Ponzi Scheme at Steve & Barry's

[Pale Blue Dot]

The Wall Street Journal is reporting Steve & Barry's Faces Cash Crunch.

As one of the country's fastest-growing store chains, Steve & Barry's LLC was billed as the future of discount retailing. It boasted of massive expansion plans, built on the back of fire-sale prices of clothes and shoes promoted by the likes of actress Sarah Jessica Parker and professional basketball player Stephon Marbury.

That future now looks bleak.

The closely held retailer is racing to find rescue financing of about $30 million. If it is unable to secure backing, it could seek protection from creditors sometime in the next month, say several creditors, bankruptcy lawyers and retail experts familiar with the matter.

The cash crunch comes even as Steve & Barry's expands across the country.

Co-founder Barry Prevor said the U.S. market could support 5,000 stores. Its founders have dubbed their effort the "Google of retailing."

But some of the forces pushing Steve & Barry's growth were not tied to end-consumer demand, but the needs of mall owners in a softening commercial-real-estate market. Much of the company's earnings came in the form of one-time, up-front payments from mall owners. Those payments were designed to lure the retailer to take over vacated sites, say several people familiar with the company.

Without these payments, the stores are barely profitable, if at all, people familiar with the company's finances say.

http://globaleconomicanalysis.blogspot.com/2008/06/ponzi-scheme-at-steve-barrys.html

[liberal N proud]

1. You knew the retail giants had to break these guys

They just couldn't let them undercut them and stay in business.

IMO: Steve and Barry's fatal flaw was allowing the M$M do a story on their success.

[leftofthedial]

2. that's not a Ponzi scheme. that's just the way capitalism works. always has.

but it can't last forever.

the planet has run out of free resources to exploit and has run out of places and people stupid enough to allow the endless externalization of costs that have provided the only real function of capitalism.