Commentary

Barneys Looks For Ways To Pay The Rent, 'Strengthen' Bottom Line

Barneys New York, the luxury speciality retailer that booted up as a fashion discounter in a 500-square-foot space at Seventh Avenue and 17th Street in 1923, is facing rising rents -- particularly at its 230,000-square-foot flagship location on Madison Avenue -- and may file for bankruptcy.

The retailer “has not yet made a final decision on whether or not to seek bankruptcy protection, and is weighing other possible solutions for addressing high rents that are straining its business,” sources tell  Reuters’ Jessica DiNapoli and Mike Spector, who broke the story. “Filing for bankruptcy would be one option to deal with expensive leases, the sources said,” they add.

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“We continue to work closely with all of our business partners to achieve the goals we’ve set together and maximize 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,” Barneys, which is reportedly working with law firm Kirkland & Ellis LLP, said in a statement.

“The company continues to evolve on strategy and business model, as seen in the announcement of store openings in New Jersey, Miami Beach, Las Vegas and its plans in Boston, the statement said. Earlier this year, the company sought to downsize its Madison Avenue store in an effort to reduce the store’s $30 million annual rent cost, according to the New York Post,” Maria Jose Valero writes  for Bloomberg. 

But a Barneys spokeswoman refuted that report several days later, saying “there are no active conversations regarding the store’s footprint, and all statements indicating otherwise are false,” Daphne Howland wrote for Retail Dive.

“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 amortization, CNBC previously reported,” CNBC’s Lauren Hirsch   reminds us.

“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,” Hirsch adds.

“Barneys has several locations in the United States, but its headquarters and flagship store line the area around New York's Fifth Avenue, which for months has been emptied of prominent luxury retailers as they flee high rents and shifting consumer tastes. Calvin Klein, Ralph Lauren, Lord & Taylor, Henri Bendel, and, reportedly, Versace are leaving the once-coveted shopping destination in Manhattan,” Jackie Wattles writes  for CNN Business.

“High-end brands used their stores on the upscale New York blocks to attract wealthy residents and tourists. Each of the companies leaving Midtown faces its own set of challenges. But in general, the value of cavernous flagship stores is coming under pressure as more customers shop online and on their phones,” Wattles adds.

“But, as troubled as the department store sector is in general, Barneys itself is poised to survive,” retail analyst and consultant Sanford Stein, author of “Retail Schmetail,” told Retail Dive’s Howland in April, calling it “leaner and possibly nimbler than Macy’s sprawling mid-tier empire,” he pointed out. “The department store has a history of seizing on opportunity, he also said, noting, most recently, its foray into cannabis with its The High End  concept in Los Angeles.

“They've always been open to experimentation, they've always known who they are and who their customer is,” Stein tells Howland. "They've never chased down a lower price point for a greater volume. They’re fundamentally playing in a rarified atmosphere, and they're continuing to reinvent and refine, as opposed to trying to be something they’re not, which will always work for a core demographic that wants that.”

Barney Pressman, who pawned his wife’s engagement ring to open his first shop with the tagline “No Bunk, No Junk, No Imitations,” expanded his business during the Great Depression “with cheeky and creative marketing,” according to  a timeline on the company’s website.

“Case in point: Women encased in barrels are positioned outside near-beer halls where they hand out matchbooks bearing the store’s name and address,” the history continues.

Now that’s meeting the target where he’s at.

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