Value-priced chain Steve & Barry’s has bitten off more than it can chew, industry watchers said last week, citing pricey celebrity licensing deals and aggressive store growth among the retailer’s missteps.
“[Their] expansion was much too fast. The infrastructure wasn’t there,” said Gilbert Harrison, CEO of Financo Inc., a New York-based investment bank and consultancy firm. “More important is that when they pay these huge amounts of licensing fees ... it takes too much away from the gross profit margin to give them the profitability needed.”
Steve & Barry’s declined to comment at press time, but the news of the Long Island, N.Y.-based chain’s financial woes left many insiders concerned about its future. Several of the chain’s vendors remain unpaid, and press reports hinted that a bankruptcy filing could come as soon as next week if the firm didn’t get some last-minute financing.
Steve & Barry’s first made big waves in the footwear industry in 2006, when it signed a deal with NBA phenom Stephon Marbury to launch the Starbury brand. The player’s line of inexpensive sneakers was a hit for the company, which later unveiled celebrity lines by tennis player Venus Williams, actress Amanda Bynes and film and TV star Sarah Jessica Parker.
“They were the darling of everything,” said Emanuel Weintraub, CEO of management consultancy Emanuel Weintraub Associates Inc. “Everybody loved the product and loved the prices. ... [But] they didn’t have revenue sufficient to meet their expenses. They did not understand their costs.”
NPD Group Chief Industry Analyst Marshal Cohen, who has worked in an advisory capacity to Steve & Barry’s, said the retailer’s financial troubles weren’t a surprise to him given the company’s rapid growth strategy and major investments, which he said are “pretty hard” for a retailer to finance on its own.
In March, GE Commercial Finance Corporate Lending gave Steve & Barry’s a 7 million asset-based loan to fund “ongoing capital needs,” and Steve & Barry’s has reportedly defaulted on that loan.
The retailer is now looking for additional financing, reportedly around million. However, analysts said it is unclear whether Steve & Barry’s can get the necessary last-minute funds amid tightening credit markets.
“The lenders are extremely cautious today,” Weintraub said. “Unless [Steve & Barry’s has] a revised business model, it could have a lot of problems.”
Store openings and rapid mall-based expansion have presented challenges for the retailer, as Steve & Barry’s has moved away from its original formula of choosing off-mall or secondary real estate and opted instead for expensive mall anchor-store locations. “They’ve swallowed a pretty big chunk of real estate,” said Cohen, referring to sales per square footage.
Other troubles, industry watchers said, include the retailer’s cut-rate prices, which make it a rival to Wal-Mart Stores Inc., even though it pays top dollar to create its celebrity-backed collections, such as Sarah Jessica Parker’s Bitten line of apparel and footwear.
“Those are expensive programs in general ... requiring royalty income that becomes expensive for a retailer to continue when it has low sales per square foot. The average price points of its products are low,” said Mary Ann Domuracki, a managing director at Financo Inc.
In addition, a source familiar with Steve & Barry’s said certain inventory, including footwear, often sits on the retailer’s shelves for more than a year.
Cohen added that stocking key styles was one of the biggest issues with the company’s fledgling footwear business. “I’ve seen consumers who go in to buy Starbury shoes who can’t even find their size,” said Cohen. “[Steve & Barry’s] hasn’t been able to sustain a consistency of product in-stock in footwear, which is the No. 1 reason a customer walks out of a footwear store without buying footwear.” |
