Retail: Steve and Barry's

Interesting article on Steve & Barry’s. The article states that S&B's saves big by doing the following:

Steve & Barry’s saves big, for example, by opening stores in under performing malls, where the owners are more likely to negotiate rents and offer other incentives; by building its own bare-bones store displays; by maintaining only a small public relations office in Manhattan; and by manufacturing in countries like China, India, Madagascar and more than 20 others, including the United States.

Manufacturing in countries like "China, India, and Madagascar" is hardly new, and I can't imagine The GAP's store displays cost that much to produce. Same article goes on to say:

Though the prices will raise concerns that the clothes are made in sweatshop factories that underpay or otherwise exploit workers, Mr. Shore and Mr. Prevor said absolutely not.

Howard Schacter, the company’s chief partnership officer, said Steve & Barry’s monitors its subcontractors carefully and demands ethical business practices. The key to its low prices, he said, is a razor-slim profit margin.

Then, too, Steve & Barry’s doesn’t advertise, but rather relies on word of mouth.

Steve & Barry’s also saves small — for example, by using discount hotels, like Motel 6 and Econo Lodge, for travel, assigning one printer to 50 employees and myriad other ways.

On a tour of their offices, where designers’ cubicles are retrofitted into dreary, sometimes windowless nooks, Mr. Shore and Mr. Prevor pointed out aging furniture that Mr. Prevor found in his parents’ basement and a filing cabinet that bore the logo of a fruit-and-vegetable distributor. (There was a large stack of papers spilling onto the floor next to it.)

Steve and Barry - the founders - describe their store as the "google of fashion" though it might be more similar to Wal-Mart. Wal-Mart is also famous for simple offices, locations in non-fashionable areas, and razor-slim margin's. Though, I can definitely understand why Steve and Barry would rather evoke images of Google instead of Wal-mart.

Still - Steve and Barry's has even cheaper prices than Wal-mart:

The most basic dresses at J. Crew start at $58. At American Apparel, they start at $26; at Old Navy, $19.50; and at Forever 21, some styles cost $15.80. The least expensive dress on the Wal-Mart Web site is $14.92.

Prices at Steve & Barry’s are actually dropping — the $8.98 threshold was introduced as a holiday promotion last year, but remains with no set expiration, Mr. Prevor said.

This does leave me rather curious as to how S&B's is able to maintain their prices. GAP, Banana Republic, and J Crew all have rather high profit margins, so its not surprising that their prices would be as high as they are. Part of the problem that they face are addressed in the post about the problems currently facing retailers.

Only reasons I can think of for why S&B might be cheaper are:

1. Wal-Mart might not compete in the same markets as S&B - as such Wal-Mart is still the cheapest clothing retailer in most of the markets that it serves. Following this logic, Wal-Mart might be able to lower their prices more but their is currently no benefit (i.e. demand in existing market is unit elastic).
2. Wal-Mart might not be selling its own brands/designs - I actually have no idea on this one. I'll need to go into a Wal-Mart and check. But - if S&B is directly contracting out labor while Wal-Mart works through a supplier/designer, S&B might have lower costs. (In other words, S&B might be benefiting from being more fully integrated for the time being. Though, the fully integrated approach has more inherent risk given that lose of popularity for S&B designs or representative celebrities could have a huge impact on sales.)
3. S&B might not create yearly/seasonal lines. A lot of retailers and clothing designers have a different line for each year, which complicates inventory ordering and storage. Perhaps S&B doesn't change its designs as often or keeps selling clothing until it sells out? S&B customers probably are less concerned about haven't the latest fashions as Zara's customers are. (If true, this could lead to much cheaper operations and supply chain costs)
4. Though Walmart is a far larger retailer than S&B, perhaps S&B's specialization on clothing and accessories allows it to achieve even greater economies of scale than Wal-mart. (Though, I'd have to imagine that Wal-mart still pushes more clothing that S&B.)