Thursday, June 26, 2008

Steve & Barry's: When Cheesy Goes Bankrupt

I have always considered writing about what a cheesy P.O.S. store Steve & Barry's is, but decided not to waste the space...until now. And so happy to see that my alma mater has pulled the plug on them as well.

Steve & Barry's Hits Trouble --- Hyped Clothing Retailer Hires Turnaround Help
By Jeffrey McCracken and Peter Lattman
26 June 2008
The Wall Street Journal

The hype for retailer Steve & Barry's LLC neared a zenith last June. The "Today" show touted the discount department store as actress Sarah Jessica Parker appeared on the program, announcing her new exclusive fashion line at a Manhattan store.
The Rhode Island contractors who helped prepare the store for national TV were beaming with pride. Their mood soon changed. The $4,000 bill for that store, and many others, went unpaid amid unreturned phone calls and promises of payment.
"They've never paid on time and always had some excuse, so when they were on the 'Today' show we felt really proud, but at the same time, it felt like the emperor had no clothes," said Laura Johnson, who owns a small carpentry firm, Ottmans Services.
For those doing business with Steve & Barry's, it has become hard to reconcile the hype with reality. As the chain was inking high-profile licensing deals and attracting national media acclaim, small vendors across the country -- along with overseas apparel manufacturers -- say they were going unpaid, or enduring months of lag time between payments.
For instance, Steve & Barry's is no longer allowed to advertise in the University of Michigan student newspaper, The Michigan Daily. The company was the paper's largest advertiser for the 2006-07 school year.
Newspaper business manager and University of Michigan senior Elaina Bugli said the retailer fell months behind on $36,000 in bills and still owes $20,326 for ads bought more than a year ago.
"It's by far our largest unpaid debt. They owe us more than we set aside for all unpaid debts for the year," Ms. Bugli said. Meanwhile, Steve & Barry's is a prominent licensee of merchandise for the University of Michigan, which ranks fourth in collegiate apparel sales.
Steve & Barry's, with about 275 stores across the country and sales approaching $1 billion, has hired the same turnaround firm as Sharper Image and Linens 'n Things, both of which have since filed for bankruptcy. That restructuring firm, Conway, Del Genio, Gries & Co., and a spokesman for Steve & Barry's didn't return calls seeking comment.
The closely held retailer has also hired a bankruptcy lawyer, and if Goldman Sachs Group Inc. is unable to line up at least $30 million in last-minute rescue financing, the company may have to file for bankruptcy as soon as next week, several people involved in the matter said. Crystal Capital, a retail-focused private-equity fund specializing in rescue financing is among the firms to be contacted by the retailer.
With their deeply discounted prices and celebrity endorsers, childhood friends Steve Shore and Barry Prevor of Long Island, N.Y., became media darlings. The attraction came on several levels. Celebrities such as Ms. Parker, actress Amanda Bynes, tennis star Venus Williams and surfer Laird Hamilton cut exclusive licensing deals with the company. Meanwhile, Steve & Barry's grew and added stores while other retailers closed sites or even filed for bankruptcy. The company has opened eight stores in the last month with 12 more in the works.
Along with the attention came big investments. TA Associates Inc., an old-line Boston-based private-equity firm with $12 billion in assets, paid $320 million for roughly half of the company. About half of that went into the company, with the balance being paid to Messrs. Prevor and Shore.
Steve & Barry's main lender is the commercial-lending unit of General Electric Co. It provided the company with a roughly $200 million credit facility in March, and the company is already in default on that loan, three people familiar with the matter said.
Among landlords, four publicly traded mall REITs have the most exposure to Steve & Barry's, according to a report from Merrill Lynch. They are Westfield Group, CBL & Associates Properties Inc., Glimcher Realty Trust and Feldman Mall Properties Inc. Each has that retailer at roughly one quarter or more of their malls. The malls declined to discuss Steve & Barry's or couldn't be reached for comment.
Despite all the attention and money, the company appears to have been getting far behind on some bills, including with long-time vendors that had been used to open a slew of new stores. Much of the investment that came in was used to open new stores or fund operating losses on low-cost apparel, people familiar with the matter said. Earnings were about $20 million on sales of $1 billion, and the store often lost money on its key merchandise, these people said.
Eight-person firm Ottmans Services put in fixtures, shelves, dressing rooms and other work for about 40 Steve & Barry's stores across the country, including the Manhattan site that hosted the "Today" show. The company was getting so much business with Steve & Barry's that Ms. Johnson said she cut her hourly rates from $65 to $45 as new stores opened from California to Idaho to New York.
But now, owed about $23,000 for a job in December, her firm has ceased work. Two weeks ago she backed out of a job on a new store to open in Danvers, Mass., a Boston suburb. The final straw was when she said the company offered to pay off its debt with a corporate credit card, if she would do the next job.
"There was always some excuse, some new form you had to fill out or a new person who was taking calls," Ms. Johnson said.

8 comments:

jenniferlfader said...

so glad to see them go down...

Anonymous said...

Loved Parker's jeans but the stores were all always understocked with inventory in complete disarray and staffed by poorly selected inept apathetic employees. Mismanagement cost them a fortune and I've written my warnings repeatedly to both Parker and corporate without a response. Endless sales were lost because of the unavailability of organized inventory. It was necessary to go into dressing rooms to search piles of tangled abandoned clothing in search of sizes. Great idea; no execution.

Anonymous said...

Thousands of people will be unemployed. I don't understand how that could make you happy.
What a bitch you must be.

Anonymous said...

Yeah, the stores were actually very successful with the limited payroll given, and inconsistant product allocations (I know some were mismanaged to the point of chaos, but if you saw the store I worked in you would have been impressed). Most stores are run very well at the store level, it has been corporate that has really screwed things up, and now thousands of employees and vendors alike are paying for it. (don't feel bad, corporate wouldn't listen it's managers in the field either, why would they listen to customer suggestions?) It is so sad because the concept is something we all need in these hard times, but people running things like Steve and Barry's have is only hurting the economy worse. Now Steve and Barry are running away scott free with millions of dollars scammed out of their investors, these guys are good!

Anonymous said...

It's probably one of those NYO people fired in December.

Neith08 said...

Steve & Barry's is an awesome store especially for low income families who need quality merchandise that is stylish. I think conceptually, the store is brilliant. I work at a community college and we send our students there to get business attire because it is affordable and pretty decent quality. For my students, this store gave them access to clothing they otherwise could not afford. Beyond that, Steve & Barry's gives the rest of the retail world as well as consumers, a wake- up call, because clothing should not cost as much as it does. Most of the time the same manufacturers who make designer clothes use the same methods to manufacter clothes for discount lines.

For those of you who think this is a good thing, perhaps you should consider that this store allows people with minimal means to access attire that can help them in some cases present themselves in a manner that is appropriate for work, when generally speaking that was very difficult and in some cases imposible without discount chains like Steve & Barry's. I am disappointed that such an important retail operation is not being managed well.

You should see the kids who get Stephon Marbury sneakers or Ben Wallace sneakers and are so excited to have a basketball stars shoes on. Before Steve & Barry's some of these kids could not possibly afford a pair of Jordans or other shoes of the kind. This store and others like it are needed and I hope that Steve & Barry's can get it together for the sake of the folks who need it.

Guerilla Shopper said...

Here's an article from Chief Marketer magazine, giving more insight into S&B's failings:

Many Mistakes Killed Steve & Barry's

By Tim Parry

Steve & Barry's is about to leave a label scar in hundreds of malls across the U.S., including some it just signed agreements to move into. But for some reason, the world seems surprised by its recent Chapter 11 filing.

But once you start analyzing the retailer, you get that a-ha moment that makes you wonder how it survived for as long as it has. And for that matter, if Steve & Barry's will ever come out of Chapter 11 or be forced to liquidate.

The Steve & Barry's business plan is simple: Everything in the store is $8.98 or less (though the high-price was flexible depending on the selling season, and for a while, every item was the same price). A college hoodie similar in quality to the one that would cost you $75 at a university bookstore was, yes, $8.98.

But from there, everything else backfired for Steve & Barry's. Here's just some of the things the retailer did wrong:

Too much word of mouth: Let's start right there. Steve & Barry's does not advertise – not in print, not on television, not on the Web. It does do some in-store television ads for its products that would have made for great short-form DRTV that could have driven more traffic to its stores. It relied solely on word of mouth to build a customer base. Though I am a frequent Steve & Barry's shopper, there are people in my office who didn't know they had a store in the local mall.

Zero e-commerce: It concentrates on foot traffic, and has never sold product online. For a while, its signature Starbury basketball shoes were going at a premium on eBay, showing that there may have been a market had it tried. Having a presence online to show its products can only do so much, especially when it doesn't do a good job educating prospective buyers.

Rapid store expansion: Steve & Barry's signed some crazy deals with under performing malls that paid the retailer to occupy spaces in its shopping centers. They went for the cheap deals instead of looking for the right spots. "They probably expanded too quickly, and took retail spaces that were too big for them," said Stuart Rose, managing director for investment bank Tully & Holland. "It's hard to grow from 30% to 100% per year for 15 years without selecting a few too many dogs. Site selection is a key success factor – remember location, location, location."

Mega-inventory: And all those stores are filled to the rafters with t-shirts, jeans, and other items that aren't necessarily flying off the shelves. Steve & Barry's says on its Web site that it's able to keep prices down by buying in bulk overseas. Guess what? With the American dollar spiraling downward and the cost to ship skyrocketing, that margin made on an $8.98 pair of cargo shorts suddenly isn't that great.

Licensing overkill: Steve & Barry's got some much-needed word of mouth when it launched the Starbury brand of athletic apparel. There were many news accounts about Stephan Marbury's first inexpensive pair of designer shoes, and how they were on-par quality-wise with Air Jordans. But then in the blink of an eye it added celebrity designers Sarah Jessica Parker, Amanda Bynes, Venus Williams, and a bunch of unknowns like golfer Bubba Watson and surfer Laird Hamilton. "Licensing is expensive," Rose said. "It adds a layer of cost – combine that with a low price strategy and you can find yourself in a margin squeeze."

Lack of customer data: A consumer could sign up for Steve & Barry's e-mail list, but the retailer didn't get much out of that info. The newsletter hasn't shown up in my inbox in quite a while. So how did it know what line of clothing would help it make some money? Did it figure Cougars were hunting 20-something t-shirt wearing boys, so they would buy Sarah Jessica Parker's collection? That Sex And The City style stuff isn't flying off the shelves, which shows Steve & Barry's wasn't in touch with its customers.

Of course, cautious consumer spending, climbing oil prices, and the recession the government says we're not in all had something to do with it as well.

"Consumer spending is tight now with the price of food and gas," Rose said. "People are more careful with a dollar, and unless it's a must have – which most low cost or new brands are not – consumers think twice."

Anonymous said...

I forecasted this on their first day opening their Charlotte store a year or so ago. It was ludicrous with a building that was 3X the size it should have been (a former SuperK), cheesy plastic grain flooring, and no local advertising.

That wasn't the half of it though. Many local schools were not licensed. NC has a huge fan base for colleges and without licenses for all local schools in place before they opened, all was lost.

With 3 back to back championships and 1/3 of their students coming from Charlotte, you'd think Appalachian State gear would be a natural stock item. Yet when I asked for ASU stuff, they took me to Arizona State stuff.

Michigan, Clemson, Georgia, and Florida stuff everywhere, but almost nothing for the home state. Might get away with that in Delaware, but not in places like NC, NE, or anywhere else with a rabid fan base.