By Divya Watal
U.S.News & World Report
The bright blue-and-yellow "Steve & Barry's University Sportswear" sign perches prominently on Eastpoint Mall, 20 minutes from downtown Baltimore. "Grand Opening," says an eye-catching banner. "Everything for $5.98 or less." The store, flanked by Value City, JC Penney, and Sears, stands opposite a Salvation Army thrift store. The kitschy commercial colors of Steve & Barry's seem to give the nondescript neighborhood its only splash of liveliness.
Eastpoint is just one of the many out-of-the-way malls across America where such signs are sprouting. Steve & Barry's, an apparel chain that carries casual clothing at extremely low prices, already has about 80 stores nationwide and plans to add 40 more by year-end. Retail-industry analysts are noticing it, and competitors--ranging from large discount chains to mall-based stores--are watching it closely. After all, its strategy of selling middling-quality T-shirts, jeans, jackets, hats, and other items for the entire family at $10 or less seems inexorably successful.
Low costs. "Steve & Barry's is at the forefront of a trend in retailing--what's called extreme retailing," says Lois Huff, senior vice president of the market-research firm Retail Forward. "They have low prices and good value." Target and Old Navy are following a similar strategy, Huff says, but Steve & Barry's "takes extreme value to the next level." That means opening stores in malls like Eastpoint, which keeps real-estate costs down; surviving on word-of-mouth advertising; and practicing "tariff engineering."
The tariff engineers are childhood friends Steve Shore and Barry Prevor, the 42-year-old founders and co-CEO s of Steve & Barry's, who started their partnership over two decades ago selling T-shirts at the Roosevelt Raceway flea market in Long Island, N.Y. They began with $100 or less, making T-shirts in their basements, and eventually opened their first store in 1985 at the University of Pennsylvania, where Prevor went to school. But as they expanded, they began to take advantage of the U.S. tariff system, which imposes different duty rates on various goods from foreign countries.
Tariff engineering "might mean mixing more cotton than polyester in a garment," Prevor says. A nylon jacket Steve & Barry's might import typically has a duty of around 32 percent. But if the inside of the fabric has a water-resistant coating, the duty rate drops to around 7 percent. "So, we have a lower cost, and the consumer gets a better product."
The quality of the products, made in countries ranging from China to Swaziland and even the United States, isn't impeccable--sizes are not uniform, and the stitching is clumsy at times. Yet some consumers don't mind the price-quality trade-off. "They target the 'good enough' consumer," says Retail Forward's Huff. But Steve & Barry's shouldn't lose sight of its audience, she warns. "Cost is harder to control when you're bigger. The challenge comes when you hit 200 to 300 stores--that's when you lose control."
Steve & Barry's is no discount dollar store. Sepia-colored retro ads decorate the walls, and the store format--much like Old Navy's--is neat and spacious. What might give away the store's identity, however, are the $6 T-shirts that say things like "Mullets Rock" and "I'm in shape--Round is a shape."
Steve & Barry's is not an Old Navy yet--the company is still relatively tiny and privately held, with no plans of going public anytime soon. Shore and Prevor receive support from CIT, a small-business financer, and the California-based Cathay Bank. But Shore says they are intent on transforming their business from a "small entrepreneurial mom and pop shop" to a "world class" retailer. Shore recently hired a group of Ivy League grads as managers. Adds Prevor: "We really don't see any limit to our domestic growth at any time in the foreseeable future."
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