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Barneys New York, an icon of New York retail, filed for bankruptcy early Tuesday morning, with a plan to significantly reduce its footprint, as it looks for a buyer to stave off liquidation.
The retailer said it will focus on running only 5 of its more than 10 namesake stores: on New York's Madison Avenue, in downtown Manhattan, Beverly Hills, San Francisco and Copley Place. It will also keep open its Barneys Warehouse stores in Woodbury Common and Livermore.
It plans to close its stores in Chicago, Las Vegas and Seattle, as well as five smaller concept stores and seven Barneys Warehouse stores.
Barneys, which filed in the U.S. Bankruptcy Court for the Southern District of New York, said it has raised $75 million to support a sale process. CNBC previously reported that, without a buyer, the company will likely liquidate.
The filing makes the luxury department store the latest victim of the retail upheaval, as shoppers buy online and from brands directly. Barneys' woes have been further exacerbated by sky-high rent even as its sales have fallen. As cash to pay its vendors has dwindled, it's been left with out-of-season products, or in some cases, no product at all.
The filing marks the second time that Barneys has landed in bankruptcy court. Its first filing came in 1996, after a squabble with its Japanese owner, department store company Isetan. The filing was in part a move to renegotiate its deal with Isetan, as well as cope with what it viewed as excessive rent.
Another trip into bankruptcy was avoided in 2012, when Perry Capital, a hedge fund run by New York financier Richard Perry, took control over the company through a $540 million debt-for-equity swap.
Perry closed his fund four years later, citing industry and market headwinds. While the fund has continued to own Barneys, it has not injected more money into it. The brand owned by his wife, New York designer Lisa Perry, continues to sell in its stores, with much of her products exclusive to the retailer.
Like its first bankruptcy, a dispute over rent is at the forefront of Barneys most recent bankruptcy filing. Rent at its flagship on Madison Avenue jumped from roughly $16 million to about $30 million in January, nearly wiping out its earnings before interest, taxes, depreciation and amortization.
The Madison Avenue store has been both a beacon and a burden for Barneys. It is its most important store, where it showcases its best products, reaches some of its most loyal shoppers and does nearly half of its sales. But those sales have been declining even as it's been pummeled by a rent hike.
The flagship is owned by real estate investment company Ashkenazy Acquisition, which in 2001 bought it, as well as the retailer's Beverly Hills, California, store from Isetan. As part of the deal, Ashkenazy had the right to raise the rent in 2019, a move Barneys unsuccessfully protested
High rent is not the only challenge facing Barneys as it's staring down new online competition like Yoox's Net-A-Porter and Moda Operandi, which are encroaching on the previously untouchable luxury retail space. The luxury brands are also pushing to have more shoppers buy directly from their own stores. With these new outlets, brands are less dependent on Barneys than in times past. That's meant luxury brands have had less patience for slow payments amid Barneys' cash crunch.
Shipments from Balenciaga and Moncler are among those that have been delayed, according to the person familiar.
In recent years, bag maker Goyard, which sells $1,150 handbags, has begun to rent space in Barneys Madison Avenue store, rather than sell its products directly to the retailer. The move meant Barneys received money from rent, but not commissions. It also limited the retailer's ability to sell the brand in other stores beyond its Madison Avenue location.
The growing power of brands to wean themselves from a reliance on department stores is an issue that has weighed on the industry, from Neiman Marcus to Macy's, from Saks-owner Hudson's Bay to Nordstrom.
"The entire industry is in survival mode," Barneys CEO Daniella Vitale told employees earlier this year, according to a recording obtained by CNBC. "The model is not working, it's not working for Neiman [Marcus], it's not working for Saks, it's not working for us, it's not working for Nordstrom."
Barneys, like others, has tried to react. It's grown its online business from roughly $18 million in sales to $200 million during Vitale's run at the company, which includes roles as chief merchant and chief operating officer. It has pushed to expand the number of its Fred's restaurants and opened a luxury cannabis shop. But the expenses attached to running its more than 10 namesake stores in New York, California, Illinois, Massachusetts, Nevada, Washington and Pennsylvania have not been enough to counteract whatever bump in sales it got from these endeavors.
Barneys dates to 1923, when Barney Pressman opened a men's discount clothing store at Seventh Avenue and 17th Street. In the 1960s, Pressman'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.