By and
with contributions from Jean E. Palmieri
 on August 2, 2019
Signage for Barneys

As Barneys New York scrambles for a way forward, the fashion industry is bracing itself for yet another bankruptcy — but holding out hopes that even if the retailer does fall, someone might be there to catch it.

Just where the tony retailer ends up is a topic of increasing speculation and intrigue — with one source saying the situation could be resolved next week. That’s become something of a refrain, though, as the company works furiously in the background to reorganize.

One source with knowledge of Barneys’ situation suggested there’s a “money person,” a possible new partner or white knight of sorts, in the wings who could give the retailer another lease on life. However, that doesn’t mean a bankruptcy would necessarily be avoided.

The source added, “Barneys has to clean things up,” meaning close several unproductive doors. “Whoever that money person is has some demands, I would think.”

“If the rumor is correct, I suspect it could either be someone wanting it as a trophy asset or someone with a completely different business model, similar to how Farfetch acquired Browns of London,” said a fashion executive, who requested anonymity.

Vendors have been delaying shipments to Barneys or shifting to consignment arrangements, while trade financing companies have turned off the spigot. And at least some landlords are said to be working on a Plan B and looking to repurpose space currently occupied by the retailer.

Everyone is waiting for more information as owner Richard Perry, chief executive officer Daniella Vitale and their advisers try to untie the company’s finances, with a bankruptcy filing looming large.

Barneys — for years, a vital supporter of cutting-edge, high-end fashion — has been struggling as shoppers have moved online, are spending more on experiences and have become otherwise diverted. A rent hike this year at the retailer’s Madison Avenue flagship, to $30 million from $16 million — as well as a rent hike at the Beverly Hills store — has proved to be just too much to bear.

Perry is said to have been out courting would-be investors last year, including big digital platforms like Farfetch and Amazon. But that did not result in a deal. Vitale was then making the rounds in the past month or so looking for a buyer as advisers helped the company gauge its options. It is understood she courted all the leading department store groups, which are said to have passed.

Sources have been buzzing about some sort of a deal with a strategic acquirer as being in the works, but that could take many forms and various test balloons have been sent up as Barneys has looked for solutions.

While it is seen as unlikely that a big department store chain would want to double down on the format and buy Barneys as a bolt-on business, someone could shrink the chain and try to operate with just two or three of the main flagships.

The Barneys name is also seen as still valuable, so a play perhaps could be made to buy its intellectual property and roll out a fresh take on the retailer.

A consortium of investors could also be cobbled together to help keep Barneys afloat, although it’s not clear just how some new capital would help the retailer if its sales don’t support its costs.

That has led many to believe that, if there is a deal to be done, it will most likely be done with the help of the courts and perhaps with a prepackaged bankruptcy plan that would offer a ready-made path forward and would free the company from unwanted leases and other obligations.

Among the Barneys locations likely to close in the event of a bankruptcy is the Chelsea unit in Manhattan, which opened in February 2016. Business there is said to be slow. Other Barney locations seen as not performing particularly well include those in Boston, Philadelphia, Las Vegas and Seattle. Barneys operates 13 regular-priced stores and nine outlets.

Earlier this year, Barneys officials denied that the Madison Avenue flagship would be downsized. However, retail sources said given the retailer’s high rent there, a downsizing would ease some of that burden. The flagship, situated at 660 Madison Avenue between 60th and 61st Streets, would be “great office space,” said one retail source.

It’s widely perceived that there is cache and value in the Barneys brand, despite its financial difficulties, but a new partner would only invest if somehow both the rents and the store count were reduced.

“This is a business that doesn’t have enough customers around for what it sells,” said one retail expert. “I don’t see the universal appeal.”

Nevertheless, Barneys continues to bring its unique fashion edit to additional locations and within the past year has signed leases for the American Dream entertainment and retail complex in the New Jersey Meadowlands scheduled to open this fall, with or without Barneys, and in Bal Harbour Shops luxury shopping center in Miami Beach in 2023. It’s unclear whether a Barneys restructuring would impact the status of those leases.

One way or another, the endgame is approaching. Without fresh shipments from brands, the retailer will find it ever harder to drive sales and pay its bills.

Attorney Douglas Hand, who is a founding member of Hand Baldachin Amburgey and works with many designers, said: “A lot of my clients are in a holding pattern in regard to shipments, which is not a sustainable cycle for Barneys because they’re not going to get a full stock of new and current goods. They’re also now saddled with the rental payments that put them in this position in the first place and if sales aren’t increasing, their ability to make those payments and make them on time is diminishing.”

Hand said designers can take some steps to protect themselves, but that they require the retailer’s cooperation.

“One is to shift the way that goods are placed to a consignment model,” he said, noting some of his clients have taken that approach and would still own the goods in the event of a bankruptcy. “The other is the good old-fashioned being paid up front.”

For smaller vendors that have not been paid and are owed six-figure sums, Hand said a Barneys bankruptcy could be too much for them.

“It would be a sad thing to see Barneys go if in fact it actually dissolved in a Chapter 7” liquidation, Hand said. “Barneys has been one of the premier stores for emerging designers.”

But then, he added, “It’s not like people aren’t buying — they’re just not buying so much at traditional retail stores.”

In that way, Barneys might be something of a canary in the coal mine for fashion retail — a kind of early warning sign that more trouble could be ahead for the brick-and-mortar institutions.

Even though Barneys’ immediate financial problems are unique, and sparked by the sudden rent increase, its broader challenges are shared by many across the industry. It has simply become harder to get younger shoppers to come and spend in stores as they hunt for resale finds on The RealReal, take a pass on owning with Rent the Runway or let their fingers do the shopping via mobile with Farfetch, Net-a-porter, Matchesfashion.com or others.

load comments
blog comments powered by Disqus