At the mall

The finance blog Calculated Risk picks up on a Wall Street Journal story about how a “fast-growing” new retail chain’s explosive growth was apparently bankrolled by payments from malls. The chain, Steve and Barry’s, was being paid to fill up empty space in the malls by desperate mall owners facing excessive vacancies, and apparently derived much of its revenues from these payments. Now the chain is facing bankruptcy. (Wonder if some of the mall owners are too.)

From the WSJ story:

The company currently has 270 stores and projected 2008 revenue approaching $1 billion, with earnings before interest, taxes, depreciation and amortization of roughly $20 million, said two people familiar with its finances. 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. In recent weeks, the retailer has been seeking at least $30 million to fund operations through 2008… Steve & Barry’s closing would be another blow for owners of malls and shopping centers, who have struggled to cope with the 6,500 store closures predicted for this year by the International Council of Shopping Centers.

I wonder how widespread this practice has been beneath the glittering surface of America’s booming economy in the ’00’s? Steve and Barry’s is a Carousel Mall tenant. Gee, I hope this isn’t part of the planned DestiNY USA business model.

6 Replies to “At the mall”

  1. Great post, thanks. This is the “war between the states” model of economic development at the shopping-mall level. When a Federal Reserve Bank published a report urging an end to the “war between the states” that lure-type economic development programs were engaging in, there was less competition in the economic development arena between cities. Now, it has gotten down to warring townships and shopping malls. Anyway you cut it, if we set up programs organized to give companies money to have them locate here and not there, and everybody uses them, we (collectively) give companies a huge amount of money, cause them to discount the idea of locating in the best place, and have the same situation we had at the start.

    We should just focus on the efficient production of goods, services, and infrastructure.

  2. Look no further than Medley Centre in Irondequoit, NY. I wouldn’t be surprised if it came out that the owners there had paid Steve & Berry’s to come in, which would explain the company’s recent departure.

  3. Julia, I see S&B’s moved from Medley to a different local mall… probably lured with the promise of a new payment.

    Robinia, if you go to Calculated Risk site and read the comments of that post I linked to, plus the post immediately following at CR, there is some discussion of Auburn’s Finger Lakes Mall (where S&B’s is also a tenant). I never really wondered why the Auburn strip was getting so developed — I just assumed it was a central shopping area for people living in outlying rural towns — but now that gas is going sky high, I sure wonder about the future of the Auburn strip now.

  4. Fascinating story. S & B’s recently showed up at The Shops at Ithaca Mall, the awkwardly renamed Pyramid Mall off Route 13. I find myself wondering whether I, too, could cash in on this trend–it beats paying for a storage unit.

  5. I had never been to an S&B’s before yesterday, when I decided to check out the one at Carousel (it’s in the basement). What a glittering dump! The merchandise seems to consist of nothing but sloganed T-shirts aimed at teens — aisle after aisle of them, simply piles of them. If this chain wasn’t doomed to failure before the economic downturn, it certainly has to be now.

  6. Thanks for the Calculated Risk cite, Ellen. This stuff helps me very much to feel OK about not, say, having a 75K-a-year job as an economic developer in Auburn and paying off my student loans. Which is not the Auburn Econ Dev job I actually applied for and didn’t get a few years ago (that one paid half that, was working with women- and minority-owned businesses and start-ups). Whomever has that 75K job giving out the “lure” cash probably has less education than me, but dresses much better (does NOT shop at S & B’s!– whereas I just do NOT shop… much). Bet they are friendly with the local elected officials, too. Good for insider-pyramid-schemes, bad for getting real jobs for real people, or good land use patterns.

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