By  on October 16, 2008

Hal Kahn, the former chairman and chief executive officer of Macy’s East, has come out of retirement to become ceo of Steve & Barry’s.

Kahn is entering a challenging situation. The Port Washington, N.Y.-based specialty chain known for providing stylish celebrity-endorsed lines at low prices, such as Bitten by Sarah Jessica Parker, went bankrupt in July and was quickly bought out of Chapter 11 by Bay Harbour Management in August. The company is in the process of shuttering 97 of 270 stores, leaving 173.

The news was first reported on Thursday afternoon.

As a veteran of running department stores, taking the reins at a specialty chain will be a new experience for Kahn. However, he is no stranger to tough situations. While at Federated Department Stores Inc., Kahn pulled off some difficult divisional mergers, including integrating the former Abraham & Straus and Stern’s divisions into the Macy’s group in the Nineties. He was instrumental in turning around Macy’s East in the aftermath of the bankruptcy of the parent company, R.H. Macy & Co., and takeover by Federated, which is now called Macy’s Inc.

Kahn was also on a mission to try to differentiate the merchandise at Macy’s and get better suppliers selling the store’s competitors to sell Macy’s as well, and was outspoken about the lack of newness and innovation on Seventh Avenue. He left Macy’s East four-and-a-half years ago.

In an interview Thursday, his first day on the new job, Kahn said Steve & Barry’s was an attractive assignment for several reasons. “Even though it’s a very difficult economy, Steve & Barry’s offers tremendous value to the consumer — apparel for men, women and children with celebrity entertainment names and a realistic and credible pricing structure, even though things have to be improved upon,” he said. “It’s not a highly promotional business. It’s more about offering value, day-in and day-out. This business ran into a cash problem, but it was a healthy vibrant business with a lot of great things going for it.”

The retailer’s bankruptcy took the industry by surprise. Its high-profile signing of celebrities to do collections and rapid expansion masked the operating issues. But it eventually became apparent the chain expanded too fast, seizing low-cost vacated spaces that landlords and malls were eager to fill, leading to some poor site choices.

After the bankruptcy filing, industry experts contended the Steve & Barry’s business model was flawed, operating with dirt-cheap prices and razor-thin margins that were squeezed by rising costs and tightening credit. There also were questions over how well some of the celebrity lines actually performed. The consumer slowdown this year compounded the situation. The company ultimately defaulted on a $197 million asset-backed loan from GE Commercial Finance Corporate Lending. The firm searched unsuccessfully for new financing and even held talks with Sears Holding Corp., among other parties.

Asked about the business model, Kahn replied: “Selling family clothing that is stylish at great value is fabulous.” He also said the sourcing is “incredible.”

Aside from Bitten, the store sells Dear by Amanda Bynes and Eleven by Venus Williams, as well as a group of TV-related brands from CBS Consumer Products. As one story goes, when basketball star Stephon Marbury saw Steve & Barry’s $10 basketball shorts and $12 jerseys, he decided to launch the Starbury Collection of basketball sneakers and apparel at the store. However, Kahn acknowledged, “Probably the prices on some goods represented excessive value when it should have been great value.”

Since leaving Macy’s, Kahn has served on boards and worked as a consultant. His name has surfaced several times as a candidate for a variety of retail positions that became vacant.

“If you are going to be in a business, and fix it, I’d rather be here, than in a higher-priced store,” in light of the country’s economic plight. Kahn said Steve & Barry’s still represents “a great opportunity.”

“Hal is extremely excited about this,” said Gilbert Harrison, chairman of Financo Inc., who has known Kahn for a long time. “He feels it has tremendous potential and he has not been as turned on as much about a project since the turnaround at Macy’s. It has tremendous potential. Steve & Barry’s appeals to a wide range of shoppers. Hal will bring order to the company.”

Kahn succeeds the founders and co-ceo’s, Steve Shore and Barry Prevor. A spokeswoman for Steve & Barry’s indicated Shore and Prevor will remain on the board.

A native of Brooklyn, Kahn began his retail career in the executive training program at Abraham & Straus in 1970. He joined R.H. Macy in 1975, rising to vice president of merchandising in 1979. In 1981, Kahn was named president of Macy’s former Atlanta-based Davison’s division, and four years later was named chairman of Macy’s California.

He returned to Atlanta in 1989 as chairman of the then newly formed Macy’s South-Bullock’s division, remaining in that position until 1992, when he left to become president of Montgomery Ward. He later returned to Abraham & Straus, and subsequently took the helm of Macy’s East.

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