Barneys New York, Inc. is exploring the possibility of filing for bankruptcy due to high rents and changing consumer trends.
One of the oldest luxury department stores, Barneys, has almost stood the test of time — reaching centennial in a few years. The store first opened in 1923 on Seventh Avenue and 17th Street. The stores are known for their high-end design collection and have been featured as the top retailer for luxury products.
Barneys is now working with Kirkland & Ellis, an international law firm, to prepare for potential bankruptcy filing in the next few weeks though reports say that the high-end retail company has not yet made a final decision.
Barneys’ stores, which are located in top market real estate, are struggling to cope with expensive leases. Aside from filing for bankruptcy, it is still looking for other options to address high rental rates.
Barneys’ flagship store in Madison Avenue, New York had a steep increase in rent from $16 million in the previous years to $30 million in January 2019.
Retailers, including high-end ones, could no longer afford New York’s expensive properties. In 2017, Ralph Lauren closed its Fifth Avenue store. This January, Lord & Taylor store, owned by Hudson’s Bay Company, closed its Fifth Avenue flagship, too.
In a statement, the company emphasized that its main priority is their commitment to their customers. It said: “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.”
Aside from coordinating with one of the top firms in New York to discuss bankruptcy options, the retail giant is working with its business partners and suppliers to stay afloat.
The company added, “We continue to work closely with all of our business partners to achieve the goals we’ve set together and maximized value. To that end, 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.”
One of the company’s silver lining is the credit agreement with Wells Fargo. The American multinational finance company has added TPG Sixth Street Partners (TSSP), a global finance and investment firm aligned with TPG Capital, to help with the $50 million credit extension.
A spokesperson from Barneys said to CNBC, “Barneys New York has a long-standing business relationship with Wells Fargo. Our most recent agreement is an extension of our current credit agreement that we have had in place with Wells Fargo since 2012. The additional capital will support our business growth plans with new store openings and renovations, innovative in-store and digital experiences, and international growth initiatives.”
Barneys has recognized that consumers’ spending habits are now concentrated online. The retailer has been competing with Amazon and other big online stores. However, aside from that, they are also competing with luxury brands who have expanded into directing selling online.
The Trend of Bankruptcy Among Retailers
Should Barneys continue their decision to file for bankruptcy, it will join the list of long-time retailer giants who folded to the pressure of the online shop giants.
In October 2018, Sears filed for bankruptcy. It has since closed its 142 stores. Aside from Sears stores, the company also owns KMart stores.
Due to its sales decline, the once successful chain of department stores has been closing down stores and selling off their assets. In December of the same year, its CEO Eddie Lampert put in a bid of $4.4 billion, buying most of the company’s shares, to keep the retail business afloat.
Other than the closing of the stores, Sears Management faced criticism as thousands of workers were fired. What’s worse is that employees also stopped receiving their severance paychecks.
Toys R Us, a retail giant focused on toys, and children’s clothing filed for bankruptcy in September 2017. It has since shut down its operations in the US, while sold its operations in Canada, Asia, and Europe.
In February, Toys R Us announced that it would revive its brand under a new company called Tru Kids Brands.
Though it seems that Barneys, Sears, and Toys R Us is given a lifeline after filing for bankruptcy, this did not happen for Gymboree. In January 2019, the children’s apparel retailer filed its second bankruptcy in less than two years.
The children’s clothing company also cites its long-standing debt and decrease in sales due to fierce competition with online retailers.