Steve & Barry’s Sweet Lease Deals Expire
By Tom Ryan
The most popular retailers commonly get the most advantageous lease terms from real estate landlords. For landlords, finding a premier anchor drives customer traffic to shopping centers and other retailers to pay more for their leases. But one fast-expanding retailer, Steve & Barry’s, is teetering on the edge of bankruptcy after apparently being supported for years by sweetheart deals from landlords.
According to a report in the Wall Street Journal, the liquidity problems faced by the casual apparel sportswear chain are not directly tied to end-consumer demand, but the needs of mall owners in a softening commercial-real-estate market. Much of the company’s earnings came in the form of one-time, up-front payments – often for $2 million to $3 million – from mall owners designed to lure the retailer to take over vacated sites, said several people familiar with the company. Without these payments, the stores are barely profitable, if at all.
The Journal said new stores usually opened strongly, but could not keep pace after a few quarters. Steve & Barry’s margins totaled approximately $20 million to $30 million on annual sales of about $1 billion, or roughly one percent to three percent.
With cash running short, Steve & Barry’s is readying plans to close more than 100 of its stores and is contemplating a full liquidation if unable to land emergency financing, according to the Journal.
Steve & Barry, which sells most items below $10, has been one of the fastest-growing U.S. retailers, with more than 250 stores in operation in 40 states. In 2005, it was named "Hot Retailer of the Year" by the International Council of Shopping Centers. Dubbing their effort the "Google of retailing," its founders said the U.S. market could support 5,000 stores.
Besides its low prices, Steve & Barry’s also garnered a lot of buzz by entering into a string of deals with celebrities and sports stars such as Stephon Marbury, Venus Williams, Sarah Jessica Parker and Amanda Bynes.
Some retail observers believed a breakneck store opening pace was the root of Steve & Barry’s problems. It opened nine stores in the past few weeks alone. But others long questioned the retailer’s ability to sell merchandise at prices rivaling Wal-Mart’s.
A executive at a luxury chain told WWD, "I don’t know how you can sell goods at no markup, at $8 or $9, and expect to make money."
Discussion Question: Have landlords been overly generous in handing out sweetheart deals to anchors? Are you surprised by the apparent real estate issues impacting Steve & Barry’s? Is Steve & Barry’s an anomaly or a sign of bigger real estate problems to come at retail?
- Steve & Barry’s, Short of Cash, May Shut Stores – The Wall Street Journal
- Bad News Flows On: Two More Retailers Hit Financial Crunch – Women’s Wear Daily