. There also is believed to have been a sharp increase at its Beverly Hills flagship. Both are stores Barneys plans to keep even after it exits Chapter 11.
Now the retailer’s best hope appears to be that bankruptcy court changes the equation and leads, perhaps, to some rent reduction from Ashkenazy Acquisition Corp., which owns the Madison Avenue flagship building and the store in Beverly Hills.
However, an outright liquidation has loomed as a possibility for Barneys over the last few weeks and some sources still see the potential for the Chapter 11 filing to convert relatively quickly to a Chapter 7 sale of all the firm’s assets.
But if the stars do align and the company gets some rent relief or finds new homes in key cities, a leaner Barneys could try to make a go of it again, like it did after another expansion tear pushed it into bankruptcy in 1996.
Barneys does have some base to build off of in addition to its brand name. The company does get some royalties from the Barneys business in Japan and has an online business that one source pegged at $200 million to $250 million in revenues — a significant portion of its total $800 million in sales.
But those online sales are largely fulfilled from its stores, meaning the company can’t cut its store base as aggressively as it might want to, sources said.
Despite its up-and-down performance over the long haul, Barneys has managed to maintain a special niche, a reputation for merchandising and marketing innovation, and loyalty among brands and consumers oriented toward its brand of cutting-edge, contemporary fashion. It’s also been operating a web site that’s considered entertaining, immersed in social media, and connects with its base.
For those reasons, many vendors and retail experts believe Barneys has at least some kind of a shot at survival — albeit in a much smaller footprint, with fewer stores, a lower cost structure and a streamlined management team where remaining executives take on additional responsibilities from those who depart.
While Barneys chief executive officer Daniella Vitale is said to have knocked on a lot of doors looking for a partner — from the big department stores to financial players — the one player that sources said remains interested and in the wings is Authentic Brands Group, which specializes in intellectual property.
Led by ceo Jamie Salter, ABG could still enter the process, providing a way forward for both Barneys and Vitale that would also likely involve new ways to make use of the Barneys brand, potentially using it on products or in other locations.
The path ahead for Barneys might be murky, but the fashion world is largely rooting for the retailer, which has long been an influential vote of confidence for brands and something of a status symbol account for the designer crowd.
Many seem to have led with their hearts and crossed their fingers as they shipped the retailer over the past few months — a not totally unheard of practice in the touch-and-go world of retail.
In court papers, the company said it had more than 5,000 creditors, including many A-list designer names, such as the Row, which is owed $3.7 million, Celine Inc. ($2.7 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), Prada ($1.6 million), Azzedine Alaïa ($1.4 million), Margiela USA Inc. ($1.4 million), Christian Louboutin’s CL U.S. Distribution Corp. ($1.3 million), Moncler USA Inc. ($1.2 million) and Chloé ($1 million).
Alexis Mourot, ceo of Christian Louboutin U.S., lamented the Chapter 11 filing, noting that Barneys was one of the first to embrace Louboutin’s shoe designs in 1993.
“We have to help them. They can disappear from the retail landscape, and they have been such a great partner,” Mourot said. “I hope landlords will find more reality and adjust the rents downwards for retailers. They’re simply too high. I hope that will be something everyone will pay attention to.”
Likewise, Manolo Blahnik’s U.S. business is owed $831,984 and ranks as Barneys’ 27th largest creditor out of 30 listed in the initial court filings.
“Their payments had slowed down, we were watching it [over the last few months],” said George Malkemus, president of Manolo Blahnik USA, which is set to end its licensing partnership with the British shoe company in December. The company shipped some of Barneys’ fall order, but was restrained in the quantities sent.
“We were one of their big vendors, and if you are a vendor at almost all of the Barneys stores, the numbers get up there pretty quickly,” Malkemus said of the amount the company is owed. “Sometimes things get ahead of you, and you try to be supportive of a partnership that has lasted many years.”
Malkemus has been in touch with Barneys executives over the last few days, but repayment options have not yet been solidified. “I don’t think they know yet [how they will repay], it’s too early on to know,” he said, adding he was most surprised that the retailer has decided to close its Chicago store, a “big market” for luxury sales in the Midwest.
“The bigger brands have been doing business for a longer time and you hope you can weather these kinds of storms in the industry. The list is the top 30 — what if you are the 99th and 100th? It hurts. What I feel most terribly for are the young designers who dreamt of being at Barneys and sometimes it puts people under,” Malkemus said.
Indeed, Barneys is a company that’s important to a wide swath of the designer community.
“America can’t afford to lose Barneys and neither can we as a brand,” said Thierry Lasry, the French sunglass designer. “Barneys is the epitome of cool in the fashion industry and it is a sort of validation for a brand to be sold at Barneys. We’ve been working with them for almost 10 years and always had a significant presence in the stores since then. The Madison and the Beverly Hills stores are key windows for our brand in terms of exposure and volume.”
Jason Stalvey, an independent handbag designer who works with lush exotic skins, said his brand is owed “a significant balance,” but declined to specify further.
“I’m worried we won’t be paid,” said Stalvey, whose bags are prominently featured on the main floor of Barneys’ Madison Avenue flagship. “Barneys launched my brand and have been good partners, so we tried to be sensitive and keep business as uninterrupted as possible. We had a balance but kept shipping to them.”
Stalvey’s bags typically retail between $4,800 and $15,000, and the designer said he has a new Barneys order in production — one he is not willing to ship without payment for previous collections. “It would be unfortunate if they didn’t receive it, we have to take it day-by-day and see what happens between now and then,” he said.
One young designer, who wished to remain anonymous, launched an avant-garde label at New York Fashion Week in February. She had recently modeled for the Barneys fall fashion catalogue and was promised $5,000 in payment — funds that were to pay for her follow-up runway show this September.
“I’m assuming I’m not getting paid since they going bankrupt,” the designer said Tuesday afternoon, noting that multiple e-mails she sent to Barneys’ accounting team went unanswered. “They owe me $5,000. What do you do in situations when a company owes you that much money and it goes under? They don’t have to be held accountable, so what do you do?” she said.
Most or all of the money Barneys owes its vendors might simply be gone now — a cost of doing business.
“Those pre-petition claims are not secure and typically in a Chapter 11 reorg, those pre-petition claims get 10 to 20 cents on the dollar, but often zero,” said attorney Douglas Hand, who is a founding member of Hand Baldachin Amburgey and has many designer clients. “When you look at some of those amounts that are owed, that’s a punch in the face.”
Hand described the filing as “interesting” in that the “restructuring plan is really to come” still and that “they don’t have a signed purchase agreement,” what’s known as a stalking horse buyer who would provide a baseline offer to take the company.
“They’re really just hoping that with time they can find that stalking horse,” Hand said.
Barneys listed assets between $100 million and $500 million and 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 retailer said it has sales of about $800 million, 2,300 employees and about $200 million in funded debt obligations.
Now that it has taken the bankruptcy plunge, Barneys could start to make some changes — and many others in the designer market could start to adjust more as well.
“If they can get their footprint right and continue to do a good job with e-commerce, that will help get them back on track. They could have a future,” said Coye Nokes, partner, retail and consumer practice at OC&C Strategy Consultants. “But I wonder if they are going to have to rethink their buying somewhat. A lot of big brands operate concessions which Barneys doesn’t have. Would they consider a different range of brands and the way they operate? Hopefully, Barneys is having those discussions. They’ve been around a long time. Remember 10 years ago when it was rumored they weren’t paying vendors? They did pull it together. I’m optimistic.”
Others are looking for the company to live up to its reputation as a kind of early-warning radar for all that is good in fashion trends.
“Barneys are not challenging their customer, the edit of labels is safe,” said London-based fashion p.r. specialist Mandi Lennard. “They feel the need to check what other stores have before making a decision. There’s no foil to the labels they buy, so it all looks very heavy. Barneys can’t justify the new, and still carry the tired and dated, resulting in trying to be all things to all people, which eradicates ‘direction.’”
And some designers could opt to sell more to competitors such as Saks Fifth Avenue and Neiman Marcus if Barneys is forced to loosen its grip on certain exclusives. Some vendors also might opt to drop Barneys, depending on what’s written in contracts and how concerned they are about Barneys’
Smaller vendors dependent on the retailer for exposure and sales will be most affected by the bankruptcy. But vendors of all sizes must determine over the next several weeks what to do with merchandise in production for Barneys. Do they cancel orders? Do they ship for November and holiday deliveries? And can they be confident of getting paid the normal 30 days after delivery or in a timely manner?
“Dries van Noten and Azzedine Alaïa — Barneys has been big with some of those types of brands that weren’t as big with Saks, Neiman’s or Nordstrom. Brands are pretty loyal to Barneys, but under the circumstances, I would assume those types of brands are knocking on the doors of Neiman’s, Nordstrom and Saks,” said a former retail president.
“There aren’t too many vendors still selling to Barneys and holding off on other retailers, though I can think of a few jewelry players that are good, like Jennifer Meyer, that don’t sell to the others,” said one former luxury merchant. “There is a brand here and there that are super loyal to Barneys, but not many.”
On Tuesday, Barneys reopened communications with designers and vendors, with e-mails from Vitale and Jennifer Woo, executive vice president and general merchandise manager over women’s, encouraging brands to stick with the store.
In Vitale’s letter, obtained by WWD, the ceo described the bankruptcy as “a difficult decision” that “was not made lightly.”
“We conducted a carefully considered and comprehensive process to evaluate all options, and we believe this is a necessary path forward that will help us emerge as a financially healthier organization while maintaining our long-standing vendor relationships that are essential to the success of our business,” she said.
Vitale said the company expects to “pay vendors and factors in full for goods and services provided on or after August 6, 2019, the filing date, in the ordinary course and consistent with the historical terms of our relationship.”
Even so, the “ordinary course” now means something very different at Barneys, which is being stripped down to its core. The question is just what “core” consists of now.
“At the end of the day. It’s two Barneys flagships that matter, Madison Avenue and Los Angeles, and e-commerce,” said one luxury merchant. “Probably Madison Avenue does $300 million in volume, Beverly Hills does $100 million and maybe e-commerce is around $150 million, so at $500 million or so, Barneys should be able to make some money as a going concern if they reshape the overhead, have a smaller team running the business and if the dollar weakens and you start to get international tourists shopping again. Someone will want to own Barneys again. They just won’t pay much for it. The problem here is there is not much growth potential.”
Barneys is betting — has to bet — that there’s actually an even brighter future and that it’s coming in fast.
According to a declaration filed with the court by Barneys’ new chief restructuring officer Mohsin Meghji, the retailer could be out of bankruptcy in as little as two months.
The declaration pointed to “successful” talks with lenders and investors to arrange to stay afloat and pursue a sale. Most of the $75 million in financing that Barneys initially arranged for was to come from Hilco Global and Gordon Brothers Retail Partners would go toward paying off its secured debt, while a third of the sum would serve as “incremental liquidity” that will help pay for the court proceedings.
But Hilco’s financing proposal sets some tight deadlines: Barneys has until September 25 to land on a qualified bid, and just about a week after that to close the sale. The additional financing discussed in court on Tuesday would give the company a few extra weeks of breathing room.
“The proposed process minimizes the debtors’ expected stay in Chapter 11 and related costs,” Meghji said. “As comparable retail Chapter 11 cases have shown, moving the process forward expeditiously is critical to the debtors’ ability to continue operating as a going concern.”
But the timing for the plan the company went into bankruptcy with was seen as unrealistic unless a buyer gets into line quickly, attorneys said.
“This is a very ambitious timeline, and in the absence of an existing bidder, I don’t think it’s realistic,” said David Shemano, a bankruptcy attorney who is not involved in the case. “I think this is kind of a starting position for a negotiation. This financing proposal has to get approved by the bankruptcy court, and various parties may object.”
The debtor company itself may linger in bankruptcy for much longer, potentially around a year or so, as it winds down and pays creditors from the proceeds of the sale of assets.
One of the big speed bumps ahead for Barneys is likely to be its unsecured creditors, who will likely be forming a committee within the next two weeks with the guidance of a U.S. Trustee. The committee, usually made up of a group of large unsecured creditors, may delay any processes that could jeopardize their interests. The committee might ensure, for instance, that secured creditors aren’t rushing the company into a hurried sale process for their own benefit.
“They may slow down a sale to make sure there’s greater value on the table for everyone,” said Hamid Rafatjoo, a bankruptcy partner at Raines Feldman LLP, who is also not involved in the case.
“The committee is kind of a watchdog over the process, even though that’s also the U.S. Trustee’s job,” he said.
That will be a new level of scrutiny for Barneys executives who over the past two months hustled to negotiate with landlords, and scrambled for financing.
The clock ran out even though “several” potential buyers eyed its business, brand value and trademarks, according to the declaration, but the company will pursue those sale talks as the bankruptcy unfolds.
“Despite substantial, around-the-clock efforts — and some very close calls — the debtors ran out of time to execute an out-of-court transaction that would address their liquidity challenges and otherwise position Barneys for long-term success,” Meghji said.
Long-term success has been fleeting for a series of investors looking to both capitalize on Barneys’ cache and turn a profit.
The latest is Richard Perry, who took control of the retailer in a 2011 debt-for-equity deal. He 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.
While the rent increase on the Madison Avenue flagship proved the straw that broke Barneys’ back, its woes can be traced back to the Nineties when the retailer, then led by the Pressman brothers Gene and Bob, embarked on an overly aggressive expansion, foisting Barneys’ uniquely stylish, edgy and narrowly edited assortment on communities across America. The Pressmans built the palace of a flagship on Madison Avenue, ran into heavy debt and disagreements with the company’s Japanese partner and landlord Isetan, and was forced into bankruptcy in 1996. For about two decades, Barneys survived through a string of disruptive ownership and management changes.
“It’s easy to cast the blame on the rent, but you have to understand that the Barneys niche is very narrow. It plays well in New York, but the store would have been better served if it had a broader appeal,” said an executive from a competitor to Barneys. “They never courted the really big, big brands that sustain Neiman’s and Saks. I’m talking about the Chanels and Akrises of the world. You need those very consistent legacy brands to pay the rent. But I do have the utmost respect for Barneys’ point of view. It’s very urban, niche cognoscenti with a certain fashion snobbism. I would really miss it.”
Barneys stood out for its ability to surprise and entertain people with its irreverent window displays overseen at the time by Simon Doonan and pioneering spirit embracing creative designers and brands such as Prada, Goyard, Givenchy, Proenza Schouler, Alexander Wang and Alexander McQueen, before other stores caught on.
There’s a storied history behind Barneys, beginning 96 years ago when Barney Pressman pawned his wife’s engagement ring to launch a 500-square-foot men’s discount clothing store on Seventh Avenue and 17th Street in Manhattan. It launched with the slogan, “No Bunk, No Junk, No Imitations” and later used memorable radio spots blasting “Calling All Men to Barneys,” which echoed the line from the Dick Tracy radio series.
The next chapter was when Barney’s son Fred, a visionary merchant, transformed the discount store into a luxury men’s wear destination with a European flair and fashions from the likes of Hubert de Givenchy and Pierre Cardin.
In the Seventies, Fred’s sons Gene and Bob joined the family business and expanded it into women’s designer merchandise, while Fred’s wife Phyllis created the chic Chelsea Passage home department, as they collectively and effectively began competing with established uptown upscale retailers like Saks Fifth Avenue and Bloomingdale’s. The store hit a high note when it launched Giorgio Armani in the U.S. in 1976.
In the Eighties, a women’s store linking to the men’s store was created. That was Gene’s vision. It’s most startling feature was an Andrée Putman-designed spiral staircase, elevating the Barneys image. Dramatic staircases became a signature for future stores operated by Barneys and other luxury retailers. For the opening party, Andy Warhol showed up, establishing Barneys as a cool destination.
In 1993, Barneys opened the largest new store in New York City since the Great Depression: a 230,000-square-foot Peter Marino-designed flagship on Madison Avenue. And the cool factor was sustained when Barry White performed at the opening.
Less cool was the 1996 bankruptcy. The Pressman brothers were removed from running the business.
“When Barneys went into bankruptcy the first time it was tough on not just the store, but all the vendors and loyal customers,” said Julie Gilhart, a former Barneys senior vice president and fashion director, now running Julie Gilhart Consulting. “It caused the team to really think about the ways we had been doing business and how we could do it better. Moving forward and past bankruptcy, we were obviously on limited budgets but we produced some of our most creative work. We were forced into thinking how to create experiences for the customer with highly edited curated merchandise. Essentially we got rid of all the noise and excess and became even more pure. We never followed but led. If Barneys can survive this current financial crisis, to move forward it will take a relook on how the business is run, but also new innovative thinking on how a store can reinvent itself in the current changing retail landscape.”
A vulture fund led by Doug Teitelbaum swooped in to pull Barneys out of bankruptcy in 1999, leaving the Barneys team perplexed about the future with a new type of owner, but only initially. “Actually, Doug was great for the business,” said a source who worked at Barneys. “He understood the creative process. He loved Barneys and loved the creative collective spirit and almost wanted to be a part of it. He got to know the team.”
The store was eventually flipped over to the Jones Apparel Group, which sold it to the Dubai fund Istithmar until Perry Capital and Yucaipa took control of Barneys by swapping their debt holdings for equity stakes, shedding about $540 million of the company’s $590 million in long-term debt in the process, and avoiding another bankruptcy.
“Our mantra was ‘taste, luxury, humor,'” said a former executive. “We did not have the biggest pencils. Other stores had bigger budgets. But we had a lot of exclusives because there was this creative spirit. It was an honor to do business with all these creative designers and brands.” The lack of hard designer shops and leased designer shops has been a point of distinction, though it also sacrificed a big chunk of potential business.
The executive credited Vitale and her predecessor Mark Lee with “picking a lane and sharpening a point of view.…They tried to modernize Barneys. They cleaned it up from the eccentric, idiosyncratic days, and gave it a sharper, clinical modernistic edge.” They renovated much of the flagship and even changed the type fonts for the marketing. “It became a noneccentric storytelling and people missed that. They did try to create a new Barneys. Whether it was successful is a big question. Dover Street Market is eccentric and that appeals to me. Any store can be white and have stainless steel and lots of lights. I believe Barneys lost some of its personality.”
Still, Barneys had an erratic record of paying vendors — some got paid on time; others didn’t and had to prod senior officials for their money before they shipped again. Factors often turned the credit off and on again, and vendors were frequently on edge.
“This is a company that hasn’t been big on profits for a long, long time,” said Allen Questrom, Barneys ceo from 1999 to 2000, who took Federated Department Stores Co. out of bankruptcy and later Macy’s Inc. out of bankruptcy by combining the two retailers. “Barneys is a terrific store, but it’s very coastal in terms of its appeal.”
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