By Glenn Taylor, Associate Editor
Despite attempts to muster a turnaround effort with the launch of the Tailored Brands holding company, recently combined retailers Men’s Wearhouse and Jos. A. Bank are continuing to experience financial free fall.
Although optimism remained high when the dress apparel companies completed their merger in 2014, the results over the subsequent 18 months have done anything but match the initial hype. In fact, net losses for Q4 2015 skyrocketed to $1.05 billion — dwarfing the $35.9 million loss in Q4 2014 — and illustrated that the combined company is bleeding money, and it’s bleeding out fast. Contributing to the massive losses are $1.15 billion worth of non-cash goodwill and intangible asset impairment charges related to the Jos. A. Bank acquisition.
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In response to a disastrous 2015, Tailored Brands made the decision to close approximately 250 of its 1,700 stores during 2016, including:
- 80 to 90 full-line Jos. A. Bank stores;
- All Jos. A. Bank (49) and Men’s Wearhouse (9) outlet stores; and
- 100 to 110 MW Tux stores.
Doug Ewert, CEO of Tailored Brands, additionally noted that the retailer has implemented a profit improvement program designed to reduce expenses by approximately $50 million in 2016.
Retail brands can definitely take notes from this sequence of events when deciding their own fate. While merging is considered a viable option if one party wants to expand its offerings and the other feels it can’t succeed alone, Tailored Brands shows that is not always the case.
Here are a few lessons retailers can learn from the Men’s Wearhouse and Jos. A. Bank merger:
Don’t expect one brand to carry the other: In the case of Tailored Brands, financial reports indicated that Jos. A. Bank has been the weight dragging company down. While Men’s Wearhouse stores managed to boost same store sales in Q4 2015 by 4.3%, Jos. A. Bank’s same store sales plummeted 31.9%. As such, the Jos. A Bank brand is now a black mark for the franchise. Retailers seeking a merger or acquisition should understand that it takes two to tango: even if one brand continues to operate completely separate from the other, its financials will have an effect throughout the entire combined company.
Plan according to the consumer marketplace: When two retailers merge, particularly those that sell goods in the same vertical, they must understand if circumstances are appropriate given the potential for market saturation. Retailers eyeing expansion through a merger aren’t going to gain many new shoppers if both companies occupy the same towns and appeal to the same consumers.
Additionally, if a brand encounters numerous financial hurdles, one of the first steps it takes is to close underperforming stores. Will both companies be committed to that if a scenario goes south? Although the Men’s Wearhouse brand has performed well in the midst of Jos. A. Bank’s mishandling, it has to eliminate stores of its own to adhere to what the marketplace dictates.
Cater your brands and products correctly: A talking point of Jos. A. Bank’s failures within the past year has been the recent scrapping of its popular “buy one suit, get three free” promotion. Although the promo’s termination likely angered some fans and may have contributed to the retailer’s short term Q4 slump, Tailored Brands may have made a better move in the long run by understanding that such a sales model is unsustainable.
The fundamental issue here is that a company basing its model on selling high-ticket items such as suits cannot be selling the majority of the products at a massively discounted rate. Consumers looking to purchase products can essentially wait until a promotion comes along and purchase what they want in one fell swoop. Think about it; if you’re getting four suits at once, how long would it be before you would need to return to that retailer for another one?
Retailers in all verticals must understand that they need to price and promote their items at levels that make business (not just promotional) sense if they want to continue being profitable. While this is an issue all retailers have to monitor carefully, brands set on entering a merger need to know that one critical promotional mistake can not only affect them, but the status of the merged companies as well.
