Will Edward Lampert Play White Knight for Steve & Barry’s?
It’s official. Steve & Barry’s has filed for Chapter 11 bankruptcy protection and now the question is what the discount clothing retailer needs to do to pay off some of its debt.
Sears Holdings has figured prominently in reports about how Steve & Barry’s may find its way out of its current predicament.
George Whalin, president and chief executive of Retail Management Consultants and a member of the RetailWire BrainTrust, told Crain’s, “What Sears may end up doing is buying some brands.”
Mr. Whalin was not positive about a Sears Holdings/Steve & Barry’s deal because, “this is two really poor companies trying to get together and we’ve already seen that’s not a good concept in any way, shape or form.”
Howard Davidowitz, chairman of Davidowitz & Associates, took a much more positive view.
“Would the Kmart (and Sears) customers go crazy for this?” he said. “They might because customers are already pouring out of secondary locations to buy this fashion merchandise (that’s under $10). That’s why I say this is a potentially big idea.”
Discussion Questions: What form do you think a deal between Sears Holdings and Steve & Barry’s might take? Do you side with George Whalin or Howard Davidowitz on the wisdom (or lack thereof) of a deal between the two businesses?
A marriage between Sears and S&B has significant potential in today’s market. Margins were no doubt lean but what tipped S&B into bankruptcy was its hyper growth and weakening dollar (i.e. poor management). As more and more people lose their jobs and personal budgets get tighter the low cost retail market will increase.
S&B makes nice clothes and they still would be a bargain if their prices were increased by 10 or even 20%. The bottom line is that they have a decent product that does not look nearly as cheap as it sells for.
I went to visit the one in Waterford, MI and I was impressed. I disagree with the prior posting. The layout was clean, inviting, and the selection was vast. I think SB can salvage this situation by closing the individual stores that are managed poorly, avoid opening new stores, and focus on stores with good sales and management.
I agree with George on this one. Sears has not demonstrated that they can make their existing business work, not to mention their history with everything from Lands’ End to Kmart over the past four years. It might be attractive to have an under-$10 program like Steve & Barry’s but there is nothing in Sears’ history to suggest that they have the mentality to source product at these kinds of cost prices anyway.
The merchandise model does not work. Sure, the prices are great and consumers react accordingly, but there is not nearly enough margin per item to pay the bills. It turns out that S&B really was a sophisticated “ponzi” scheme and the shopping center owners who were paying them 2 to $3 million per site were the suckers. Have they found a new sucker in Sears?
This “white knight” seems powerless once the thrill of the rescue is over. Kmart was rescued from the dragons of its recent past but then it seems the rescued were left stranded in the newer cave near Hoffman Estates.
Brillant, simply brillant, on Eddie’s part.
Just think, he can reposition S&B and all of its signature designer brands.
Just a thought, but using them as departments within Kmarts or jump starting Sears Grand as Roebuck$; either way, Sarah Jessica Parker and the other lines will have a new home soon.
Actually, I think it’s a great idea. The Steve and Barry’s guys are clearly great merchants and product designers. Sears already OWNS the real estate.
Let’s not forget, the 2 biggest expenses on a retailer’s income statement is rent and payroll (excluding merchandise, obviously, but that doesn’t really count). I don’t believe the problem is with the gross margin of the merchandise…it’s with the equivalent of “exotic” sub-prime mortgages. Short term spiffs from landlords that make the business model untenable long term.
As far as I can see, it’s purely accretive money to Sears and brings some cache to what, till now, has been an AWFUL business.
I don’t know for sure if this is the best route to take. It seems Sears and Eddie are just accumulating a portfolio of weak or failed retailers with the idea of bringing just the few good ideas each retailer had into the fold. Sears has a few strong brand names but overall is a low sales per square foot retailer. Kmart had Martha Stewart, but overall is probably the lowest sales per square foot discount retailer in the country. Steve & Barry’s is a cute concept but the business model is bankrupt.
Can Eddie bring all the good ideas together without having all the baggage dragging the company down? I’m going to say no. So far Eddie has proved to be a loser at retail. He might be good at making stock prices go up, but when it comes to improving sales and market share, the only direction he has gone is south.
I made a field trip to Steve & Barry’s last week and, as I reported on BNET.com yesterday, was appalled at nearly everything I found. From Christmas signage still up in July, to dozens of shirts in only one size and dressing room doors taped open, the place was an operational train wreck. We’ve heard about the landlord payments that essentially kept the place afloat, along with the private equity investment that mostly lined the founders’ pockets. As I said in my story, Steve & Barry are bankrupt in more ways than one.
So what assets are available for Sears to buy? The celebrity, university and brand licenses are certainly valuable ($400 million, if I recall correctly). Even as they filed for Chapter 11 yesterday, Steve & Barry’s were still talking about their rising sales and comps, but if there’s no underlying profit, what’s in it for Lampert?
If Kmart has a niche at all in today’s market, it is to position itself, accurately or not, as the no-frills low-cost leader in the space Walmart seems to be edging away from; almost like a warehouse store of staple items. In that format, Steve & Barry’s might flourish like a glorified dollar store for clothing.
That being said, I can’t recall the last time I drove past a Kmart with more than 15 cars outside.
Just as warranty sales were the (no longer) secret non-product profit weapons for CE retailers, Steve & Barry’s secret weapons were the bennies that mall operators threw at them for the pleasure of feeding off of the retailer’s traffic. Oops, clothes at $10.00 or less don’t drive much margin as it turns out and the traffic part is drying up.
Steve & Barry’s brilliant plays off of collegiate and team wear along with their attention-getting star alliances set new precedents in one of the last price-bloated categories. However, I’m afraid their unsustainable pricing structure has not only set a false standard for others to (try and) follow; it’s a hard-to-reverse association with the brand. $10.00 and under IS the brand, so where to go from here? I would say definitely NOT in Mr. Lampert’s portfolio.
Why not? Look what the Sears/Lands’ End combo accomplished (and that was with a strong brand and a management team at Sears that actually tried to sell things). So I say Eddie and Co. should go for broke…I think they can make it!
S&B has some nice stuff for under $10 but here’s what I don’t understand. They have a huge college section but the majority of merchandise they sell here in their southern California outlets seem to be Ohio State and Arkansas. Sorry, but this is pure stupidity.
The Sears/Kmart combo never made much sense from a retail perspective; it always felt more like a real estate play than anything else. Clearly, there’s not much that’s come of it that makes any retailing sense even now.
S&B certainly appears to be an unsustainable retail business model, due to frighteningly low margins, kept afloat by real estate and store leasing deals.
The whole thing might yield a portfolio of favorable lease deals, but I just don’t see how it make any sense from a retail business perspective.
You can be sure that Edward Lampert doesn’t need to pay much for any retail brand. Retailing is at a low point and dozens of other chains are desperate for capital. The comparison between between Lands’ End and Steve & Barry’s is odd: when Lands’ End was purchased, it was a well-run profitable company, unlike Steve & Barry’s. And Sears can create its own Steve & Barry’s in 9 months, if that’s what they want. It isn’t hard to source inexpensive collegiate sports apparel.
ONCE AGAIN — I AGREE with Mr. Lilien —
Mr. Lampert could create his OWN S&B’s without the time and expense of becoming involved with S&B’s problems. I actually was rooting for S&B and I am sorry to see that they were unable to sustain their unsustainable business model. I am not surprised, but I am sorry that they could not do the magic — apparently they could not, or did not want to — do the math.