Barneys New York could be filing a Chapter 11 petition within weeks, its second one 23 years after its first tour in bankruptcy court.
If the high-end luxury chain were to actually file, it would hardly be surprise given it lost an arbitration proceeding last year that resulted in an escalation of the annual rent for its Manhattan flagship at 660 Madison Ave. The amount rose to $30 million in January from nearly $20 million. While expectations were that the upscale specialty chain would either move or consolidate the retail space and rent out some floors, Barneys elected not to do that.
A call to Barneys for comment Saturday was not returned.
There have been rumblings dogging the retailer over the last year or two, with some saying it was either facing liquidity issues or was slow to pay its bills. Factors and other lenders also complained that the company hadn’t always provided timely financial reports. According to some lenders, Barneys was, for the most part, paying its bills, but last year it started taking longer to pay them. That meant an invoice with a 30- or 60-day term was instead paid over a 60- or 90-day period.
Reuters first reported on Barneys possible bankruptcy filing Saturday, noting that it wasn’t a done deal and that the retailer was exploring other options, including a possible sale of the company.
The 20-year lease on Barneys’ 230,000-square-foot Madison Ave. store was signed in 1999, and although Barneys had the option to renew, it was a provision in the lease that became hotly contested in an arbitration proceeding. That clause in the lease required the new rental amount on renewal to be subject to market rate adjustments. Barneys’ management may have elected not to move or rejigger the space to occupy fewer floors because the site is considered the crown jewel of its store base.
Barneys first opened in 1923, making the retailer now four years shy of 100. It was founded by Barney Pressmen, who pawned his wife’s engagement ring to open a men’s discount apparel store on Seventh Ave. and 17th Street. His son Fred’s took over the business in the 1960s and began transitioning it from a discounter to a luxury purveyor of men’s designer clothing, according to the retailer’s website. Fred’s sons Gene and Bob joined the business and added women’s designer fashions to the merchandise mix. In 1976, Barneys began introducing its customers to European designers, starting with Giorgio Armani. By the mid-1990’s, there were rumblings of overspending, including both the Marino-designed Madison Ave. flagship and the expansion to two other key locales in Beverly Hills and Chicago. In 1996, Barneys filed for bankruptcy court protection. It exited Chapter 11 proceedings in 1999 under new ownership, marking the end of the Pressman family era.
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Barneys has had several owners over the years, and more recently there have been concerns about its balance sheet. That said, the retailer was able to extend its credit line by $50 million in April, according to a CNBC report.
Last week, commercial real estate lender Holliday Fenoglio Fowler said it arranged $550 million in financing to allow for the 300,000-square-foot expansion of the Bal Harbour Shops in Miami Beach. The luxury shopping destination is anchored by Saks Fifth Avenue and Neiman Marcus. The lender said the expansion would include a 57,414 square foot space that Barneys would occupy.
Whether that store opens could now be up for debate, depending on which strategic option Barneys chooses–a sale if a buyer can be found, or a bankruptcy filing if that’s eventually deemed the best option.
Kirkland & Ellis, which has sizable bankruptcy practice, is said to have been hired by Barneys as its bankruptcy counsel.