FINANCE

Analysis: Experts weigh in on Barneys’ bankruptcy filing

BY Marianne Wilson

Eric Snyder, partner, Wilk Auslander, and chairman of the firm’s bankruptcy department:

“The $75 million loan that Barneys seeks approval of from Gordon brothers and Hilco comes at a high interest rate with generous fees. The rate of interest is LIBOR + 12 %, or about $14%, and there are two loan fees equal to 10% of the loan. So, If the loan is repaid even as early as three months from now, Barneys will have to pay interest of $3.5 million and fees of $10 million or $13.5 million on a 90-day loan of $75 Million. Plus the sale has to close within sixty days.

Since there is $190 million in pre-petition secured debt, the only parties that seem to benefit from any loan and sale are the pre and post-petition lenders.”

David Silverman, senior director,  Fitch:

“Barney’s bankruptcy filing supports our views about omnichannel investments and the fashion cycle: Scale has become critical given the rising costs of ominichannel investments to support customer loyalty and efficient operations, and fast fashion has grown in scale providing fashion-focused customers, who follow seasonal trends less,  cheaper alternatives to luxury brands.

“Within luxury retail, Barneys’s revenue base of $800 million is well below that of Neiman Marcus, while Saks is part of Hudson’s Bay, which generated around $7 billion in revenue. Scale allows these competitors to invest significantly in long term growth initiatives around customer-facing elements like websites and store remodels, and infrastructure like robust supply chains. And because Barneys is a more fashion-focused department store than Neimans or Saks, it could have been more impacted by fashion cycle changes.”

Tiffany Hogan, senior analyst, Kantar:

“Luxury retail is in the same boat as the rest of the industry —  it is getting squeezed by higher costs, lower demand and picky consumers. As such, Barneys bankruptcy doesn’t come as too much of a shock.

“Barneys will refocus, as many other retailers have done, on its flagship locations, while cutting operations that either weren’t profitable or had less potential to grow sales.

“This news will also put luxury brands on watch as well, encouraging them to invest more in online players such as Farfetch and Net-a-Porter that are growing faster and pose less of a risk than many physical retailers.”

Robert Gayda, partner in the bankruptcy & corporate reorganization group at Seward & Kissel LLP:

“The Chapter 11 filings of Barneys New York, Inc. and its affiliated debtors mark the decline of yet another brick-and-mortar retailer in 2019, with plans to liquidate a number of locations – if not Barneys in its entirety.  The retail landscape shift has claimed another victim, with more, like J.C. Penney (which has now confirmed the hiring of restructuring advisors), on the horizon and no end in sight.”

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