Steve & Barry’s – don’t invest quite yet

One of our first posts was based on a May 1, 2008 article on Steve & Barry’s, the cheap-chic retailer that sells brand name fashion for ridiculously low prices.  In fact, their prices are too low – they are apparently about to file for bankruptcy or liquidate, according to a July 9, 2008 article.  It seems it is still true that you cannot sell below cost and make it up in volume.

So as we wipe “half the egg off our face”, let’s look again at their business model.  We wrote:

How do they do it? Manufacture in low labor cost countries (but others do that). Don’t advertise (that is different for a fashion retailer). Locate in underperforming malls (definitely not the Zara strategy). And an obsession with coping with razor thin profit margins. Unfortunately, the article doesn’t describe more of their operations,

The Monday-morning-quarterback in us is willing to hear some skepticism above. For example, manufacturing in low cost countries is not unique.  It appears that their obsession with coping with razor thin profit margins is not obsessive enough to yield a positive profit margin, especially given that the article was short on details.

The conclusion – Zara is still the cheap-chic company to pay attention to and copying them is tough, even if the strategy is slightly different.

NY Times, July 9, 2008: Retail Chain Said to Face Bankruptcy

http://www.nytimes.com/2008/07/09/business/09shop.html?ref=business

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