Upscale Downfall : Barney’s Seeks Bankruptcy Protection, to Sue Partner Over ‘Withdrawn’ Financing
Barney’s Inc., the storied New York-based clothier with a high-profile store in Beverly Hills and celebrity customers to match, has filed for Chapter 11 Bankruptcy Court protection.
The upscale retail operator of the Barney’s New York chain said Thursday that it made the filing in order to reorganize following a dispute with Isetan Co., its Japanese partner. Barney’s said it plans to sue Isetan for more than $50 million that it claims was promised but “withdrawn unfairly.”
Officials at Isetan, a leading department store chain in Tokyo that helped bankroll Barney’s global expansion, were not available for comment. Isetan may report an extraordinary loss of $190 million linked to its relationship with Barney’s, the Nihon Keizai newspaper reported.
Barney’s opened 12 of its 14 U.S. stores, including its Costa Mesa and Beverly Hills locations, since forming the partnership in 1989. It has opened six outlet stores, including one in Camarillo and one near Palm Springs, since 1983. Isetan operates two Barney’s stores in Japan.
Known for its trendy and pricey offerings--including designer labels such as Giorgio Armani and Donna Karan--Barney’s said sales at its U.S. stores have been strong in recent months. However, some industry analysts are questioning that, citing the nationwide trend toward less expensive casual dress and competitive pressures.
“You don’t file for bankruptcy if you’re doing well,” said Kurt Barnard, a New Jersey-based retail economist. “Barney’s is involved in upscale women’s and men’s apparel, and that’s a very difficult business right now.”
Barney’s has also faced difficulty because upscale competitors such as Saks Fifth Avenue and Bloomingdale’s have been more aggressive marketers, said Alan Millstein, publisher of the New York-based Fashion Network Report.
“Barney’s has been slow to make price markdowns,” Millstein said.
He also said Barney’s may be having difficulty generating the revenue needed to cover growing expenses, including the cost of rent at the opulent Beverly Hills store, which opened in 1994.
Barney’s said its difficulties arose from the dispute with Isetan. Under their partnership deal, Barney’s said, it was to supply Isetan with expertise in merchandising and store design. In return, Isetan agreed to provide financing for the construction of stores in New York and Chicago as well as the Beverly Hills location on Wilshire Boulevard, Barney’s said. Analysts placed the figure at $125 million to $200 million.
The Beverly Hills store opened with the fanfare of an old-fashioned movie premiere. The crowd--which included studio executives, film stars and recording artists--was ushered into the store, which includes a huge skylight that illuminates 100,000 square feet of selling space.
“The Beverly Hills store has done incredibly well,” Barney’s spokesman Simon Doonan said. “We couldn’t be more pleased. All of our stores are doing great.”
Doonan said Chemical Bank has agreed to provide Barney’s with $100 million in financing to support its retail operations during the bankruptcy proceedings. The expansion is on hold, but no stores will close, he said.
However, analysts cautioned that the bankruptcy filing could hurt the chain’s image with upscale shoppers.
The filing “is embarrassing,” Millstein said.
The move comes after two years of speculation about the retailer’s solvency. Barney’s, which is not a publicly held company, took the unusual step of releasing earnings and an internal sales forecast in February 1994 in a bid to rebut industry speculation that its nationwide expansion forced it into financial straits.
The company was founded in 1923 by Barney Pressman at 7th Avenue and 17th Street in New York. It was originally a seller of men’s attire but also became known for its designer women’s clothing in the 1980s.
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Losing Its Luster?
Barney’s Inc., a 72-year-old firm owned and operated by the Pressman family, expanded with amazing speed in the 1990s, going from two to 15 stores in the United States. The high-fashion outlet filed for reorganization in Bankruptcy Court this week after a dispute with its Japanese partner. Some tidbits about the company’s Beverly Hills store:
* After Barney’s opened its $50-million West Coast flagship store in Beverly Hills in March 1994, consumers expressed shock over pocketbook-busting merchandise such as a teensy suede bustier by Azzedine Alaia for $1,595. At the other end of the spectrum, some hair accessories do go for less than $5.
* The Pressman brothers, now co-chairmen and co-chief executives of the company, sealed the deal for the Beverly Hills store with their Japanese partners--from whom they lease the Wilshire Boulevard site--by writing the contract in small print on a cocktail napkin at the Beverly Hills Tennis Club.
* The smoked sturgeon and Brooklyn-baked bialys sold at the celebrated Barney Greengrass deli atop the five-story store are often flown in on the redeye.
* The Pressmans, seeking to secure their place in the Beverly Hills charity scene, wrote checks to the local school district and branches of the YMCA and Red Cross.
Sources: Times and wire reports
Researched by JENNIFER OLDHAM / Los Angeles Times