As expected, Barneys New York is filing for Chapter 11 bankruptcy — and the luxury retailer will now pursue a sale as it continues to operate with a dramatically smaller store roster.
Barneys has secured $75 million in new capital from affiliates of Hilco Global and the Gordon Brothers Group, which, combined with operating cash flow, will help the company meet its go-forward financial commitments.
As part of the move, the retailer will close 15 stores. It will shutter locations in Chicago, Las Vegas and Seattle, five additional concept stores and seven Barneys Warehouse locations. Barneys will continue to operate its Madison Avenue flagship, its downtown New York location as well as units in Beverly Hills, Boston and San Francisco. Online operations will also remain intact.
“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 and president of 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.”
The breaking point for Barneys came after the annual rent bill for its Madison Avenue flagship reportedly doubled in January, including enormous property taxes on the 660 Madison Ave. store.
The road ahead won’t be easy, according to Scott Stuart, CEO of Turnaround Management Association, a corporate restructuring organization. “I see them as a contracted group of stores in markets [where] they know that they can succeed and make money, but a lot of things have to happen before then: They’ll need vendor support. They’re going to need to reach debt concessions with both their equity and their unsecured creditors,” he said in an interview with FN last week.
Bankruptcies have hit the retail industry hard this year, with Payless and Sears among the once-thriving players that filed Chapter 11. While most of the activity had been focused on the lower and middle tiers of the market, the Barneys move will significantly impact high-end shoe players. Manolo Blahnik, Christian Louboutin and Gianvito Rossi are some of the major shoe companies that do substantial business with the retailer.