PRESSMANS’ FAREWELL COULD MEAN ADDITIONAL DEPARTURES AT BARNEYS
Byline: David Moin / Vicki M.Young
NEW YORK — Barneys New York, which has gone from crisis to crisis for more than two years, may now be jumping right into the fire.
With Gene and Robert Pressman stepping down as co-ceo’s on Wednesday, Barneys becomes a store with no merchant at the helm, riding a potential wave of defections. And the upscale retailer has a future that’s as uncertain as ever, even though there’s a creditor-assisted plan to get Barneys out of bankruptcy, cobbled together by vulture fund creditors and Isetan Co. Ltd.
Several key executives have already left since Barneys filed bankruptcy in January 1996. Next up may be Simon Doonan, executive vice president and director of creative services, who has other projects on his mind, like his upcoming book “Confessions of a Window Dresser.” He’s been hawking it in Hollywood and would consider a consultancy role at Barneys — similar to that of Gene and Robert Pressman — sources said, freeing him for other activities. Doonan is the $600,000-a-year architect of Barneys’ clever window and marketing campaigns and long a part of Barneys’ inner sanctum.
Also, Bonnie Pressman, the talented fashion director and arbiter of Barneys taste level with Gene, her husband, reportedly has received offers from several top designer firms, but is expected to continue at Barneys for the foreseeable future. She was once a model for Ralph Lauren.
Search executives said Tuesday that middle and lower-level Barneys employees are aggressively circulating resumes.
Meanwhile, Thomas Shull, president, has stepped up to ceo, defying fashion retailing’s maxim that the ceo should be a merchant, or else product and merchandising issues take a back seat to the numbers.
Shull’s expertise is in operations and financial areas. He’s not a merchant, leaving a big void in the organization. So far, no search is out for a new top merchant.
And even with the Pressmans stepping aside, their problems — and Barneys’ problems — aren’t over.
As first reported in WWD, February 1997, Barneys is under investigation by Manhattan District Attorney Robert Morgenthau. The Manhattan D.A.’s office on Wednesday declined comment of the status of the case, but sources indicated the investigation remains open.
As reported, the probe centers around the activities that led to the retailer’s dramatic bankruptcy filing in January 1996.
Sources have indicated that the D.A.’s office is looking into “everything.” Of particular interest is Barneys’ accounting records prior to the bankruptcy filing.
Reportedly under the D.A.’s scrutiny, in addition to the company’s accounting procedures, is how royalty income was accounted for over a period of three years, from 1993 to 1995.
Specifically, in the summer of 1995, Barneys reportedly included $75 million in its balance sheet for anticipated royalties from its Asian license agreement with Isetan. That figure, according to sources, was included in numbers provided to Chase Manhattan Bank in connection with a $150 million bank syndication that was sought and eventually obtained by Barneys. But that royalty income supposedly never materialized.
According to investment sources, the $75 million was based on stores that Barneys had expected Isetan to open outside of Japan, which were never opened. Investment sources said they have no idea where or how Barneys arrived at the $75 million amount.
Another query that has plagued the bankrupt retailer has been a four-year audit by the U.S. Customs Service concerning Barneys’ record keeping. The probe, started in 1994, is nearing completion.
As for the future, observers note that with the enduring Barneys team on the brink of collapse, the store may never be the same. It would be difficult, competitors and vendors note, for Barneys to retain its fashion leadership and distinct character. It’s had the distinct stamp of the Pressmans, with Fred, and later Gene, having personally trained many of the buyers at Barneys, showing them the way through the market.
As far as the women’s business and the expansion of Barneys, Gene has been the visionary force, but also perceived as part of the problem. He’s considered flamboyant and charismatic, yet risky in his business dealings. But his track record is impressive when it comes to showcasing new designers, including several such as Jil Sander and Prada, that became fashion stars after getting their breaks at Barneys.
Other Pressmans who have been on the payroll are Gene and Robert’s mother Phyllis, executive vice president of Chelsea Passage, and Holly Pressman, vice president of corporate gifts, who is also Robert’s wife. Their future is unknown.
As expected, Gene and Robert Pressman will take jobs as Barneys consultants, relinquishing their ceo titles. After the store emerges from bankruptcy, possibly in the fall, according to those involved in the case, they could be forced to drop the co-chairman titles, too. The new owners of the reorganized Barneys — vulture funds Whippoorwill Associates Inc. and Bay Harbour Management — will elect a new board of directors and they have no obligation to keep the Pressmans on the board.
The Pressmans are close to signing two-year consulting agreements and will be given a small piece of equity — totaling 1.5 percent — in the reorganized Barneys.
No consulting agreements have been signed yet, however.
Many in the industry view the recent developments as a sad and dramatic end to what was a remarkable run in retailing for a family of innovative merchants.
Shull is now the voice of Barneys and he’s not conceding any ground for the high-end retail chain.
According to Shull, the company has plans to grow through a number of initiatives. For example, Shull pointed to “by-location planning” for each store, where customer profiles are done to enable Barneys to tailor its assortment mix for the lifestyle in that location. “The initiative was started six month ago and is the cornerstone for Barneys’ next fiscal plan,” noted Shull.
In addition, the company has also started a program to reward credit card customers, hoping to put it on competitive footing with Saks, Bergdorf’s and Neiman Marcus. Barneys’ credit card penetration is about 15 percent, compared to 40 to 50 percent for its competitors, stated Shull. Customers who open a Barneys credit card get 10 percent off for the day’s purchase.
“Top line growth is 13 percent for its Division I stores, and comparable store sales are expected to continue growing,” according to Shull. Division I stores include the three flagships in Beverly Hills, Chicago and on Madison Avenue, as well as the Manhasset, World Financial Center, Chestnut Hill, Costa Mesa and Seattle branches.
Barneys also plans to increase its private label line to 30 percent of the merchandise mix from its current 20 percent.
Other changes are also in the works, according to Shull. Barneys will be changing some of the merchandise in its outlet stores and warehouse sales. Previously, merchandise was brought in just for the outlets and warehouse sales. “In an effort to coordinate the venues,” said Shull, “merchandise will be transferred in from the Division I stores.”
As for the future management team at Barneys, a senior spokesman for the company isn’t anticipating any major changes, despite rumblings in the market.
“The company has been operating [in bankruptcy] with a strong operational and merchandising team,” the spokesman said. That team includes: Judy Collinson, a nine-year veteran who was promoted to executive vice president for women’s clothing for all three divisions; Tom Kalenderian, an 18-year veteran who is executive vice president for men’s clothing for all three divisions, and Bonnie Pressman, a 13-year-plus veteran.
Gene and Robert Pressman will continue on as co-chairmen until the bankruptcy court approves the plan of reorganization. In the meantime, the management team reports to other senior executives in the Barneys hierarchy.
For the past year, even though the Pressman brothers were co-ceos, it’s been Shull calling the shots, cutting expenses and narrowing the losses. For the five-week period ended April 4, Barneys’ sales rose 2.4 percent to $31.6 million. Expenses and reorganization costs still left the upscale retailer with a loss of 1.3 million, compared to last year’s loss of $5.1 million. Since last year’s numbers were reported, the company closed five stores.
Market sources are calling the consulting and equity agreement with the Pressmans “hush money.” According to sources, there’s strong language contained in the proposed agreement, forbidding the Pressmans from doing anything that would impair or disparage the Barneys business or management, and forbidding them from working at a competing company.
It’s also a deal that allows the Pressmans to bow out of the business with some dignity.
But the Pressmans’ behavior over the next couple of years will be closely monitored by Barneys’ new board. If they are found to be undermining Barneys in any way, sources speculated, the Pressmans risk losing their contracts. The Pressmans carry with them a wealth of market knowledge and connections to leading designers.
Industry sources note that it is questionable how much of a role the Pressmans will play as consultants.
In recent interviews, Gene and Robert gave the appearance of being a team. In reality, they don’t get along, and the bad blood has existed for some time.
There have even been reports that Robert once tried to take over Barneys from the family. Whether related to such a move or not, friction in the family persisted. Robert was even excluded from the will of his father, Fred Pressman, who died in the summer of 1996.
Fred’s will, dated May 22, 1996, left the estate to his wife Phyllis. The will also stated that if Phyllis should predecease him, the estate would be divided among his son Gene, and Fred’s two daughters, Elizabeth Pressman-Neubardt and Nancy Pressman Dressler. Fred’s will included a provision stating, “I make no provision hereunder for my son Robert L. Pressman, for good and sufficient reason.” Phyllis was named executor of Fred’s estate.
According to the U.S. Estate Tax return dated Oct. 13, 1997, Fred left an estate valued at $31.3 million. After a total allowable deduction of $30.7 million, plus federal and state tax credits, there were no taxes owed by the estate of Fred Pressman.
His estate included $10 million in real estate, $15.2 million in stocks and bonds and $3.2 million in annuities. His home at 63 Osborn Road in Harrison, N.Y., was sold for $3.5 million. The residence at 346 Meadow Lane in Southampton was valued at $6.5 million.
As news about the Pressmans came out this week, the fashion industry expressed deep concerns about the future of Barneys, but weren’t ready to write the store’s obituary.
“They [Gene and Robert] are so much the spirit of the store and their vision of the store has been very much what we have believed in,” said Annette Giraud, executive director of Hermes wholesale, who oversees the Barneys business. “Maybe they had that little oops, but the franchise is so strong. We hope to continue to work with the Pressmans.”
“Barneys is an important store for New York,” said Linda Dresner, owner of two eponymous stores here and in Birmingham, Mich. “For a large store like that, Barneys does it better than anybody. It will be a shame if the concept changes so much without the Pressmans at the helm. I hope that it won’t. I know they’ve had their ups and downs with other retailers and vendors but I respect their point of view very much.”
Dresner said she’s noticed changes at the store: “Salespeople are trying harder to be pleasant and the merchandising seems to be more carefully thought out.”
“There was a period when they first filed Chapter 11 when the store was very light on merchandise, but lately the store seems to be extremely well merchandised,” said Steven Ruzow, ceo of Kate Spade. “Especially as far as our business is concerned, it’s trending very well. There sure seem to be a lot of shoppers there.”
Asked whether the reorganization will have an impact, Ruzow said, “That remains to be seen. Obviously, Gene and Bonnie are terrific merchants and I wouldn’t like to see any change. I think we’ll all have to wait and see how it plays out.”
As for the ongoing bankruptcy case, Barneys creditors and the two principal vulture funds owning the retailer’s debt, Bay Harbour and Whippoorwill, on Wednesday were granted until July 31 to file terms of their reorganization plan.
Creditors reached an agreement with Isetan on a reorganization plan in May that basically converts debt into equity. Also under the plan, Isetan, Barneys’ partner-turned-bitter-adversary, is expected to get an upfront cash payment of $25.6 million, and the creditors will own 93.5 percent of a reorganized Barneys. In addition to the small equity piece for the Pressmans, the agreement provides for a $68.8 million equity infusion into Barneys from the creditors, as well as bank financing currently being negotiated.
The unsecured creditors will exchange their debt for stock in the reorganized Barneys, and there is a separate rights offering for these creditors to purchase more shares of common stock on a pro rata basis for $50 million.
The two vulture groups hold a combined $133 million, or 41.5 percent of the estimated $320 million, in unsecured claims. They agreed to make up any shortfall in funding the plan if other creditors do not elect to purchase the additional stock. In consideration, they can obtain some additional stock in the new company.
The plan also calls for Isetan to keep its license to operate Barneys in Japan and get a four-year extension of the rights to 2015. Rights to operate Barneys elsewhere in Asia get transferred to a new partnership, 70 percent owned by Barneys and 30 percent owned by Isetan.
The agreement is considered a good one for Isetan, the landlord of Barneys three U.S. flagships, as well as the operator of the two Barneys stores in Japan and in-store Barneys shop in Singapore. It also provides a generous rent structure for the U.S. stores, with a base rent to go up to $15 million after the first five years of $12 million in annual rent. It’s not a bad one for the Pressmans, either. The deal wipes out over $200 million outstanding debt Gene and Robert owe Isetan, which they personally guaranteed.