Advertisement
Business

Jos. A. Bank's buyer fumbled the acquisition but aims for turnaround

People walk past a Jos. A. Bank retail store.

Once shoppers get used to buy-one-get-one-or-more deals, as they had at Jos. A. Bank Clothiers, they stop coming back when the promotions end.

Jos. A. Bank's parent, Tailored Brands Inc., found that out as it attempted to fold the former Maryland-based retailer into its Men's Wearhouse portfolio and move away from discounting, perhaps too quickly.

Advertisement

After ending the year with slumping sales and a $1 billion quarterly loss, the company is preparing to close 250 stores, including about 140 Jos. A. Bank locations.

The staggering problems facing Tailored Brands suggest that its corporate predecessor, Men's Wearhouse, paid too much for Jos. A. Bank in the $1.8 billion acquisition in 2014 and overestimated its ability to integrate the chains quickly, several experts said Thursday.

Advertisement

Tailored Brands, a holding company created by Men's Wearhouse earlier this year, announced the store closings late Wednesday as it reported the huge fourth-quarter loss reflecting a sharp drop in sales and the write-down of $1.15 billion of value on its balance sheet related to the purchase of Jos. A Bank, a 625-store chain that had been based in Hampstead.

On Thursday, executives of Fremont, Calif.-based Tailored Brands said they hope to salvage Jos. A Bank not only by trimming store costs but by courting millennials and recasting the brand's image.

"Our primary focus is to fix that business," said Doug Ewert, CEO of Tailored Brands. "We continue to believe in the long-term potential of Jos. Bank."

The company plans to save $50 million this year by closing 80 to 90 under-performing Jos A. Bank stores in "over-penetrated" markets and shut down all 49 Bank outlet stores and 10 Men's Wearhouse outlets, all of which have been money losers. In addition, the company is closing up to 110 Men's Wearhouse Tux stores. All of the full-line stores will close by next January, while the outlet stores will close in June or July.

During a conference call Thursday, Ewert said integrating what was initially seen as a "complementary" business to the larger Men's Wearhouse chain and a way to boost overall market share came with some unanticipated challenges.

"We were aware that the promotional model we inherited was problematic for a number of reasons," said Ewert, adding that it damages brand equity and reduces customer loyalty and shopping frequency.

The retailer's plans called for "weaning off the most extreme quantity offers over time," he said, and moving toward a new promotional model that would attract both existing and new customers, while launching new products.

"We believed launching new products and introducing new selling behaviors would offset the impact of weaning the aggressive buy one and get three or more" promotions, he said, but, starting in the third quarter of last year, "the aggressive promotional model failed faster than anticipated."

Advertisement

After the company held its final buy-one, get-three sale in October, sales plummeted and were hurt even more by the impact of unseasonably warm weather. Sales at Jos. A. Bank stores open at least a year fell more than 30 percent in November and December.

Tailored Brands finds itself in a predictable spot, some experts said.

The company overpaid for the once-rival firm after a bidding war, making it more difficult to create value through a merger, then tried to change the company, alienating longtime customers, said Karyl Leggio, a finance professor at Loyola University Maryland.

Men's Wearhouse acquired Jos. Bank after months of acrimonious tug of war between the two rivals that started when Bank made a surprise $2.3 billion offer to buy Men's Wearhouse

"Men's Wearhouse did a really poor job of cultivating the customer base of Jos A. Bank," which had become accustomed to the chain's buy-one-get-more promotions, Leggio said. "The challenge is to see how Men's Wearhouse goes forward. They'll have to have a value proposition or a quality proposition to bring them back."

Jos A. Bank's promotional strategy worked well during the recession but ultimately was unsustainable, because customers came to expect deeper and deeper discounts, said Howard Davidowitz, chairman of Davidowitz & Associates, a New York-based retail consulting and investment banking firm.

Advertisement

Davidowitz initially criticized the merger of two specialty chains in essentially the same business.

"It really is a debacle," he said Thursday. "They were buying into this non-sustainable strategy. There's no way to take the pin out of the balloon and not collapse. It has almost destroyed Men's Wearhouse. The stock has collapsed. They have a mountain of debt and now must close all these stores."

Still, shares in Tailored Brands jumped nearly 10 percent Thursday to $17.82 each in the first trading session since it announced the loss and closings. Men's Wearhouse stock had peaked at nearly $66 last June before collapsing late last year. Men's Wearhouse shares were swapped 1-for-1 for Tailored Brand's shares on Jan. 31.

Besides closing stores, Tailored Brands' plans call for refining the marketing strategy, redesigning the website and targeting millennials, who now make up 15 percent of the customer base, Ewert said.

New products will include the launch this spring of a Jos. A. Bank premium collection designed by Joseph Abboud and custom-made apparel for core customers he described as older, more affluent shoppers who prefer traditional styles.

Tailored's other chains, which besides Men's Wearhouse include K&G and Moores, have turned in better-than-expected growth in sales and profits, the company said.

Advertisement

Yet challenges reman for Tailored Brands with Jos. A. Bank, wrote Richard E. Jaffe, an analyst with Stifel, in a research report late Wednesday after the company released the earnings and announced the store closings.

"Given the infrequent shopping habits of the male consumer and the need to re-educate the core Bank's customer and attract a new customer, we believe the turnaround will likely be prolonged," said Jaffe, noting that Tailored Brands essentially wrote down the value of Jos. A. Bank to "nearly zero."

Closing unprofitable stores is an important first step, along with moves such as emphasizing the website at a time when brick-and-mortar stores are struggling and online shopping is growing, Leggio said.

"They have to have a website that attracts customers," she said. "The challenge is whether or not it's too late."

lorraine.mirabella@baltsun.com


Advertisement