Many Mistakes Killed Steve & Barry’s

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.”