How poor marketing intelligence drove a $656M retailer bankrupt

Steve and barrys store closing lessons for retail“Events will take their course, it is no good of being angry at them; he is happiest who wisely turns them to the best account” – Euripides

When I went to school at Purdue I realized two things fast: school pride was awesome and I was too broke to wear it out. Let me explain. Nothing built camaraderie like college sports and there was no better display of school spirit than a Boilermaker sweatshirt (and how I coveted one). But the official gear in the university store was way outside my budget and I was subsisting on minimum wage and instant noodles back then.  Fortunately I discovered Steve and Barry’s. I still have the cheap $10 sweatshirt I got there two decades later (holes and all). Unfortunately Steve and Barry’s fortunes have not been as robust. Quite surprising since their sales were through the roof in 2007 at $656 Million… and then it all went pear shaped. The company filed for bankruptcy in 2008.

Initially the company attributed their demise “to liquidity shortfall as a result of credit market volatility and general economic conditions’’. Basically they were saying that the downfall happened due to events the company had no control over – such as the credit crunch of late 2007 and its devastating effect on retailers.  As this case study in Chief Marketer points out, the truth was more involved.

Back in 2007 Steve and Barry’s was having a banner year. They had achieved their best revenues till date and 50% YOY growth. This was the 15th consecutive year the company managed such growth.  It was operating on incredibly small margins on their clothing lines and cutting costs by choosing store locations in economically challenged areas where rent was cheap.  However, even with these cost savings, the company continued to rack up debt with its growth pace. The firm was getting only one part of the salesman’s mantra – “sales for vanity but profits for sanity”. Indeed their net profits were razor thin.

The company had started to pursue high profile celebrities to launch their own lines through their stores.  These celebrities included Sarah Jessica Parker from Sex in the City and Stephon Marbury from the New York Knicks.  The hope was that they would provide the store with additional cachet, generating more foot traffic. To me this highlights two basic weaknesses in the company’s operating model.

First they were looking for growth via foot traffic to move large amounts of inventory at a time when the trend was toward electronic commerce.

Furthermore, the signing of the celebrities put additional strain on extremely tight profit margins while highlighting their Achilles’ heel; they had no customer data intelligence.  It made no sense to target the Sex in the City demographic when their bread and butter had been cashstrapped twenty-something college students till date. Instead of nurturing these relationships when the students transitioned to professional lives the retailer was building bridges to nowhere.

The combination of strategic and tactical mistakes made the company ripe for failure. When credit tightened, the cashflow went south and the company went under.

The heart of the problem was bad decision-making. Namely

  • Poor inventory decisions
  • Wrong sales channel priorities
  • Weak understanding of customers

In retrospect it is easy to see why Steve & Barry’s thought their demise was due to events beyond their control.  Other high profile retailers like Circuit City and Linen n’ Things went the same route. They blamed the financial crisis as well.  However it is instructive that these other retailers also shared common elements for failure with Steve and Barry’s. The root causes were identified as non-judicious expansion, extremely tight and vulnerable margins, poor inventory management, and no electronic commerce or customer intelligence.

All this is frustrating because, like the other retailers, Steve & Barry’s had control over their destiny and they chose to ignore the warning signs. Personally it is unfortunate because I am in need of a good sweatshirt and I would have returned to shop – not just for the sweatshirt, but for the good memories of the times past.

To see a case study of one company that is on a very different trajectory and IS nurturing customer relationships click on the button below.

Retailer integrated intelligence in campaign processes, grew revenues per contact

 

Closed store image by Chris Chan (crazytales562) used with permission under Creative Commons Agreement.

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