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Exclusive: Barneys Fails to Make Payroll, Bankruptcy Could be Next

Time may be running short for Barneys New York, and with it, the retailer’s cash flow.

The luxury retailer is facing mounting financial pressures, and the latest hint of ongoing trouble is its failure to pay staff.

Word surfaced Friday that the situation could be heading south rather quickly when Sourcing Journal was informed that the retailer failed to issue paychecks to full-time employees. It is believed that the company blamed the snafu on an “ADP error.”

A spokeswoman for Barneys said on Friday, “Today, Barneys New York’s payroll provider experienced a technical issue as it attempted to deliver employee payroll. Barneys New York will provide all employees hard paychecks by end of day tomorrow.”

Not making payroll when a company is having cash flow issues is frequently perceived as an indication that a bankruptcy filing is close at hand.

Often, companies moving closer to a bankruptcy filing will try to conserve as much cash in their coffers as possible ahead of the court petition for Chapter 11 protection. That’s because bankruptcies are an expensive process, and negotiations are often still ongoing with potential lenders for a financing facility prior to the actual filing. The latter means that until a debtor-in-possession facility is in place, companies can never be too sure there will be sufficient funds to get through the entire restructuring process.

Word surfaced two weeks ago that the specialty chain was considering a bankruptcy filing among its options to deal with a hike in rental payments, mostly for its Manhattan flagship on Madison Ave., and also at its Beverly Hills flagship.

The scuttlebutt was that, over the last few months, many vendors had made a business decision to no longer ship to the nearly 100-year old chain, either because of rumblings of non-payment or because the vendors themselves were still owed money for goods already shipped. There was still a lender or two that approved a sporadic order to Barneys, but in the last week, all credit checks have stopped. Once that happens, it almost always ensures the retailer will have a tough time getting goods for its stores. And inventory had already been dwindling at Barneys stores. Earlier this month, shoppers hoping to try on merchandise in their sizes, whether for apparel or footwear, were met with an “out-of-stock” situation. One shopper said this happened “multiple times” during one visit to the retailer’s Manhattan flagship location.

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Retailers have had issues adjusting to the new world of shopping as consumers gravitate away from brick-and-mortar to the online channel. In Barneys’ case, the retailer’s major problem was when 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 annual rent in January from its prior annual rent of $16 million.

Updated to include statement from Barneys.