Steve & Barry's: Quick rise, quick fade

It was only six weeks ago that I posted an item headed "Retail expansion slows, except for Steve & Barry's", detailing some recent retail cutbacks, but noting that Steve & Barry's was planning to add seventy stores this year, on top of their current 264.

I probably should have been skeptical -- how can you finance expansion like that when you're selling sneakers and dresses and jeans and shirts for $8.98? And paying licensing fees to celebrities? Answer: you can't. And now Steve & Barry's is facing bankruptcy.

“[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.

It's too bad, because I really like S&B. And I'm not alone:

“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 $197 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 $30 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.”

Of course, they could stop selling everything at $8.98. How about $10.98?

Update Tuesday, 7/1: There's a report from the Wall Street Journal today that they may close 100 stores and possibly liquidate. Liquidation would be a shame -- it is an innovative format and could be re-worked, I think.