Barneys New York Secures Capital Infusion to Pay Bills, Reorganize

Barneys New York has received a new lifeline, less than one day after the iconic luxury fashion retailer filed for Chapter 11 bankruptcy protection.

In a last-minute announcement late Tuesday at the start of the company’s first bankruptcy hearing, attorneys for Barneys said the company received a larger capital-infusion offer, extended by Brigade Capital Management and B. Riley Financial. They offered $218 million for the retailer to right its ship while it continues to search for a buyer. U.S. Bankruptcy Court Judge Cecelia G. Morris, for the Southern District of New York, said this funding could replace the retailer’s previously secured $75 million from Hilco Global and the Gordon Brothers Group.

The judge said Barneys initially could use $75 million of the new funding, which will go to pay employees, vendors, and other creditors, while giving the company more breathing room to operate and rethink its business.

“We are pleased to partner with Brigade Capital and B. Riley Financial, whose substantial financial commitment will better support Barneys New York,” said Daniella Vitale, chief executive officer and president, in a statement released late Tuesday night. She said the money will allow the store to “continue to offer a unique customer experience, strengthen our relationships with our vendors, and conduct a sale process to position Barneys New York for the long-term.”

According to Bloomberg, the retailer listed liabilities in bankruptcy court papers of $200 million, with $800 million of revenue in 2018. In addition, the company has about $120 million of federal net operating losses, which could be used to offset future taxable income.

The news release said Brigade Capital, a global investment management firm, and B. Riley Financial, a diversified financial services company, “will provide Barneys New York critical support throughout the company’s going-concern sale process.”

Stores staying open and closing

As part of rejiggering its business, the company said it will close its Chicago, Las Vegas, and Seattle stores, five concept stores, and seven Barneys Warehouse locations. Remaining open: Its flagship locations on Madison Avenue and downtown New York City; Beverly Hills, San Francisco, and Boston’s Copley Place. Warehouse locations in Woodbury Common, Central Valley, N.Y., and Livermore, Calif., in the San Francisco Bay Area, will also remain open.

Additionally, the cutting-edge, legendary store owned by billionaire investor Richard Perry, announced it will streamline its fashion assortment.

“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 Vitale in a news release before the bankruptcy hearing. She said the company is looking to “optimize our operations.”

“While doing that,” Vitale said, “we are receiving new capital to help support the business. Pursuing a sale under the court’s supervision provides the quickest and most efficient means of maximizing value while ensuring we continue serving both new and loyal customers.”

More funding, better chances

The significant increase in Barneys’ capital infusion is a positive sign for the retailer’s survival, said Randye Soref, a principal at the national Polsinelli Law Firm, based in Los Angeles.

“Anytime a debtor can obtain more financing on the front end, that’s a good thing. They have more breathing space. They thought they were going to have $75 million and now they have $218 million.”

Retail analysts were not surprised Barneys’ has sought to reorganize under Chapter 11 bankruptcy protection, which had been anticipated for some time.

“This is their second time declaring bankruptcy,” said Sucharita Kodali, a retail analyst with Forrester Research. “What gets you through it, is you can’t be too much in debt and you need to be able to show sales that help you pay” your bills and employees, Kodali said. “They have to be able to service customers. It’s a high-touch luxury store and you can’t skimp on that.”

Who might buy the storied retailer?

A hedge fund could be a potential buyer, Kodali speculated. “Someone who’s able to take on debt and buy the assets…The issue is, once you’re in bankruptcy you don’t have a lot of latitude to invest.”

Will Barneys survive?

Hitha Herzog, chief research officer of consumer and retail for H Squared Research, was upbeat about Barneys’ future.

“If they choose a brick-and-mortar presence, it should be a lot smaller, their online presence should be bigger, which should reduce their overhead costs,” Herzog said.

A large number of retailers got into this predicament because they were “over-stored,” Kodali concurred.

“These high-end, multi-brand retailers are in premium locations, maybe they can’t make their rent, they bought too much into bad inventory that doesn’t turn,” Kodali said. “The thing about luxury, there are a handful of brands that drive a disproportionate amount of sales. The challenge is [Barneys’ has] a lot of brands that were less known. It has to be a heavily-assisted sale to persuade someone to spend $500 or $1,000 on a brand they never heard of.”

Another hurdle facing Barneys, which all retailers are up against—a decline in customer traffic.

“Luxury retailers have experienced the same type of traffic declines that non-luxury retailers have experienced,” said Jay Sole, analyst and executive director at UBS. “Just because they have some of the premier locations, that isn’t the biggest differentiator in terms of driving traffic.”

Consumer spending on apparel and footwear is also down. “[Retailers] are already operating in an environment that has been lackluster,” Sole said. “There’s been real growth for luxury markets from stores like Rent the Runway and The Real Real, where people can buy a high quality luxury product for a discounted price.”

Barneys, known for selling an array of emerging and on-trend luxury fashion, from $1,000 Christian Louboutin pumps to $2,000 Balenciaga silk dresses, may weather this fashion storm.

“Barneys has a great brand name,” said Herzog, noting a company’s cachet can be attractive for a buyer “even if their numbers are not that appealing.”