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Bankruptcy raises doubts about retailer
Steve & Barry's future questioned
Officials at Marketplace Mall had high hopes for generating more business when they signed Steve & Barry's as a major tenant earlier this year. After the store filed for bankruptcy, many have questions about its future in malls around the country.
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Published: July 28, 2008
When a 30,000-square-foot Steve & Barry's opened in Marketplace Mall just before Memorial Day, mall officials hoped that the hip, discount retailer would strengthen the mall.
Steve & Barry's, regarded then as one of the fastest growing retailers in the country, took over vacant space that had over the years caused Marketplace to occasionally have a 30 percent vacancy rate.
Landing Steve & Barry's gave Marketplace a second major tenant near Hamrick's and made the mall nearly full, except for 4,700 square feet.
Tarron Coalson, the mall's general manager and leasing agent, said he had high hopes that Steve & Barry's would attract younger consumers to give Marketplace a good mix of customers and bring in more business for other retailers.
But Steve & Barry's recent Chapter 11 bankruptcy filing has some in the industry wondering about its future in malls around the country.
Oak Hollow Mall in High Point has had a Steve & Barry's store for several years, but according to bankruptcy-court documents, the mall's owner, CBL & Associates, is one of its largest Steve & Barry's creditors, with $1.2 million at stake.
CBL & Associates Properties Inc. wouldn't comment.
A recent report by The Wall Street Journal said that payments from malls trying to fill empty department-store spaces helped feed Steve & Barry's growth, rather than through retail sales.
Mall owners consider anchor stores as "loss leaders" and are willing to offer deals to big stores to bring in customer traffic.
Documents showed that Steve & Barry's tenant-improvement payments totaled $17.5 million for the its 2003 fiscal year, when it had 31 stores. The payments peaked at $122.3 million in the 2006 fiscal year, but the company spent only about $59 million to build new stores. Between fiscal years 2004 and 2007, the company received $380 million in payments.
Steve & Barry's relied increasingly on the upfront payments from mall owners, according to the Journal, but as malls found it harder to borrow money, promised payments to Steve & Barry's were delayed or did not happen, eventually holding up store openings and leaving extra inventory.
The possible loss of a mall tenant couldn't come at a worse time for traditional, enclosed malls that have operated in a difficult business climate for the past several years.
"We haven't built a large enclosed mall in the United States now in four years," said George Whalin, the president and chief executive of Retail Management Consultants, a retail-consulting company in Carlsbad, Calif. "These smaller, lifestyle shopping centers have become all the rage. There are about 200 of those on the drawing board or being built right now in the U.S."
He said that malls that seem to be doing well are the ones that have been updated and refurbished, have added new stores and have stayed on top of keeping them fresh and interesting for customers.
So far, Steve & Barry's has been a good fit at Marketplace.
Despite its financial problems, Steve & Barry's has generated quite a bit of additional customer traffic at the mall in just a few weeks, Coalson said.
"Like we had hoped, it's a different age demographic than we're used to getting," he said.
Coalson said that mall officials want Steve & Barry's to stay in business and will do all they can do to help it.
"Customers who were regulars at Hamrick's have discovered Steve & Barry's and vice versa," Coalson said. "A lot of clients who have found Steve & Barry's have found their way into Hamrick's and into some of our other stores."
Hamrick's, which is in the same plaza and draws shoppers from throughout the Triad, usually attracts a somewhat older clientele than the typical Steve & Barry's customer.
Most customers interviewed Friday at the store were unaware of the retailer's bankruptcy filing. All of them said they liked their shopping experience and the quality and low prices of the merchandise.
Kimberly and Brian Smith of Winston-Salem were in Steve & Barry's mainly for clothes for their daughter, Kenya Horton, 17, and their infant grandson, Malachi Horton.
Uncertain what the Steve & Barry's bankruptcy filing means, the couple said they may now have to visit the store again soon to stock up on clothes.
"We like it," Kimberly Smith said. "We didn't want to drive to High Point, but with it being right here in Winston-Salem, we can go all the time."
Simone Spiegel, a co-owner of the company that owns Marketplace, Samco Properties Inc., said that it is too early to know if the retailer's bankruptcy filing will affect Marketplace.
"We don't know anything other than what's in the news," she said.
Steve & Barry's attributed its bankruptcy filing to a tight credit market, the slowdown in the economy and high costs for materials and fuel, among other things. Bloomberg News reported that Steve & Barry's wanted to sell its assets by the end of the month, but Bankruptcy Judge Allan Gropper in Manhattan set an auction date for Aug. 12.
Whalin of Retail Management Consultants doesn't expect Steve & Barry's to survive.
"The business model is seriously flawed," he said. "They have not made a profit in their stores in a couple of years."
He said that Steve & Barry's has generated massive amounts of revenues from various malls by putting together deals that generate up to several million dollars, and he believes that a good part of it was spent opening too many stores too fast.
"This company went from less than 100 stores to 200 and some stores in less than three years," he said. "It's just a bad business model, and I don't know how you sustain a bad business model, particularly in a difficult economy."
Rachel Brenner, a spokeswoman for Steve & Barry's, said that it is business as usual at company stores.
"Right now, we are just evaluating all of our operations, but no additional decisions have been made about stores," she said.
■ Fran Daniel can be reached at 727-7366 or at fdaniel@wsjournal.com.
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