For these guys, the price is right
By underselling competitors, Steve & Barry's University Sportswear is now a national mini-empire
Dowling College
BY LAUREN WEBER
NEWSDAY STAFF WRITER
June 6, 2005
Summer 1979: Two teenage boys stand on top of a van at the Roosevelt Raceway flea market, shouting into a megaphone. They exhort customers to buy the $1 T-shirts spread out on a tarp at the foot of the van. A crowd gathers, snapping up the bargain T's.
June 2005: Forty-somethings Steve Shore and Barry Prevor stand in the middle of their Broadway Mall store, Steve & Barry's University Sportswear. Instead of megaphones, they advertise with graphic blue and yellow signs. Instead of tarps, the selling floor is laid with wood. Their T-shirts are now $8.
In the past 26 years, these childhood friends have quietly built a national mini-empire of stores that deliver basic clothing at what they call "ridiculous" prices. Nothing in the chain's 70 stores costs more than $10 - from women's boot-cut jeans to kids' shorts to heavyweight hoodie sweatshirts emblazoned with a Top 10 college name.
The Port Washington-based company is relatively unknown here in its own backyard. That's largely a function of strategy: Prevor and Shore keep costs down by finding very inexpensive real estate, often in second- and third-tier malls around the country. Their growth has been concentrated in Midwestern and Southern states.
But now Steve & Barry's sits on the cusp of explosive growth, with a just-signed lease for its first Manhattan location and plans to double the number of stores over the next year. And they're not shy about saying they're creating a revolution in retail, thanks to a formula of rock-bottom prices and smart-looking shops.
Not every expert agrees with that grandiose assessment, but those who have studied Steve & Barry's operations are impressed.
"At a time when the majority of stores were disconnected with the consumer, they were connected," said Marshal Cohen, chief analyst with market research firm NPD. "They were saying, 'We care about you, Mr. Everyday Consumer.'"
The bus to partnership
Prevor and Shore were just 15 when they jumped on that old van. The two boys, from Syosset and Merrick, respectively, had met that year on a teen bus tour. They shared an entrepreneurial streak and quickly befriended T-shirt printers who would sell them overruns or canceled orders for a pittance.
They sold every summer at flea markets and eventually opened a freestanding store at the University of Pennsylvania, which Prevor attended, selling college T-shirts at a fraction of the prices charged by the university bookstore.
After expanding into basic clothing, such as khakis and jeans, the friends opened their first mall store in Michigan in 1998. The store at Hicksville's Broadway Mall opened in 2003 and is their only location on Long Island.
"They're very bright, very aggressive," said Gregory Greenfield, owner of the Broadway Mall and several other shopping centers with Steve & Barry's stores.
Early on, they established a price ceiling of $10 and a reputation as "the good guys," especially for budget-conscious consumers. For Shore, in particular, this is a deeply felt mission.
He leans forward, eyes shining with intensity as he discusses the company's pricing policy. "Our slogan can't be 'We won't screw you,' because that just can't be a slogan. But they [customers] know they can come to us and not be taken advantage of."
Still, he and Prevor bristle at the notion that their prices spring from some sense of charity or altruism.
"I'm an Ayn Rand fan, and I don't like the word 'altruistic,'" Prevor said. "It's more that we understand that our self-interest is tied in with our customers' self-interest."
Prevor and Shore clam up when the subject turns specifically to their self-interest. After a whispered conference, they offer a tidbit: Sales are in the nine figures, somewhere between $100 million and $1 billion.
But they won't reveal their annual profits or profit margins. (As a private company, they're not required to disclose that information.) They simply say they're doing very well, thanks for asking.
NPD's Cohen estimates that Steve & Barry's marks its clothes up just 2 percent to 20 percent, well below the retail industry average of 54 percent. Given the pace at which they're adding new stores, another industry source estimated the company could reach sales of $1 billion in 2006.
Prevor and Shore are also guarded about how they make money on such inexpensive items, which often include embellishments usually seen on higher-priced garments. For instance, women's polo shirt collars and sleeves are tipped with complementary colors; sweatshirt hoods use a double layer of fabric for warmth.
"We're maniacal about keeping costs low," Shore said.
That means shaving pennies at every step of the process: They have a major design and management facility in Bombay, India, and source from about 25 countries in order to find high quality at low cost ("We understand indigenous skills and fabrics. We know that Northern Indian factories do the best wool sweaters," Prevor says); they're super-efficient - for instance, always sending a full container of clothes out to stores instead of half-empty containers; and they shun paid advertising, relying instead on word of mouth.
Low store rents help
Perhaps most important, they have extremely low real estate costs. Steve & Barry's is large enough to occupy anchor spaces in malls that traditionally pay discounted rents because they draw customers to the shopping center. Their stores are clustered far from the astronomical rents of the New York metropolitan area. (Prevor called the new lease at the Manhattan Mall in Herald Square "a favorable deal." That store will open in October.)
"They're tough negotiators," Greenfield said. Another New York developer said Steve & Barry's has turned down a number of good mall sites because of the rents.
Prevor and Shore carry their cost-management philosophy into everything they do. On a recent business trip to Las Vegas, the two shared a hotel room. Prevor says he pulls paper clips off everything and reuses them. Neither one has a secretary; they answer their own phones.
That discipline is reminiscent of a better-known retailer: Wal-Mart, famous for its penny-pinching corporate culture.
But Prevor stresses that Steve & Barry's is not only concerned with "everyday low prices"; they also want to create a pleasant shopping experience.
Like Wal-Mart, he said, "we're working on very tight margins. The problem is, Wal-Mart then feels that way. We want to give the full experience of a higher-end specialty retailer." He points out the wooden hangers and industrial-look metal fixtures, features that suggest an Abercrombie & Fitch or Old Navy.
Making an impression
Retail experts and Wall Street banks are paying attention, impressed with Steve & Barry's speedy growth, financial discipline and loyal customer base.
"They've been talked about," said analyst Cohen, who has fielded inquiries from a few investors who were curious about the company. But "they still have a few things to continue to prove, such as, how far can they roll it out? Does the formula work for creating a bigger store?"
That said, the timing is right should Prevor and Shore decide to take on outside investors. Mergers and acquisitions are at an all-time high in the retail sector. "There's a lot of capital out there, and it needs to go somewhere," Cohen said.
Not surprisingly, Prevor and Shore are quiet about their intentions. They say they're pleased with the company's progress and are grateful they don't have to answer to shareholders.
As the company's sole owners, they seem to be aware that an initial public offering could turn them both into overnight millionaires many times over. On the other hand, Wall Street's goals could be antithetical to the company's philosophy. Investors want high profit margins; Prevor and Shore want to remain "the good guys," as Shore likes to say.
Still, for two men who truly believe they are redefining retail, a stock offering or investment partnership could allow the company to emulate two brands the owners admire, JetBlue and Harley-Davidson.
"Anybody that's in the apparel business that hasn't noticed Steve & Barry's should wake up and see what they do," said Tom Rubel, president of research firm Retail Forward. "They're a potentially very formidable player on the retail stage. With the proper access to capital, there's a lot of runway for them."
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