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Steve & Barry's Faces Cash Crunch

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The Associated Press

Published: July 10, 2008

NEW YORK - Steve & Barry's, once a growing force in low-priced fashion retailing, said Wednesday that it filed for Chapter 11 bankruptcy protection, the latest merchant to succumb to a harsh consumer spending climate.

It also announced that it was considering a plan to sell all or some of its assets to repay outstanding debt, and was eliminating 172 corporate and field staff positions immediately.

The Port Washington, N.Y.-based chain operates 276 locations in 39 states and made a big splash with merchandising endorsements with actress Sarah Jessica Parker and other celebrities.

The parent company and 63 of its affiliates filed for protection from its creditors in the U.S. bankruptcy court for the Southern District of New York.

It joins home furnishings chain Linen 'n Things, catalog retailer Lillian Vernon Corp., and specialty retailer Sharper Image Corp. in filing for bankruptcy protection this year.

Steve & Barry's officials blamed a cash crunch as a result of tighter credit markets and economic conditions. That hurt its plans to open stores and borrow money.

"The generally poor environment for apparel retailers has reduced funding to our suppliers, landlords and to our company," Steve Shore and Barry Prevor, co-founders and co-CEOS, said in a statement. "It has become increasingly difficult for us to continue operating normally under these circumstances."

They also noted that rumors in the marketplace about the company's cash issues became "self-fulfilling prophesies." They said that many suppliers cut off access to services and supplies. They said landlords stopped making "contractually-owed payments for construction and store opening work" the retailer performed.

"As a result of all of this, our loans have gone into default, and we have had no alternative but to file Chapter 11 to enable continued operations," they said.

The bankruptcy filing marks a hard and fast fall for Steve & Barry's, founded in 1985. Its success was built on selling $10 fashions while keeping costs low by using virtually no advertising, manufacturing clothes and selling in volume.

Its low-price fashion formula should have thrived in this environment as shoppers have been trading down to cheaper stores. But the founders conceded that in this climate, marketing prowess and cheap prices weren't enough.

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