Steve & Barry's: When Design Can't Save the Day

Posted by: Reena Jana on July 14, 2008

Not too long ago, the discount-clothing chain Steve & Barry’s was the center of newspaper style-section stories and glossy fashion-magazine spreads. It was another example of the democratization of design. With super-low prices, trendy dresses, jackets, and other items, and a list of marquee-name celebrity designers (most famously Sarah Jessica Parker, with her Bitten line, created with the retailer), Steve & Barry’s seemed positioned to do extremely well during tough economic times. Its clothes were much cheaper than comparable styles found at popular retailers such as J. Crew. And it had the same type of rotating designer strategy as Target—only with super-high-profile people (such as Venus Williams)with huge, broad fan bases associated with the brand rather than just names familiar to a relatively small band of fashion insders.

Yet Steve & Barry’s is a retail casualty. Design couldn’t save the day for this chain. Aggressive growth, instead, seemed to be the company’s goal—and perhaps its downfall. It’s bankrupt. While growth is what every business strives for, obviously, when is enough enough? Could Steve & Barry’s still be doing well, if it didn’t push for opening nearly 300 stores — almost ten times the number of stores it had five years ago — in such a relatively short time? If the company had focused more on design and quality at super-low prices, which seemed to be a priority, instead of the number of stores, perhaps it could have found itself in a different position today. One that would offer cash-strapped consumers fun, well-designed clothing at prices they could afford during the toughest of times, and would allow them to profit from the mass desire for cool apparel at bare-bones prices. Now those customers will be shopping at their competitors’ stores instead.

Reader Comments

Ryan Healey

July 14, 2008 1:12 PM

This failure is not a shock. When a retailer does almost no advertising to expand it's customer base and opens stores in rapid fire fashion, it doesn't have a genius to know something isn't right? How many chains or all types have had massive expansion followed by massive failure. You can't expand too fast or it becomes a house of cards.

Blake Burns

July 14, 2008 1:16 PM

One consideration must be keeping the hand on the pulse of certain market dynamics. It is common during an up economy for a popular, well funded retailer to add hundreds of new locations every year. This business strategy in itself requires a detailed, lengthy cycle of management approvals, real estate location and acquisition, capital equipment purchasing, human resource allocation, etc. And when the down economy arrives it is not so simple to revert back to development goals of 2 years past. Only the best companies can make quick yet non-disruptive changes to avoid overextending their real estate portfolio, and unfortunately Steve & Barry's wasn't one of them.

Kris

July 14, 2008 1:32 PM

I work for a Steve & Barry's in one of the Michigan stores and will soon be out of work. I wish they would have stuck to what they were good at, great t-shirts and hoodies for a low price. Instead they went after the "Gap, Old Navy and Aeropostale" crowd. Now we are facing unemployment.

KEN

July 14, 2008 3:13 PM

I also work for a Steve and Barry's store in Missouri, and I have been shopping here since the store opened. I finally got a chance to work for the store chain, and shortly after, hearing the news devastated me. Now, all is not lost yet, since an official announcement has not been made. They do, however have a plan, which may involve closing a number of stores, instead of a complete liquidation. There is also rumor of downstaffing, but nothing has been confirmed. I do hope that they can pull through, but the chances are very slim. This store has brought complete satisfaction to our community. The line of apparel that they offer, and at the price could have been a stunner to the other local retailers in a few more years to come. Unfortunately, they may not get that opportunity. I hope they do. It would be a shame to lose such a retailer here, when there really isn't anything else more satisfying, especailly with the way the national economy is headed.

doug

July 14, 2008 4:58 PM

Steve and Barry's are a bunch of hacks.

They stole money from their vendor, took money from malls around the country while the owners became multi millionaires.

They remind me of Mugatu from Zoolander.

They should be forced to pay all of their vendors back from their personal accounts

Pete Mortensen

July 14, 2008 5:57 PM

Steve and Barry's will be greatly missed. In a down economy, they should have thrived -- their clothes are comfy, stylish and almost absurdly cheap. But they clearly over-expanded and took on more debt than they could manage.

They excelled and innovated in pretty much every regard -- except for maintaining their financial health.

This is horrible - I need a new pair of jeans!

Travis

July 14, 2008 7:29 PM

It is not the massive growth that did them in, it was a flawed business model. Their margins were so thin there was no room for error, and they were building the house of cards with massive up front "build out" costs from malls eager to attract them. The only think surprising is that they lasted this long. At least Steve and Barry got rich....

HIMANSHU

July 15, 2008 6:13 AM

WELL IN SUCH TOUGH TIMES, IT SHOULD HAVE CONCENTRATED ON COST CUTTING METHODS, WHEN EVERYONE IN THE WORLD KNEW OF SUCH A SLUMP OF SEASON NO ONE KNEW ITS TO IMPACT THEM TOO.
GOING ON A BUYING SPREE WITH AN EMPTY POCKET IS WHAT THEY HAVE BEEN LEFT TO.
KEEPING IN SENSE, THEY SHOULD OPT FOR SOME BETTER OPTION AND MAKE THERE BRAND MERGE WITH A GOOD LABEL AT THIS STAGE SAVING THERE PROFILE & CREDITORS IN RELIEF.

Peg

July 15, 2008 6:29 AM

"There is also rumor of downstaffing, but nothing has been confirmed." Rumor? 172 people, most in Corporate, were let go last Wednesday so it's more than a rumor. It wasn't a bad business model that did them in, it was their idea of entrusting a billion dollar company in the hands of newly hired, in-experienced college grads.

Amit

July 15, 2008 9:37 AM

Steve and Barry's are crooked and criminals. They have taken goods on credit from India worth atleast 100 millon usd and now more than 100 indian companies are in soup.

Kevin

July 15, 2008 11:14 AM

Peg - you're absolutely right. One of my best friends, graduating from Rice last year, was hired along with 200 other graduates from brand name institutions (including a former crush's ex-boyfriend who graduated from Yale..). It seemed as if they were placing the fate of their company in the hands of some intelligent, but vastly inexperienced young adults. Fittingly, they were all laid off last Wed. as a deceptive company comes tumbling down again.

One word for Steve & Barry - SHADY.

Kevin S

July 15, 2008 12:28 PM

I am in the licensed t-shirt industry. Anyone who thinks the business model is not flawed does not understand the costs incurred to bring product to market. They were selling t-shirts at wholesale margins (or less) and trying to support retail overhead. For years I have wondered how they did it. I just assumed they must be the smartest retailer out there. I'm glad I was wrong. By having unrealistic prices they were creating unrealistic expectations for consumers. I'm glad to see them go as a competitor, but obviously I feel for the employees who are hurt in their wake.

frisco jonesp

July 15, 2008 1:43 PM

The business model was not flawed but was GENIUS.
Sell cheap, brings crowds into malls, have mall owners finance them, They sold approximately 100 million pieces. If the economy were decent, they would have raised prices by 1.00 (and still be dollars under the market) and this would have made them 100 million dollars a year. In this recession capital markets closed on them. You saw the lines at INDYMAC Bank. They will soon be bought by a company with the finances to continue the concept even in a recession. The stores will not close. The landlords need them open and will cooperate to make it happen.

CocoDynamite

July 15, 2008 3:57 PM

Steve & Barry's didn't go under because of a flawed business model or because of licensed celebrity apparel. They went under because Steve & Barry had no idea how to manage the company's rapid growth. The people at the helm of the business were very unexperienced and greedy. 24 year old ivy league graduates, with little prior work experience and no retail experience, were put in charge of heading departments under the guise of the COO.

Isaac

July 15, 2008 4:38 PM

They had peppy sales.

But I'd say their decision to keep the 8.99 promotion price tag for all items proved to be costly. At 8.99 the margins are non existent for many items and razor thin for all others.

I've been to Quakerbridge Mall in NJ and Palisades Mall in NY during multiple occasions. The trend was that their inventory was running out pretty briskly, if I visit QB Mall location on Mondays, most of the shelves and racks would be empty since the next delivery comes during the following night. I hear the same story about other stores too. Maybe Ken and Kris can give the inputs on their stores. So because of the extremely low margins, despite of the sales, they could not sustain it.

And about expansions: A lot of malls were paying S&B to the upwards of $1Million for signing leases, which were some times more than the total rent that they would have paid. It explains a lot about the rabid expansion.

Whatever it is, Steve and Barry's will be missed. I already do.

Scott

July 15, 2008 5:14 PM

It is incredible ... when you read the Wall Street Journal's in depth article about S&B and its growth and demise, one feature that stuck out ... "in the 2003 fiscal year, which ended Jan. 31, 2004, when Steve & Barry's had 31 stores, tenant-improvement payments totaled $17.5 million, according to documents reviewed by The Wall Street Journal. The payments jumped to $58.6 million the next year, the documents say. The peak came in the 2006 fiscal year, when the company received $122.3 million in payments, but spent only about $59 million to build out new stores, leaving about $63 million in unused cash!!!!!"

WHERE DID THAT UNUSED CASH GO!!! APPROIX. $63 MILLION DOLLARS. Maybe Steve & Barry had a better business plan than all of us gave them credit for. Build the house of cards, and right before it crashes, take your money and run!!!

JOHN

July 15, 2008 5:26 PM

Eric Hughes- Director of stores
degree from Harvard in MUSIC-- Enough said

frugal gal

July 15, 2008 9:43 PM

I do ALOT of online shopping and only heard of this store today while thumbing through a magazine.

I avoid malls...

Any company that has that many stores should have a site to shop at. People are shopping and buying your stuff while you are sleeping and not running up your electricity.

Shame, I would have bought all my clothes there and tons of gifts.

Also agreed you MUST bring in experience, fresh ideas are great but experience provides a stable foundation. Too much growth too fast and details suffer.

Peter

July 15, 2008 11:57 PM

The company sourced nearly all of their goods by auction, based on price-point only, with no regard for building supplier relationships. As a result, their products were inferior and they were supplied by firms with no loyalty to them who knew each order might be their last. Not a strategy for the long-term.
Typical for apparel firms, the principals walk away far healthier than the shareholders or the suppliers.

Jeff

July 16, 2008 12:43 AM

Their mistake was two years ago when they started to raise their prices. Selling cheap clothes for 6.99 is a good deal, but then one day they doubled thier prices on many of their products. This pissed off many of their customers and lots never came back. Then they began expanding to small cities that cannot support a walmart, yet less a large clothing store.

Mike-Smith Barney advisor

July 16, 2008 10:13 AM

I'm a financial advisor for Smith Barney. For those (soon-to-be) former employees, 401k/IRA rollovers may be a more suitable avenue after departing from Steve & Barry's.

Bonnie T.

July 16, 2008 8:28 PM

I love the store! Despite making a decent salary, I live in the Silicon Valley and everything here is soooo expensive.

Having Steve & Barry's come in was a blessing for myself and loads of other people who can't afford "Brand Name" stores. I told everyone I know about the store and those who went there loved it too.

I hope they can pull out of their total bankruptcy and keep some stores open - especially here, where, to find a great store like theirs is rare.

dout

July 21, 2008 4:30 PM

Hacks, S and B is a bunch of hacks!

What about us?

July 25, 2008 11:36 PM

There are no 401Ks...laid off employees received minimal offerings. A week's pay, insurance til the end of the month. Many of these Managers were recruited from other retailers. Sold on their vision. It's a shame that participating in opening new stores (all the hours and labor) that there wasn't more appreciation.

prachi

July 26, 2008 10:31 AM

they are crooks

kilee

July 28, 2008 10:31 PM

i work at s&b. i love the clothes & the work environment. it will be a shame to see all of the hard work my coworkers & i myself have put into the store go down the drain. sometimes, its more than just a job to me.

Lolita

July 29, 2008 8:25 PM

I, also, am employed by S & B, which used to be a job I was proud of. The main focus was the customer. Present affordable clothing for the average consumer in a happy, upbeat, enjoyable environment. The store has an almost cult following. Until now. Employees found out about the bankruptcy through the newspapers. There was no communication- no explanation. Hours were rapidly and severely slashed providing almost no customer service. At times, in a 40,000 sq ft store we only have 2 employees. The store has become dirty, stock is not replenished, customers are mad. Recently our supply order was denied by corporate-- including toilet paper. And still, no word from Steve or Barry or Moe or Curly either on our future. This isn't your college dorm room boys. Your party just got raided-time to fess up

got screwed

August 4, 2008 7:00 PM

I worked for SB for about 1.5 years, transfered out of state to another store location trying to be a "team player" and help out. Later to find out that my new store "wasn't making producing enough volume and sales to support as many managers as we had" and was untimatly let go. They require you to work six days a week durring holidays for 4-5 weeks with the promise that you get those extra 4-5 days back as personal time. When I left the company they refused to pay out all the extra time put in that was promised back. They are a horrible company with no intentions of creating any trust with employees and paying them for time put in durring the peak of the holiday shopping season.

In the Hole

August 15, 2008 4:23 PM

S & B didn't pay a dime for any expansion program..they rode the backs of the subtrades until the stores were complete and then screwed us. They knew exactly what they were doing..if they had an ounce of f'n brains they would have stopped building stores they couldn't and wouldn't pay for...stores are open for business and we are left holding the bag. I'm pissed. The idiots didn't know when to stop. I hope they rot.

...If its too good to be true...

August 17, 2008 2:05 AM

In the long term, the business strategy didn't have enough room for contingency planning... as mentioned, margin was FAR TOO THIN to support sustainability, celebrity licensing, even customer service based staffing. If you are moving that much product, the staff that you have spends their time processing new freight, not to mention the shrink levels created loss from the floor, then eventually the bottom line when Loss Prevention staffs and expenses were ramped up.

...not good. It is truely unfortunate for all the good people that caught this short term vision.

Rebecca

August 20, 2008 8:33 PM

Many here mentioned customer service...well, when I shopped there once, no one was around! I had just a couple of questions, but still. Also, the store was HUGE! I can only imagine the cost of their rent, meanwhile there were only a handful of customers shopping. I questioned it at the time, but now it seems clear that many factors contributed to their demise...

After that first shopping experience, I never shopped there again.

Ex fan of S&B

August 29, 2008 3:20 PM

As a Canadian, these stores were a great place to shop on our Southern visits. The bankruptcy has given insight as to what a bunch of crooks these guys are. They had an option to succeed with their business model via slower growth and better management. Turns out they valued their own pockets ahead of business models or just about anything else. RIP S&B.

jezabel

October 12, 2008 6:01 PM

I worked there, and liked it, but I did so much OT, I got sick and had to quit.

Bill

October 26, 2008 11:44 PM

I hope steve and barry's will restored. I love steve and barry's coz i really love it's good product moreover it's cheap.

bitter

November 8, 2008 9:53 PM

I worked at their corporate headquarters for more than a year, and personally met with Steve and Barry and other senior executives several times each week.

They are horrible people. They made promises they knew they would not keep. They routinely raised expectations of future rewards for staff and vendors, as a way of negotiating better deals for themselves in the present. Arrogant -- they believed they were geniuses because they were able to convince people with their lies and fast promises. In fact, they had less than average intelligence, and refused to acknowledge reality and consider the consequences beyond extremely short-term goals. Pure greed.

They are indeed crooks. They deserve to be in jail, and probably owould be investigated if there weren't too many other financial crises keeping regulators busy at the moment.

Karen

November 11, 2008 5:42 PM

I had never heard of Steve and Barrys before a couple of weeks ago when my daugher who is in High School suggested I do one of my papers on them for my Marketing class. Wow, this is the perfect story for a marketing student. It has all the elements of what to do which they did initially and what not to do(in the end)in starting and sustaining a business. Greed is a scary thing and it is very easy to get sucked in. As it has been said over and over money is the root of all evil. I have my own business much much smaller than Steve and Barry's and it is easy to make mistakes believe me.
I hope they can pull the Chapter 11 off just because of the employees and any stock holders(I do not know how the company is set up). Remember they are who ultimately suffer when things like this happen.

Milly

November 24, 2008 8:44 PM

I am a former employee since almost the begining. Money was made from opening stores and not running them, so it could only go for so long. There was horrible management at the top starting with the names on the store-front and leaked down the line. Its just to bad they wouldnt listen to the people on the front lines because they could have made stores profitable, even at 8.98

KRYSTAL

December 11, 2008 10:49 AM

YA I ALSO WORK FOR STEVE N BARRYS IN GALRAND I HAVE WORKED THERE FOR A WHOLE YEAR AND A MONTH AND I THINK IF THEY HAD PICKED BETTER LOCATIONS FOR OUR STORES WE WOULD HAVE HAD MORE BUSINESS. THE STEVE N BARRYS I WORK AT IS LIKE BEHIND A LOT OF STUFF SO HARDLY ANYBODY KNEW WE WAS HERE..... LOL ALSO IF WE HAD BETTER MANAGEMENT MY MANAGER ........ THATS ALL I WILL SAY. BUT STEVE N BARRYS IS MY FIRST JOB AND I ENJOY WORKIN THERE SO MUCH.... I JUST WISH THEY WASNT CLOSING...STEVE N BARRYS WILL REALLY REALLY BE MISSED....AND THE ONE BAD THING IS I BASICALLY WORKED FULL TIME I WORKED LIK 60SOMETHIN HOURS OR MORE AND I AM 17YEARS OLD....I HOPE I BE ABLE TO FILE FOR UNEMPLOYMENT

Linh

December 24, 2008 2:30 PM

I have always wondered why this company was in business for soooo long. I really like this store and wish they would've stayed in business a lot longer. The clothes are trendy and extremely cheap.

Mike

March 5, 2009 5:18 PM

No more starbury or Big Bens? I bought shoes their because I didn't want to pay for a contract Nike had signed with a player.

Aaron

December 21, 2009 1:36 AM

I stayed on top of their financial news because my wife was big fan of the Bitten line. They went bankrupt because they were relying on payments from mall owners to move their stores into dead malls to drive earnings. The business strategy might have worked had they not expanded too fast, but the corporate strategy was for short-term results instead of long-term profitability.

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