Steve & Barry’s LLC

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Steve & Barry’s LLC

12 Harbor Park Drive
Port Washington, New York 11050
U.S.A.
Telephone: (516) 829-4730
Fax: (516) 570-8221
Web site: http://www.steveandbarrys.com

Private Company
Incorporated: 1985
Employees: 2,500
Sales: $700 million (2006 est.)
NAIC: 316219 Other Footwear Manufacturing; 448110 Men’s Clothing Stores; 448120 Women’s Clothing Stores; 448130 Children’s and Infants’ Clothing Stores; 448140 Family Clothing Stores; 44815 Clothing Accessories Stores; 448190 Other Clothing Stores; 56320 Women’s Accessory and Specialty Stores; 448210 Shoe Stores

Steve & Barry’s LLC is a retail clothing and footwear chain dedicated to delivering merchandise at the lowest possible prices. The company, which sells private label merchandise, has made a science of keeping costs low at every step of the process by overlooking no money-saving opportunity, from mastering arcane tariff regulations to find the best production locations, to driving a hard bargain with landlords and spending very little on advertising. The company made its mark on the retail landscape offering low-priced, licensed collegiate clothing, and each location offers sweatshirts, T-shirts, and other apparel from a wide range of colleges and universities beyond typical regional boundaries. The stores’ merchandise mix includes the Starbury line of athletic shoes and clothing, licensed by professional athletes including basketball star Stephon Marbury, and its private label lines include clothing designed specifically for women and children markets, including a brand called “Bitten,” licensed by actress Sarah Jessica Parker.

COLLEGIATE ORIGINS

Steve & Barry’s LLC was formed by Steve Shore and Barry Prevor. As teenagers, the entrepreneurial pair created silk-screened T-shirts which they sold at Long Island flea markets during summer vacations. They adopted their low-price formula early, selling their shirts for just a dollar apiece.

Their budding retail partnership continued after they headed off to separate colleges—Shore to Tulane University and Prevor to the University of Pennsylvania. In 1985 they opened a small clothing store in Philadelphia, near the campus of Penn’s Wharton School, where Prevor was an undergraduate business major. They stocked the shelves with licensed university-logo clothing—sweatshirts, T-shirts, hats—that sold at a steep discount relative to the items sold at the official campus bookstore, making their store very popular with cash-strapped students. Their success in Philadelphia encouraged them to open locations in a few other university and college towns.

From the start, the Steve & Barry’s University Sportswear stores were created and managed with an eye on keeping costs at their lowest possible point in order to keep product prices low. The founders reportedly camped inside new stores as they expanded around the country to save money on lodging. Their transport was a dilapidated $300 van. By the late 1990s, the thrifty partners had grown the chain to nine stores.

INTO THE MALLS IN 1998

The company opened its first mall store in 1998. This was located at Great Lakes Crossing, a Taubman Centers Inc. site in a suburb north of Detroit. The mall itself was a new concept for its region, with an aggressive mix of value-priced, outlet-type stores, regular-priced retailers, and themed entertainment destinations, including restaurants, movies, and video arcades. The store was relatively modest in size, measuring 25,000 square feet, and it proved to be a good match with the mall’s customer base.

Steve & Barry’s became a favorite of mall owners in other cities, as well, due to the high volume of traffic the stores attracted. Within a few years, the company’s stores were highly coveted as anchor tenants in the middle-market malls they targeted. With a number of large clothing stores either going out of business or vacating premises for larger buildings, Steve & Barry’s had a lot of leverage with landlords when it came to setting rents and recovering building and remodeling costs.

In 2000, the company broadened its selection beyond collegiate wear to include a wider range of casual clothing for men, women, and children, including cargo pants, jeans, and jackets. The company continued to devote a great deal attention to the art of keeping prices low, enabling it to undercut even goliath discounter Wal-Mart Stores Inc. by as much as 40 percent.

Its practices diverged somewhat from the typical low-cost business model. Noted Business Week in 2006, the company bought fewer goods from China than other discount retails due to tariffs and import restrictions. It instead worked with vendors from such areas as the Middle East, the Indian subcontinent, Latin America, Africa, and North America. Other frugal measures included ordering inventory on year-round schedules with longer lead times than other companies typically require and without the seasonal spikes in production that can drive costs up.

Though the stores were becoming increasingly large, sometimes situated in buildings vacated by Wal-Mart, their décor had more in common with trendy mall shops than most big box discounters. Floors were paneled in wood and large flat-panel TVs played college ball games or music videos. These screens were also used to run promotional clips for movies. Despite the trendy appearance of the stores, Steve & Barry’s managed to keep overhead costs low by negotiating favorable lease and fee arrangements, and finding tax abatements and incentives that allowed them to build a retail presence at the lowest possible costs.

The vast apparel selection inside each store included more than 1,000 different T-shirts, many featuring iconic logos licensed from the likes of the Ford Motor Company, General Motors, Hershey, Marvel Comics, and the U.S. Army. College-themed merchandise was still part of the mix; the company held licenses with more than 350 schools. The mix also included a stable selection of low-cost, casual clothing basics that appealed to their young clientele.

COMPANY PERSPECTIVES

Steve & Barry’s is about change. It’s about changing the way that consumers shop for their clothes and changing the way that retailers cater to them. Steve & Barry’s is about stripping away the gloss and giving consumers something real. The fact is that great clothing doesn’t really have to cost that much. It’s a simple idea, but also a big idea—big enough, that is, to turn the industry on its ear. By delivering on its promise to provide premium apparel at impossibly low prices, Steve & Barry’s is single-handedly changing the retail landscape. We’re busting the model. Steve & Barry’s significantly impacts the communities that it serves, rejiggers shopping patterns, alters local economies, and sometimes even changes people’s lives a little bit.

A GROWING CORPORATION

In 2005 Forbes magazine called Steve & Barry’s the “fastest growing retailer you’ve never heard of”; the company reportedly had annual sales of $700 million and was profitable. The commercial real estate industry was certainly becoming familiar with the name. According to Business Week, Steve & Barry’s opened more retail space in 2005 (3.5 million square feet) than any other mall-based chain. As it set a course for accelerated expansion, the company increased its headquarters office space twofold while also opening a new, fully automated 1.3 million-square-foot distribution center in Columbus, Ohio. This was built at a cost of about $3 million; naturally, some tax incentives were built into the deal. The company also had a 440,000-square-foot warehouse in the Detroit area.

In 2006 the company had more than 200 employees at its headquarters; many were recent college graduates. Shore and Prevor shared the job of CEO and reportedly each carried out his own secretarial duties. Prevor has specialized in staying current on tariffs and import regulations. The company’s president, Andy Todd, was under 40 and embodied youthful ambition. According to the company’s web site, Steve & Barry’s is “single-handedly changing the retail landscape.”

Steve & Barry’s was opening new locations at an incredibly fast pace. Beginning with 30 stores in 2004, the company doubled in size during the next two years. It had almost 200 stores in 33 states by the end of 2006 and was on track to open another 100 in 2007. These were located in a variety of areas ranging from metropolitan areas to relatively small. The average store size was 60,000 square feet, though some units were twice that big. Its stores averaged 100 employees each.

STARBURY IS BORN

Steve & Barry’s applied its revolutionary low-price formula to athletic clothing and footwear beginning in 2006 when it introduced a new brand of basketball shoe called Starbury. This was part of the signature line for Stephon Marbury, a point guard for the New York Knicks. Though endorsed by an NBA player, the shoe sold for only $14.98, a mere fraction of the price of the signature models of other professional basketball players. Marbury was an appropriate pitchman for the concept, having famously survived a tough childhood in the projects of Coney Island, experiencing firsthand the economic pressure on kids to buy brand-name, licensed clothing.

The first shoe was called the Starbury One. Marbury did more than lend his name to the sneaker—he wore it on court at his NBA games. While discount department stores had sold shoes in this price point before, none had been launched with this kind of celebrity star power. The idea of a professional athlete staking his reputation on a product so accessible to the masses garnered much media attention. ABC’s 20/20 news magazine sawed the shoes apart on camera, comparing their materials and construction favorably to sneakers retailing for $100 and more. Steve & Barry’s milked the concept with a clever guerrilla marketing campaign, complete with “street teams” promoting the shoe at a local level. (The company typically spends less than 1 percent of revenues of advertising, according to Forbes. )

The Starbury line soon developed into a collection of more than 200 items for men and boys. A second shoe, the Starbury II, soon followed. Ben Wallace of the Chicago Bulls signed up to endorse the Starbury brand in March 2007, with plans to introduce his own “Big Ben” signature footwear.

In 2005, none of the clothing was sold for more than $7.98; this ceiling was raised two dollars within a couple of years, with shoes still selling for under $15.00. In June 2007 Steve & Barry’s introduced a range of women’s clothing at the $19.98 range for the first time, making these the most expensive items in the store. Even at that price, however, industry observers noted that the fashions were priced far below what pieces of similar quality sold for elsewhere. Under the brandname Bitten, the line of casual clothing was licensed by actress Sarah Jessica Parker. Items included in the introductory Bitten line were lined dresses, linen blazers, jeans, and woven, stretch-cotton tops. After years of success with male-oriented sportswear and collegiate clothing, the chain had begun putting more emphasis on women’s and children’s clothing. To meet the expectations of a fashion-savvy customer base, Steve & Barry’s hired some of the industry’s top design talent, resulting in clothes whose fit and cut would be competitive with much pricier rivals.

ON TRACK FOR AN IPO?

By the middle of the first decade of the 2000s, Steve & Barry’s rapid expansion and winning business model had observers wondering if a possible initial public offering was in the works. Company officials were coy about future plans but they did sell a minority holding to private equity firm TA Associates in November 2006. Cash from the deal was earmarked for improving infrastructure and building inventories, Prevor told WWD. The Starbury launch had caught the company short of product; the quantity planned for the first few weeks had sold out in three days.

KEY DATES

1985:: Steve and Barry open discount collegiate clothing store at the University of Pennsylvania.
1998:: First mall store opens near Detroit.
2000:: Casual clothing for men, women, and children introduced.
2006:: Starbury shoe launched with basketball star Stephon Marbury.

Despite its new size, Steve & Barry’s remained true to its origins. “The idea of buying quality merchandise at a low cost, and selling it at the lowest possible price without adding any fat, is still the core principle of our business,” Prevor told Chain Store Age. Prices remained, in the words of one the founders, “ridiculously low.” According to the company’s web site, no plans were underway at the midpoint of the first decade of the 2000s to expand sales channels to include either catalog or Internet retailing; the focus instead would remain on providing a wide selection of low-cost, high-quality, instore inventory at an increasing number of locations. In 2006, BusinessWeek reported that the company aimed to continue its ten-year growth rate, resulting in nearly 570 total outlets by 2008.