Some good or bad news came out this week– depending on your perspective: Steve & Barry’s, retailer for low cost brands, filed for bankruptcy on Wednesday. Despite the ethical and environmental questions that many of us had in recent months (see Green Cotton’s Part I and Part II of the Cheapest Dress in the World), I must admit that I was shocked by the news.
Given their tremendous growth over the past two years (opening more than 200 stores) coupled with high profile draw of their celebrity lines such as Bitten by Sarah Jessica Parker, I was not under the impression that they were about to go under. Rather, I thought they were enjoying a price-driven surge amidst our economic downturn that would last for years to come. As a privately held company however, it appears we were not given the whole story until recently.
According to this weeks NY Times article and CNN reports, it appears that Steve & Barry’s may have miscalculated cash flow on a couple of fronts: 1) increasing lease costs (due to lapses in temporary landlord incentives put in place to incentize entry into resource-poor areas); 2) decreasing revenue from certain items such as the Jessica Parker dress (featured in Part I and Part II) associated with temporarily lowered prices; 3) high celebrity licensing fees and 4) all of the above combined, creating an inability to pay off immediate debts.
All these factors, combined with rising oil prices, tightening of credit markets and decreased retail vitality, create a sure-fire formula for a downward crash. Steve & Barry’s is not the first company to run into these problems.
Yet what is unique about Steve & Barry’s story for me, and perhaps some of you, is that the company’s downturn represents yet another example of conventional input-focused models (driven almost exclusively by price) failing to deliver over time. To me their story was inevitable, it just happened to be a lot sooner than I expected.
It is becoming increasingly apparent to me (as oil prices increase and ice caps continue to melt) that when businesses adopt environmental sustainability criteria and fair wage practices from the beginning of production to the storefront, a more sustainable business model is created, not only for our generation, but for generations to come. Even when this means passing some increased cost onto consumers, ultimately this is a good thing, since it creates a market based on “true costs” rather than partial or imagined ones.
The other benefit of increasing product cost (eg in the case of organic clothing), is that ultimately that means we will buy fewer dresses or other items for the season. Plus, we are more likely to appreciate the items more since we invested more in them and will likely not throw them away as quickly. By the way, 80% of garments end up in the landfill within a few years of their purchase (!).
On the other hand, countless companies are currently pioneering social and environmental programs that actually save them money over time and therefore do not lead to increased customer costs. For example, Patagonia, Stoneyfield Farms, Eileen Fisher, Seventh Generation, Timberland, the list goes on….have all proven in one way or another that environmentally sustainable practices (recycling programs, renewable energy investments, waste management, organic fabric sourcing) can all be profitable - in addition to sustainable. See Stirring it Up by Gary Hirschberg for more details. (By the way, I just finished reading that book - and it is great, highly recommend it!).
By creating more holistic business practices that factor in natural resources which are not finite as well as human resources, the fabric of global communities, perhaps our companies will stay in business longer too. Margins may be higher and we may simultaneously create stronger linkages between the land we cultivate, the workers and artisans that produce our goods and those of us who buy them.
May the Steve & Barry lesson be one that others learn from in carving their path into the retail future.
Photosource top: Mark Lennihan/Associated Press as seen in The NY Times
Photosource below: Tony Ciola for the NY Times also noted in Green Cotton post on the Cheapest Dress Part I
