Luxury US retailer Barneys New York is making preparations for a bankruptcy filing that could come as soon as this month, according to reports from CNBC.
Barneys, which is facing a liquidity crunch spurred by a rent hike at its Manhattan flagship, has engaged law firm Kirkland & Ellis and financial adviser M-III Partners to assist with the potential preparations.
The advisers are understood to be exploring a range of options that include bankruptcy, as well as ones that would help it avoid a bankruptcy filing, such as a sale or securing further financing.
While Barneys is exploring a bankruptcy filing, one is far from certain according to the reports.
A spokesperson for Barneys told CNBC: “At Barneys New York, our customers remain our top priority and we are committed to providing them the excellent services, products, and experiences they have come to expect.”
The spokesperson added that: “our Board and management are actively evaluating opportunities to strengthen our balance sheet and ensure the sustainable, long-term growth and success of our business.”
The Barneys national estate includes more than 10 namesake stores in New York, California, Chicago, Massachusetts, Las Vegas, Seattle and Pennsylvania.
Barneys is just one of many US department stores that is struggling, including Nordstrom, Saks-owner Hudson’s Bay Company and Macy’s, which have all seen their share prices hit hard.
RPA Perspective Manhattan has proved particularly onerous as rent at Barneys’ flagship on Madison Avenue, owned by Ashkenazy Acquisition Corp, jumped from roughly $16 million to approximately $30 million in January, nearly wiping out its earnings before interest, tax, depreciation and amortisation.
Many retail landlords in Manhattan’s Midtown made investments in their property when retail was stronger, either by buying at high prices or taking out large loans predicated on high valuations. The rent they charge is a reflection of those valuations. As retail has struggled and sales have slumped, the disconnect has hurt both tenant and landlord.
This has been an ongoing issue and in a breakfast conference run by Nuveen Real Estate and RPA, senior retail agents warned that the centre of New York was pricing retailers out of the market.
As examples, Ralph Lauren closed its Fifth Avenue store in 2017, while Lord & Taylor closed its Fifth Avenue flagship in January.
Barneys, which has roughly $850 million in sales, extended the term of its credit line by $50 million in April. Still, the credit agreement with existing lender Wells Fargo and new lender, TPG Sixth Street Partners, has not been enough to siphon the losses.
Barneys has been backed by Perry Capital, the fund run by Richard Perry, since 2012. Perry closed the fund four years later, citing industry and market headwinds. Perry Capital has since largely existed as a “zombie fund,” in which it has owned Barneys but has not put more money into it.
Barneys dates to 1923, when Barney Pressman opened a men’s discount clothing store on Seventh Avenue and 17th Street. In the 1960s, Barney’s son Fred helped transition from a discount store to a luxury retailer. Barneys soon made its imprint on New York luxury fashion, building on its foothold in menswear and introducing designers like Giorgio Armani.
