By
with contributions from Evan Clark
 on July 14, 2019
barneys

Barneys New York, whose financial performance and track record paying vendors has long been questionable,  is now “actively evaluating opportunities to strengthen its balance sheet,” the company said Sunday.

Possibilities range from finding an investor, incurring debt or declaring bankruptcy. Efforts within the last couple of years by owner Richard Perry to sell the business were unsuccessful.

Many retail bankruptcies stem from huge debt burdens on businesses that can’t generate enough cash to service their debt. Rent can also be a big factor in bringing down a retailer. While Barneys does not have significant debt, it did get a whopping increase in rent on its Madison Avenue flagship. The rent went from $16 million to more than $30 million a year. There was also a rent increase for the Beverly Hills store. Both properties are owned by the Askenazy family.

Also, Barneys Madison Avenue flagship is seen as being over-spaced and lacking in robust shopper traffic, although the Freds restaurant inside the store is consistently busy and filled with VIP-type patrons.

In addition, for many seasons there have been on-and-off again expressions of concern from factors and vendors regarding overdue payments from Barneys, suggesting issues with liquidity. However, when asked about that, Barneys executives have characterized the business as overall healthy with significant e-commerce gains. Barneys developed e-commerce years after competitors were deep into it.

In the Nineties, Barneys went bankrupt in part due to overexpansion with large stores in communities with populations that weren’t wholeheartedly interested in Barneys’ brand of luxury and unique merchandise edit. Barneys does have a strong reputation for introducing young and talented designers from around the world and presenting an elevated appeal. But it has faced increased competition from pure-play e-tailers such as Net-a-porter, Matchesfashion and Farfetch.

The arrival of Neiman Marcus in Hudson Yards and the impending opening of Nordstrom’s women’s flagship near Columbus Circle in October also represent increased competition for Barneys in its home market.

Ironically, Barneys’ financial issues are surfacing just when the company is planning yet another expansion with a store planned for the American Dream entertainment and retail complex in New Jersey, either this year or next, and a store planned for Bal Harbour Shops in Miami Beach further in the future, in 2023 or 2024. It’s unclear how a restructuring  could affect those planned openings.

Reports of a possible Barneys bankruptcy first appeared Saturday afternoon on CNBC.

”We continue to work closely with all of our business partners to achieve goals we’ve set together and maximize value. To that end, our board and management are actively evaluating opportunities to strengthen our balance sheet and ensure the sustainable, long-term growth and success of our business,” Barneys said in its statement.

“At the same time, we continue to evolve our strategy and business model for the benefit of all of our shareholders through our forward thinking and uniquely modern approach, as demonstrated by our announced store openings at American Dream in New Jersey and at Bal Harbour Shops in Miami Beach, our new store in Las Vegas, Freds coming to Barneys New York in Copley Place in Boston, the launch of our cannibas lifestyle and wellness concept shop and various pop-up and vendor installation projects.”

Barneys also said, “Our customers remain our top priority and we are committed to providing them the excellent services, products and experiences they have come to expect.”

Barneys chief executive officer Daniella Vitale could not be reached for comment.

The lenders that help smooth out financing between vendors and major retailers have been watching Barneys closely and only sometimes signing off on orders.
Gary Wassner, ceo of fashion factoring company Hilldun Corp. said, “We’ve been corresponding regularly with them all this time. We have been approving intermittently throughout. It’s difficult to know what they have in mind now. Debt relief alone won’t solve everything. They need to accept that the needs and concerns of their vendors and of the credit community are as important to their success as their own are, and they must adjust their policies accordingly.”
Another lender said they haven’t been approving orders to Barneys for some time, but that at least some bills are being paid.
“They’ve really been very quiet, they’re not responder,” the lender said.
If Barneys did file for bankruptcy, it would hit a very specific slice of the fashion ecosystem.
“They’re buying from vendors that otherwise don’t sell to Neiman’s and Saks, that’s their reason to be,” the lender said. “So yeah, they’re going to hurt some people.”
A representative for Kirkland & Ellis could not be reached this week to respond to the report that the company had been hired to help Barneys right its balance sheet.
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