(Reuters) – U.S. department store operator and fashionista favorite Barneys New York Inc filed for bankruptcy protection on Tuesday and put itself up for sale, underscoring how even luxury retailers are struggling to freshen their image and compete with online rivals.
The nearly century-old chain, best known for swanky shop windows on New York’s Madison Avenue, long enjoyed a loyal following among socialites and a privileged reputation as a retailer that could make or break a brand.
But it has also suffered like peers across the bricks-and-mortar retail landscape in part as consumers flock to online alternatives. In addition, a recent spike in store rent left Barneys reeling and scrambling to find a buyer.
Barneys said in a statement that it had now secured $75 million in new financing from affiliates of Hilco Global and the Gordon Brothers Group to help it keep operating while under bankruptcy protection.
The retailer added that it would focus on key locations, and close major stores in Chicago, Las Vegas and Seattle, along with five smaller concept shops and seven Barneys Warehouse locations, where it sold more heavily discounted merchandise.
Barneys plans to keep its main store in Manhattan, a sprawling nine-floor building, open along with four other locations. Rent at the Madison Avenue flagship store in particular posed a problem for the cash-strapped firm, rising to roughly $30 million from $16 million.
Reuters reported in July that Barneys was exploring its options, including a bankruptcy filing, as a result.
Barneys executives and board members “have taken decisive action by entering into a court-supervised process, which will provide the company the necessary tools to conduct a sale process, review our current leases and optimize our operations,” said Chief Executive Officer Daniella Vitale.
Peter Knight-Barnard, a retiree now based in Italy, recalled going to Barneys in the 1980s and ‘90s when it was “the spot.”
“Just walking around with one of their shopping bags in those days was a status symbol,” the 69-year-old said, adding that one of the first items he bought from the luxury department store was a cashmere sweater. “It was a big Saturday scene with all the great and good from Wall Street milling around.”
The retail industry as a whole is grappling with e-commerce competition from the likes of Amazon (AMZN.O). In the realm of high fashion, luxury sites such as Richemont-owned Net-A-Porter (CFR.S) or Farfetch (FTCH.N) have been gaining ground, too.
Bricks-and-mortars stores have had to add entertainment value to lure shoppers, with art installations or concerts, as well as trying to secure exclusive clothing launches.
Barneys’ prestige still made it a go-to for top luxury brands, including some like France’s Chanel which are usually reluctant to work with third parties, and which hosted a temporary display in the Manhattan store in April.
But the department store stretched itself across a large footprint in locations where it might appeal less to locals than it does to New York residents and tourists, luxury consultants said.
And while it is shaking up its approach on the shop floor – it hosted a roller-skating event sponsored by Kering’s (PRTP.PA) Gucci in Beverly Hills in June – so are many rivals.
Barneys’ now faces the challenge of keeping brands on board.
Italy’s Moncler, for instance, whose luxury down coats usually fetch well over $1,000, said it began to postpone deliveries of some its latest collections as early as June.
Other labels are also in wait-and-see mode. Factoring firm Hilldun Corp, which operates in the fashion industry and had 68 clients that shipped products to Barneys in the past year, stopped approving orders in July, CEO Gary Wassner said.
His clients are not yet certain of their next steps.
“It will depend on the plan (Barneys) put in place … until the court approves the plan ,everybody has got to sit tight,” Wassner added.
Barneys listed assets and liabilities in the range of $100 million to $500 million in the voluntary Chapter 11 document filed in the U.S. Bankruptcy Court for the Southern District of New York.
To navigate bankruptcy proceedings, Barneys has enlisted law firm Kirkland & Ellis LLP, investment bank Houlihan Lokey and M-III Partners, the turnaround firm founded by restructuring veteran Mohsin Meghji.
Barneys filed for bankruptcy once before, in the late 1990s. It also completed a more recent debt restructuring outside of court proceedings in 2012 that handed ownership to a hedge fund run by financier Richard Perry and an investment firm founded by supermarket magnate Ron Burkle.
Reporting by Shubham Kalia in Bengaluru, Jessica DiNapoli, Mike Spector and Melissa Fares in New York and Sarah White in Paris; writing by Sarah White; editing by Cynthia Osterman, Gopakumar Warrier and Jonathan Oatis