Final Markdown at Steve & Barry’s?

Retailer Steve & Barry’s, which hit the fast track with low-price clothing driven by such celebrity and sport’s partnerships with the likes of Sarah Jessica Parker, Amanda Bynes, Venus Williams and Stephon Marbury, today filed for Chapter 11. The move comes as the Port Washington, N.Y.-based company was is talks with Sears and other retailers in an effort to climb out of what seemingly has become a deep financial pit.

According to the company, “Steve & Barry’s LLC and 63 of its affiliates announced today that they have initiated cases under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York, to address the company’s financial challenges.

“Steve & Barry’s stores and operations across the nation, including its 276 retail locations, are open today and conducting business as usual. The company’s gift cards and store credits will continue to be honored as always, and its return policies will remain in place.”

In a statement, co-owners Steve Shore and Barry Prevor said, “We are in discussions with potential strategic and financial partners and working on solutions for a stronger Steve & Barry’s to emerge from this process. We will continue to do everything possible to achieve the best outcome under the circumstances.”

The company said that the commencement of Chapter 11 cases was based on “a combination of factors, including a liquidity shortfall as a result of credit market volatility and general economic conditions, which, in turn, have impacted the company’s store opening plans and borrowing capacity. The company has performed very well from a sales perspective, with total sales in the first five months of 2008 up 70%, average store sales up 25%, and comparable store sales up 15%. In particular, its exclusive branded lines of merchandise created with high-profile entertainers and athletes have performed exceptionally well.”

According to Steve & Barry’s, “The operational improvements include taking immediate steps to reduce expenses through staff reductions, office consolidations, and other actions. Steve & Barry’s began this initiative today with the reduction of 172 corporate and field staff positions.”

Various reports citing unnamed sources claim the chain, which has about 270 stores nationwide, may close from 100 to all of its locations. The company, under the direction of Shore and Prevor, opened its first store in 1985, expanding on the entrepreneurial spirit of the two friends, who as teens sold hand-made screen-printed T-shirts a flea markets on Long Island, N.Y. The company made its mark by keeping prices on all items initially under $14.99, and then $19.99. The bulk of the inventory had been T-shirts and other items with university logos aimed at college students. But alliances with Parker, Williams, Marbury and others moved Steve & Barry’s into the celebrity stratosphere, with national news stories and cover shoots on fashion magazines with Parker, Bynes and Williams wearing their clothing.

According to Shore and Prevor, “High costs of materials and fuel prices have increased our cost of goods and cost of operating. At the same time, our customers are not in a position to pay higher prices, impacting our operating margins. Our customers are feeling the pain of high food and gas prices and declining home values, and many of them are being forced to shop closer to their homes and cut back on discretionary purchases. The generally poor environment for apparel retailers has reduced funding for our suppliers, landlords, and for our company. Since mid-2007, difficult credit markets have caused delays in store openings and landlord reimbursements for store-opening expenditures advanced by the company, which have created cash shortages. The company invested substantially more in capital expenditures last year than the amounts reimbursed, and unfortunately, the company has not yet had an opportunity to fully realize the planned returns from these investments.”