Steve & Barry's cuts payroll, files Chapter 11 bankruptcy

Bloomberg News

July 10, 2008

Steve & Barry's LLC, the discount seller of clothing lines by celebrities including Sarah Jessica Parker, has sought protection from creditors, joining at least 10 U.S. retailers in bankruptcy this year as consumers cut spending.

The company, based in Port Washington, N.Y., listed $693.5 million in assets and $638 million in debt as of May 31 in documents filed yesterday in U.S. Bankruptcy Court in Manhattan. The company said in a statement that it eliminated 172 jobs yesterday and plans to consolidate offices while seeking a sale to repay debt.

The chain has several stores in Maryland, including in Baltimore and Westminster.

"The generally poor environment for apparel retailers has reduced funding to our suppliers, landlords, and to our company," Steve Shore and Barry Prevor, founders and co-chief executive officers, said in the statement.

The childhood friends, who made silk-screened T-shirts and sold them for $1 each as teenagers in suburban New York, founded Steve & Barry's in 1985, when they opened a clothing store at the University of Pennsylvania, according to the company's Web site. The chain now sells lines including Parker's Bitten, the Starbury Collection of athletic apparel by National Basketball Association player Stephon Marbury, and clothing based on CBS television shows, with items priced at less than $20.

Stores are open today, accepting gift cards and returns, Steve & Barry's said. The company, with 275 stores in 40 states, opened 10 stores this year and had plans for at least 10 more, according to its Web site.

Sales rose 70 percent in the first five months of 2008 from a year earlier, Steve & Barry's said, not enough to make up for surging fuel and material costs and tighter budgets for shoppers, which limited the company's ability to raise prices.

"Fast expansion may produce significant top-line numbers but you have to be able to manage a company that expands as rapidly as this one did," said Stuart Hirshfield, a bankruptcy attorney at Mintz Levin in New York who isn't involved in the case. "That requires a considerable amount of skill, knowledge and ability."

Suppliers recently cut access to products and services, and landlords stopped making payments for construction work, forcing the company to default on loans, Shore and Prevor said. The Wall Street Journal reported last week that the company might be forced to liquidate.

"Recent rumors and speculation surrounding Steve & Barry's financial situation have become self-fulfilling prophecies," the co-founders said. Suppliers will be paid under normal terms after the filing, and secured lenders gave Steve & Barry's permission to use cash collateral to pay operating costs, the company said.

Sixty-three affiliates also filed for Chapter 11 protection.

Linens 'n Things, the housewares retailer controlled by buyout firm Apollo Management LP; Sharper Image Corp., a gadget seller; Bombay Co., owner of home-furnishing stores; and Goody's Family Clothing also sought bankruptcy protection this year as credit becomes harder to obtain and consumers struggling with higher gasoline costs cut back on nonessential purchases.