David Duprey/AP

Steve and Barry’s Back on the Brink of Closure

November 18, 2008 10:59 AM
by Anne Szustek
Three months after a private-equity firm bought the bankrupt discount apparel retailer, the chain again may go out of business just before the holiday shopping season.

Steve and Barry’s Preparing to Shut Down

According to Wall Street Journal sources, Long Island-based Steve and Barry’s is set to go out of business some three months after private-equity firm Bay Harbour Management LC purchased 175 of the chain’s 275 locations for $168 million.

The private-equity firm had made a name for itself as a “turnaround investor” for struggling retail chains after its successful purchase and rebuilding of luxury retail chain Barney’s New York in 1999.

Bay Harbour managing principal Douglas Teitelbaum said on Aug. 21, when the company bought Steve and Barry’s out of bankruptcy, that the retailer “offers better value than I’ve seen anywhere,” he was quoted as saying by The Wall Street Journal. 

But the Journal reports that Bay Harbour has hired a liquidation firm to sell off remaining inventory, and will be laying off all Steve and Barry’s employees.

A large portion of the company’s $1 billion in reported annual sales amount came from its product lines designed by celebrities such as actress Sarah Jessica Parker and basketball star Stephon Marbury, often retailing below $10. Teitelbaum, a former junior tennis player, said that he saw particular appeal in Venus Williams’ Eleven line, which she wore at Wimbledon this past summer.

As of June 9, Steve and Barry’s was cutting 172 corporate positions, or roughly 1 percent of the company’s 16,000-odd staff.
The retail chain had posted a 70 percent increase in sales from the beginning of 2008 through the end of May. But a dwindling cash flow, underscored by its default on a $197 million loan, left the company scrambling to find $30 million to cover its balance sheets.

The company prided itself on its operational frugality. For example, the corporate offices in Port Washington, N.Y., are furnished with items sourced from the basement of store cofounder Barry Prevor.

But much of the retailer’s cash flow came from mall operators looking to lure Steve and Barry’s, prompting the chain to add more stores, which in turn cut into profit margins.

The closure of Steve and Barry’s is but one of many retailer bankruptcies this year. The store’s liquidation is poised to put a glut of cheap merchandise on the market as the retail sector preps for what is looking to be a sluggish 2008 holiday season. Circuit City’s filing for Chapter 11 bankruptcy poses this threat to Best Buy, one of its primary competitors.

Background: ‘Fashion and “Sin Sectors” Flourish Despite Economic Downturn’

Related Topic: Retail sector poised for sluggish 2008 holiday season

Reference: Bargain hunting guide


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