(Bloomberg) -- Barneys New York Inc., the upscale clothing retailer with once-famously haughty sales people, has found humility.
After filing for bankruptcy Tuesday, the monument to high fashion said it would rein in its ambitions, closing 15 of 22 stores from Chicago to Las Vegas to Seattle. The victim of high rents and online competition, Barneys said it secured $218 million in financing and will continue to operate until it finds a buyer.
The bankruptcy marks the culmination of a long fall for Barneys, now owned by hedge fund manager Richard Perry. Yet its preliminary plans signal a new, more modest approach from the last time it went bust, in 1996. After closing a few boutiques then, it emerged from protection three years later and began expanding across the country anew. But it never replicated the success from its heyday in the 1970s and ‘80s. Barneys has cycled through a handful of chief executive officers and ownership bounced around repeatedly over the past two decades, with each new buyer searching for ways to keep the stores thriving.
This time, Barneys plans to focus on the cities where it fares best. It will keep open its Madison Avenue and downtown location in Manhattan and retain stores in Los Angeles and San Francisco. And unlike two decades ago, Barneys has an e-commerce business that, while late to the game, may be able to reach shoppers distant from a store.
“It’s clear the direction that they’re taking going forward is reeling down their real estate,” said David Silverman, senior director at Fitch Ratings. “Certainly the stores that they’re keeping are in the most densely populated areas and they’re keeping the ones that are in fashion markets.”
The retail landscape–and Barneys itself–has changed dramatically since it first opened up shop in 1923, of course. The first Barneys New York store was a 500-square-foot boutique that sold discounted suits to buttoned-up salesmen in downtown Manhattan. Shopkeeper Barney Pressman combed through auctions and bankruptcy sales to find the best garments to sell at lower prices than his rivals. His original slogan: “No Bunk, No Junk, No Imitations.”
Barneys’s glory days began in the 1970s when it transformed into a luxury department store. Discount suits were replaced with high fashion from prominent European designers such as Giorgio Armani and Hubert de Givenchy. To court Wall Street shoppers, it opened a men’s store in the World Financial Center, a few blocks away from the stock exchange and surrounded by the offices of New York’s big banks.
The original location is now home to a 58,000-square-foot Barneys full of dresses and gowns worthy of runways in Paris and Milan. For businessmen in search of a suit, there are $3,250 two-buttons from Ermenegildo Zegna and $7,000 virgin wool basket-weave ensembles from Brioni.
Barneys opened its biggest store in 1993, a Madison Avenue flagship with the location and sheer size to battle its high-end department store competitors. At the time, it was the city’s largest store opening since the Great Depression. Celebrity fans would talk up the store’s glitz and glam, attracting shoppers over the years from Britney Spears and Kim Kardashian to Sarah Jessica Parker.
Expansion became a priority. Barneys opened its first stores outside of Manhattan in Chicago and Beverly Hills. The company found a partner, Japanese retailer Isetan, which invested $600 million in Barneys to fund the brand’s growth to 13 stores across the U.S.
But by 1996 tensions between Barneys and Isetan developed and the spat led to bankruptcy proceedings. Yet in the 2000s, it started expanding its store count yet again, opening new spots in Boston, Las Vegas and San Francisco. In 2013, the company reclaimed its store on the original block where Barney Pressman sold his dusty suits on Madison Avenue in Chelsea.
In 2012, Perry Capital, owned by Richard Perry, gained control of Barneys, swapping its debt for equity in a restructuring that significantly cut the company’s big debt load.
But even the Madison Avenue store that gave Barneys such attention and credibility in New York’s cutthroat department store scene became a source of dismay. Annual rent tripled this year, spurring Barneys to consider downsizing its store and worked on a restructuring plan to cope with the cost.
“Like many in our industry, Barneys New York’s financial position has been dramatically impacted by the challenging retail environment and rent structures that are excessively high relative to market demand,” Chief Executive Officer Daniella Vitale said in a statement Tuesday.
The challenges remain especially tough even in its hometown. Neiman Marcus and soon Nordstrom are opening their first massive flagships on Barneys’s turf, after they had stayed away from Manhattan for decades. Meanwhile, the city’s oldest stores are investing more than $500 million to modernize, with mass renovations under way at Bloomingdale’s, Saks Fifth Avenue and Bergdorf Goodman.
Only five full-line Barneys locations will remain: Beverly Hills, San Francisco, Boston and the two in New York. A pair of Barneys Warehouse outlet shops will keep their doors open as well. The company plans to go forward with two new store openings, including one inside New Jersey’s upcoming American Dream mall, which is slated to open in October. Another is planned for Miami’s Bal Harbour Shops, one of the best-performing shopping centers in the country, the company confirmed Tuesday.
Barneys has found some success in coastal markets, attracting younger shoppers who may carry the retailer in the future. This year, it opened “The High End,” a cannabis and wellness concept shop in its Beverly Hills store.
These partnerships still might not be enough to capture a steady stream of shoppers. Hurdles remain, among them a flurry of luxury e-commerce companies, such as Net-A-Porter and Farfetch, said Sucharita Kodali, an analyst at Forrester Research.
Barneys was “one of the weaker companies in e-commerce to start with,” she said. “If everybody else is moving faster than you are, that doesn’t help you either.”
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