What Small Brands Can Learn from the Barneys New York Bankruptcy


Professor Susan Scafidi, director of the Fashion Institute, shares her thoughts on the Barneys bankruptcy and how other brands can learn from it and put protective strategies in place.

As news of Barneys’s bankruptcy and subsequent sale spread, the collective mourning for a bygone retail era was tinged with at least some delight over the promised sales and steals that would clear Barneys stores of its unsold inventory before its new owner, ABG Group, closed the retailer’s doors for good. But what does that mean for the brands that supplied that inventory?

“This has been a wake-up call for small businesses that haven’t yet weathered a downturn,” says Susan Scafidi, director of the Fashion Law Institute, referring back to the Great Recession that challenged the retail environment a decade ago. “If we indeed have a recession on the horizon, whatever that may mean, Barneys’s [bankruptcy]may be a bellwether of things to come and may give lots of small brands a heads-up on how to think strategically and defensively going forward.”

Protective financial strategies are another way that brands can insure themselves, literally and figuratively, against the risks they face working with wholesale partners. Scafidi explains that purchasing credit insurance may be a cost-effective way to cover a wholesaler’s unpaid invoices, should it get to that, as was the case with Barneys. Another option is factoring. As Scafidi explains, it’s a common form of financing in which a factor pays you a percentage of the money a wholesaler may owe you after a purchase is completed so you don’t have to wait for the funds to keep the lights on in your showroom. Once the wholesaler pays its invoice, the factor collects a percentage of that money and gives you a remaining percentage, assuming the wholesaler does, in fact, pay its outstanding invoices.

For a cash-strapped brand, there are subsidized and free legal resources that may help a designer pursue litigation against a faulty retailer … (In New York City, for example, that might include the NYC Bar Association’s Neighborhood Entrepreneur Law Project or its Fashion Law Committee, which works with the Fashion Law Institute at Fordham Law School to host clinics throughout the year.)

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