NEW YORK, United States — Luxury department store Barneys New York Inc is exploring restructuring options that could include filing for bankruptcy as it struggles to keep up with higher rent and adapt to changing consumer habits.

Barneys is working with financial advisers at MIII Partners and lawyers at Kirkland & Ellis, according to people with knowledge of the situation. The company hasn’t made a final decision on whether to pursue its plan in or out of court, the people said, asking not to be identified discussing a private matter.

Management is trying to figure out how to deal with steeply rising rents, even as cash runs short and consumers defect to other outlets, the people said. Talks are underway with lenders, vendors and certain landlords about potential solutions, they said.

Options include lease negotiations out of court, or securing further financing to help it avoid bankruptcy, the people said.

Making Adjustments

“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,” a company spokesman said, reiterating an earlier statement. Barneys is adjusting its strategy and business model, the company said, citing store openings in New Jersey, Miami Beach, Las Vegas and one planned in Boston.

Representatives for Kirkland and MIII Partners declined to comment. Reuters previously reported that Barneys was evaluating bankruptcy options.

Founded as a men’s retailer in 1923 in downtown Manhattan, Barneys became the icon of high fashion and innovation for women and men in the 1970s. Today, Barneys New York operates flagship stores in New York City on Madison Avenue and downtown in Chelsea, as well as Beverly Hills, Chicago, Seattle, Boston, San Francisco and Las Vegas.

Barneys has around $250 million of debt obligations, including a $200 million asset-based revolver led by Wells Fargo & Co and $50 million term loan facility, the people said.

Smaller Space

Earlier this year, the retailer sought to downsize its Madison Avenue store to reduce the $30 million annual rent cost, according to the New York Post. Barneys also started selling luxury cannabis products at its Beverly Hills outpost.

Another retail upheaval could cause more pain for landlords already dealing nationwide with thousands of store closings this year in the wake of liquidations. In parts of Manhattan, including the trendiest luxury strips along Madison Avenue, retail property owners are facing unprecedented demands for rent reductions to short-term leases as vacancies soar.

Department stores have struggled to adapt to online rivals and discount shops. The vital shopping mall anchors haven’t been able to attract shoppers like they used to, losing deal-hunting customers to websites like Amazon.com and treasure-hunt stores such as TJ Maxx and Marshalls.

Luxury chains are under similar pressure. Neiman Marcus Group Inc is overhauling its debt load as it tries to entice shoppers. Nordstrom Inc. cut its full-year forecast in May. Meanwhile Saks Fifth Avenue, owned by Hudson's Bay Co, has fared well over the past several quarters, even though it shut the doors on its downtown Manhattan women's store earlier this year.

By Katherine Doherty, with assistance from Kim Bhasin; editors: Rick Green, Dawn McCarty.