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STICKER SHOCK

At Steve & Barry’s, going-out-of-business prices — $8.98 or less — are business as usual

BY KIMBERLY PFAFF

Most people tend to have the same reaction the first time they walk into a Steve & Barry’s store: a little shock.

“Customers come in and see a down jacket for $8.98, and they can’t believe it,” said Andy Dicker, executive vice president of the Port Washington, N.Y.-based Steve & Barry’s University Sportswear. “They think it’s got to be a going-out-of-business sale, because the prices can’t be that cheap.”

But that’s just business as usual at Steve & Barry’s, where every item, from jeans to wool jackets to running shoes, retails for $8.98 or less. It’s an approach that has led some retail insiders to term it “Old Navy on steroids.”

In fact, the Steve & Barry’s strategy — extreme low prices, quality private-label merchandise, upscale surroundings — has transformed this former licensed-college-apparel retailer into a potential major-mall apparel player, with some stores as large as 100,000 square feet. Today the company operates 46 stores in 16 states and anticipates having a total of 65 by year-end. Next year the retailer will open about 50 new stores. Ultimately, the company plans to have hundreds of units nationwide.

Along the way the concept has garnered raves from industry analysts, who note that in a sea of specialty retailers, Steve & Barry’s is in a league of its own, namely, extreme-value apparel. “This store has tremendous opportunity to grow,” said Howard Davidowitz, chairman of Davidowitz & Associates, a retail consulting and investment banking firm with headquarters in New York City.

According to The NPD Group, a Port Washington, N.Y.-based marketing information and services firm, off-price retailers accounted for 8.6 percent of total U.S. apparel sales last year. While the overall apparel market has actually contracted about 5 percent since 2001, the sales volume of off-price retailers has grown by 6 percent, the highest among all types of retailers. And they have increased their market share by about 1 percent over that period. “It’s attacking at that value end, where the biggest market is,” Davidowitz said. “And it’s not another ‘me too’ store selling Liz Claiborne off-price. Their merchandise can’t be found everywhere else.”

Value extremity
To be sure, other retailers are entering the extreme value apparel category. The TJX Cos. currently has 112 stores in its A.J. Wright division, which targets the extreme-value customer with primarily urban stores. And Ross Stores is launching Dd’s Discounts, an off-price concept aimed at lower-income households. The company opened the first 10 Dd’s stores in August and September. Still others, such as T.J. Maxx and Marshalls, sell designer merchandise for less, but though they are off-price, the prices are significantly higher than Steve & Barry’s.

Dicker says his company appeals to value-oriented consumers of all ages, backgrounds and income levels.

“We are in urban and suburban malls, and they both like us equally,” said Dicker. “Because our concept appeals to the masses, we draw everyone.”

Some wax almost lyrical about what they consider Steve & Barry’s distinctive qualities. “This concept is very different than any of them,” noted Davidowitz. “They’ve got a fashion and marketing edge and a very strong value message. Steve & Barry’s has romanced an entire look — they’re like a specialty store, but it’s totally different. This is a potential multibillion-dollar company, depending on their ability to execute the concept.”

Today Steve & Barry’s is focusing on malls and hopes to branch out into lifestyle centers and power centers as well. About half its stores are in the 50,000-square-foot range, but the company is also setting its sights on anchor-size units of 100,000 square feet or larger. Currently, Steve & Barry’s has opened such stores at Westfield Shoppingtown Northwest, in St. Ann; and Westcor’s Desert Sky Mall, in Phoenix. In addition, the company has signed leases for five more anchor-size stores. All these spaces are former department stores.

The move from small store to anchor status has been steady and sure, Dicker says. “We were an unknown at first, but we started off small and we gradually got bigger and bigger,” he said. “Eventually, we didn’t have to do that much selling [of the idea]. The concept pretty much sold itself.”

Customers are willing to travel to shop in the stores, he notes, sometimes as long as three hours.

Though the company originally concentrated on expanding in the Midwest, it is now all over the map, with new stores opening up in Arizona, California, Connecticut, Florida, Massachusetts, New York, Ohio and Texas. “We’re looking everywhere — anywhere there’s a good opportunity,” said Dicker.

Graduation day
It’s a far cry from the company’s beginnings in 1985, when Steven Shore and Barry Prevor (now co-CEOs) launched the business as a chain of college campus-based stores offering university-logo sportswear. In 1998 the company opened its first mall store, at Great Lakes Crossing, in Auburn Hills, Mich.

Four years ago the chain broadened its appeal by expanding into nonlicensed casual apparel, mainly for men; recently, the company added women’s and children’s apparel too. Today 80 percent of the retailer’s sales come from nonlicensed merchandise: jeans, sweaters, jackets, pajamas, footwear and accessories. But it continues to carry the hip university-logo sportswear it was first known for. All the merchandise is private label.

Unlike other discounters, Steve & Barry’s has also concentrated on creating an appealing modern look inside its stores, with wood floors, wooden hangers, lifestyle graphics and signage, and TVs throughout the store broadcasting football games or MTV. “We play whatever’s the hip, happening thing,” said Dicker.

About the only store features that don’t fit the image, says Dicker, are the shopping carts. But they’re necessary, he insists, to help customers with their frequently sizable loads.

At Steve & Barry’s, the focus isn’t on the trendiest, most fashion-forward items, but on the basics: jeans, khakis, nylon pants, T-shirts, sweats — albeit with the latest finishes, washes and silhouettes. New items arrive every week, and displays change monthly.

Company officials say they are convinced the concept will play well anywhere, even at ‘A’ malls. So far it has about 10 stores in such centers, among them Palisades Center, in West Nyack, N.Y., and Walden Galleria, outside Buffalo, N.Y. “Some people only wear Seven jeans, or Gucci, but most of the country doesn’t, and everyone likes a bargain,” said Dicker. “We haven’t had an unsuccessful store yet.”

Mall developers are certainly upbeat about the concept. “Their performance, for a large-space user, is very strong,” said David Weinert, group vice president of leasing for Bloomfield Hills, Mich.-based Taubman Centers, which currently has two Steve & Barry’s junior anchor stores at its malls. “Based on that performance, I definitely want to do more business with them. These guys have really created an opportunity for themselves to be a player in shopping centers. And the price point isn’t just for moderate customers, either. Other customers have fun with it too.”

“The word-of-mouth advertising is incredible,” said Nancy Litwin, general manager of Northtown Mall, Blaine, Minn., which is home to one of five Steve & Barry’s in the portfolio of Columbus, Ohio-based Glimcher Realty Trust. “People stand in the store on their cell phones, calling their friends and family to tell them, ‘You wouldn’t believe the prices.’ They either ask their friends and family for their clothing sizes, or tell them they have to come here themselves.”

So far, consumers do seem to be buying it up. The private company does not release sales figures, but Dicker says sales this year have more than doubled over last year, and he projects similar results for 2005.

The target customer is “everybody,” says Dicker, who notes that the store strongly appeals to families. But it draws a sizable male base, as well, with its casual basics and its signature T-shirt wall that features over 1,000 graphics and slogans.