Barneys New York looks set to file for Chapter 11 bankruptcy court protection this week, possible as early as Monday night or Tuesday morning, according to reports.
The hope now is that a much smaller Barneys operation will attract a buyer to keep the business as a going concern.
Barneys has been in talks with lenders for debtor-in-possession financing. DIP financing would allow the company to keep key stores in operation and get vendor support to ship goods for the next 60 days.
In the past two months, vendors pulled back on shipments because Barneys was slow to pay invoices. And in the past two weeks, some cut shipments altogether for fear they wouldn’t be paid in case of a filing, which would put them in the class of pre-petition claims and much further down the debtor totem pole if and when those claims actually get paid–and usually just at pennies on the dollar.
The fact that the luxury chain will shortly file isn’t exactly unexpected. There have been rumblings on and off for years that the chain has been in trouble. It has also undergone different owners over the years, and even though it has opened some new stores, such as its downtown Chelsea location in February 2016, there has also been criticism that the company should have invested more in refurbishing or investing in existing stores, as well as growing a more robust online channel.
Word first surfaced in mid-July that Barneys was close to filing a petition for bankruptcy court protection, even as executives began reaching out to potential buyers to save the business. According to a report from the Wall Street Journal Monday, the plan is for the company to shutter most locations and find a buyer within 60 days, or it will have to liquidate operations. Barneys is reportedly in talks with Gordon Brothers and Hilco, both liquidators, to possibly provide financing for its bankruptcy filing.
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Financial executives told Sourcing Journal the retailer probably should never have opened its store in Chelsea, and that other stores likely to close include those in Boston, Philadelphia and Seattle. Many of its outlet stores, called Warehouse locations, are likely to see their doors close, too. The three key flagship stores in Manhattan, Beverly Hills and Chicago stand a better chance of staying open. While the bankruptcy filing will help Barneys shed the leases it no longer wants, the retailer will still need to see if it can find some resolution with Ashkenazy Acquisition Corp. on rent for the Manhattan location on Madison Ave. and for the store in Beverly Hills.
Barneys has blamed a rent increase at the two locations, particularly the Madison Ave. store where annual rent jumped from $16 million to over $30 million, for its financial ills. Barneys and Ashkenazy fought over the terms connected to the increase and the matter was submitted to arbitration. Barneys lost the arbitration and there was talk that perhaps the retailer should have reduced the leased space to balance out the increase at its Manhattan location. According to sources, that option wasn’t feasible because most of the increase was centered on the lower floors.
Two week ago, the retailer failed to make payroll and had to manually cut paychecks for employees. While the company said there was a glitch with its outside service provider, some of its staff had started to wonder whether a bankruptcy filing was looming closer on the horizon.
A spokeswoman for Barneys did not return a request for comment on a possible bankruptcy filing this week. Executives at Gordon Brothers and Hilco could not be reached for comment.