FINANCE

Barneys files for bankruptcy; will close most stores

BY Marianne Wilson

Barneys New York filed for bankruptcy protection with a plan to shrink its store footprint as it looks to find a buyer to breath new life into its struggling operations.

As part of the plan, the 96-year-old fashion-forward luxury retailer will shutter its stores in Chicago, Seattle and Las Vegas and Seattle, along with five smaller format stores and seven Barneys Warehouse locations. The closings will leave Barneys with five flagships, including its celebrated outpost on Manhattan’s Madison Avenue, along with locations in downtown Manhattan, San Francisco, Boston and Beverly Hills, Calif. Barneys Warehouse stores at Woodbury Common Premium Outlets (Woodbury, New York) and at San Francisco Premium Outlets (Livermore, California) will also remain open as does the company’s two e-commerce sites.

Barneys said it has raised $75 million in new financing  from affiliates of Hilco Global and the Gordon Brothers Group to help support the business as it navigates bankruptcy and facilitate a sale. (CNBC has previously reported that, without a buyer, the company will likely liquidate.)

The filing comes amid rising rent on its  Manhattan flagship — the rent nearly doubled to $30 million — and shifting tides in the luxury market.  Barneys listed assets and liabilities between $100 million and $500 million in its filing and more than 5,000 creditors. The creditors’ list featured many of the biggest names in fashion, including, Gucci, Prada, Chanel, Yves Saint Laurent America Inc. and Balenciaga America.

“Like many in our industry, Barneys New York’s financial position has been dramatically impacted by the challenging retail environment and rent structures that are excessively high relative to market demand,” said Daniella Vitale, CEO, Barneys. “In response to these obstacles, the Barneys New York Board and management team have taken decisive action by entering into a court-supervised process, which will provide the company the necessary tools to conduct a sale process, review our current leases and optimize our operations.”

This is Barneys’ second bankruptcy filing. The first was in  1996 and related to problems under the company’s then-owner,  Japanese department store company Isetan. In 2012, Perry Capital, the hedge fund of New York investor Richard Perry, took control Barneys in a $540 million debt-for-equity swap.  Although the fund was closed down in 2016, Perry continues to own Barneys, with an estimated stake of 72%.  He has tried to sell the chain, but ultimately couldn’t find a new buyer or make the company’s finances work, reported Women’s Wear Daily.

In conjunction with the Chapter 11 filing, Barneys filed a number of customary motions seeking authorization to support its operations during the court-supervised process, including authority to continue payment of employee wages and benefits and honor customer payments and orders. It expects to receive court approval for these requests.

“We are pleased to partner with Barneys New York as it takes this proactive step to conduct a value maximizing sale process,” said Ben Nortman, executive VP of Hilco Global. “We are investing in Barneys because we believe that it is an iconic retail brand. We look forward to working with the team to achieve the best outcome for all stakeholders.”

Kirkland & Ellis LLP is serving as Barneys’ legal adviser, and Houlihan Lokey is serving as financial adviser.  M-III Partners LP is serving as restructuring adviser.

Tiffany Hogan, senior analyst at Kantar, said that Barneys’ bankruptcy shows that 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.

“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,” she said.

 For more expert opinions on Barneys, click here.

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