PARIS/NEW YORK (Reuters) - When fashion label Prada 1913.HK started demanding greater control over shop floor arrangements in U.S. department stores, Barneys New York, now mired in bankruptcy proceedings, was one of the few with enough swagger to resist.

FILE PHOTO: The Barneys New York sign is seen in a display window outside the luxury department store in New York, U.S., July 31, 2019. REUTERS/Shannon Stapleton/File Photo

The luxury retailer, respected by its well-heeled clients for its selection, said in interviews at the time it wanted to maintain its influence over buying the merchandise rather than ceding to a leased shop-in-shop controlled by the brand.

Prada eventually reintroduced its women’s styles to the department store after a three-year hiatus, and still counts Barneys as a wholesale partner, a person close to the label said.

But if that stand-off ended well for Barneys, its bankruptcy last week may give fashion and luxury brands new motivation to move beyond wholesale arrangements with department stores, to focus on their own stores and websites.

“Most luxury vendors prefer to sell at their own stores, rather than in wholesale,” said Jerry Storch, chief executive officer of consultancy Storch Advisors.

While fashion brands still like Barneys’ trend-setting vibe, direct sales are far more profitable than wholesale arrangements, and vendors ultimately want to be in control of their own operations and brand experience, Storch said.

Barneys New York owes some $1.6 million to Prada alone, as well as millions more to labels from Kering PRTP.PA's Gucci to LVMH LVMH.PA's Givenchy, according to its bankruptcy filings, and friction with vendors had been building up.

According to Barneys’ court filings, merchandise shipments began to slow over the summer, with many vendors refusing to send their inventory unless they got cash on delivery.

“There was a lot of talk among brands about finding other distribution channels,” one source familiar with Barneys’ supplier network said. “They’d been paying late, in the market, everyone knew that.”

Barneys has until Oct. 24 to avoid liquidation by finding a buyer and clinching a sale, according to terms of its bankruptcy financing outlined during a court hearing last week.

“Barneys is committed to working closely with our vendors to ensure we continue providing our customers with excellent services, products and experiences,” a company spokeswoman told Reuters.

“We have secured approximately $218 million in new financing from partners who have directly expressed confidence in our ability to achieve a value-enhancing transaction,” she said. “This capital will be used, in part, to ensure our long-standing relationships with our vendor partners who are so essential to our future success.”

For major luxury brands, hiccups in the wholesale chain only compound the allure of controlling their own wares with their own stores, as they seek to master their image by avoiding mark-downs, gain flexibility to roll out products at varying paces, increase brand exposure, and boost margins - and the trend in that direction is picking up.

PRADA’S PUSH INTO MINI-STORES

Prada, with just under 20% of revenues derived from wholesale accounts, wants to whittle that down to 5% over the next three to five years, Chief Executive Officer Patrizio Bertelli told analysts in early August.

The bulk of that reduction will fall on Italy and the rest of Europe. Prada had already transformed some 40 sale locations in U.S. department stores into concessions, essentially mini stores brands operate within host department stores.

The concessions model is already more prevalent in Europe. Parisian department stores like Galeries Lafayette are a maze of branded shop-in-shops. But it is a cultural shift for many U.S. luxury retailers including Neiman Marcus [NMRCUS.UL] and Macy's Inc's M.N Bloomingdale's, where concessions are somewhat less common.

Barneys does not do concessions across any category in general. Barneys recently hosted limited-time pop-ups with brands such as Chanel, Bulgari and Moynat.

“Department stores that move to concessions don’t need an internal buying team to select merchandise anymore,” said Mario Ortelli, managing partner at luxury consultancy Ortelli & Co. “What they have to do is create the right retail environment to generate store traffic and attract the brands.”

Another industry source said that concession fees, where retailers typically get around 30% of sales, are starting to fall as brands are in a stronger position to negotiate.

If brands have more say about where and how their merchandise is sold, some may choose to exit less profitable department store locations.

“That’s a real risk for the major department stores because they depend on having the big name brands in their stores to give them credibility, so the pressure is really on,” said Ron Frasch, the former president at retailer Saks Fifth Avenue as well as its rival Bergdorf Goodman.

The Barneys department store chain, struggling with declining sales and soaring rent, plans to close 15 locations and wants to keep seven stores - including its flagship on Madison Avenue in New York - open for business.

Vendors are also increasingly exploring other means of distributing merchandise via partnerships with players like Rent the Runway, Richemont's CFR.S Yoox Net-a-Porter and Stitch Fix Inc SFIX.O.

To fend off some of this competition, some high-end department-store chains have formed partnerships of their own.

In June, for example, Nordstrom Inc JWN.N and Rent the Runway announced a tie-up that aims to draw more foot traffic into the department store while making the clothing rental service more convenient.

In April, struggling upscale U.S. retailer Neiman Marcus took a minority stake in online luxury reseller Fashionphile. In 2016, the luxury department store also teamed up with Rent the Runway and opened its first in-store Rent the Runway shop in a bid to attract younger shoppers.