Experts say Men’s Wearhouse made a costly mistake after it acquired rival Jos. A. Bank: It broke something that didn’t need to be fixed.
Nearly 18 months ago, Men’s Wearhouse bought Jos. A. Bank, a company known for its bargain deals on suits, for $1.5 billion. Recently, Men’s Wearhouse got rid of Jos. A. Bank’s famous “buy one suit, get three free” promotion, plummeting the brand’s sales.
Last week, the company announced that same-store sales within Jos. A. Bank dropped 35 percent in the first five weeks of the quarter.
“When we acquired Joseph Bank, we knew that we needed to correct the promotional model. However, we underestimated the impact to the near-term performance as we began to execute the difficult, but necessary, corrective steps,” said Men’s Wearhouse CEO Doug Ewert in a press release. The company did not respond Monday to a request for additional comment.
But the numbers have prompted the question, are those “corrective” moves the way to go for Jos. A. Bank?
Mark Millman, CEO and founder of Millman Search Group, says no.
“You don’t want to be buying something and then make significant changes to how the company is doing business and is perceived by the public,” he said.
Karyl Leggio, finance professor at Loyola University’s Sellinger School of Business, calls Men’s Wearhouse’s situation “the winner’s curse,” where the “winning” company that has acquired another has the challenging task of integrating the acquired company into its culture.
It’s a tricky move, one that has spelled trouble for many companies in the past, Leggio said.
“It’s a thing that companies get wrong the most,” she said. “I think Men’s Wearhouse is really struggling with the assets they acquired.”
Leggio compared Men’s Wearhouse’s struggles to ones seen from other mergers over the years including AOL and Time Warner, which failed to come together due to clashing company cultures, and Sprint and Nextel, which faced similar challenges.
On the other hand, McCormick & Company is one that has avoided that mistake, said Leggio.
“They keep the name, they keep the leadership intact,” she said. “That’s not common. Many companies try to integrate their company into their brand.”
McCormick most recently acquired One World Foods, Inc. maker of Stubb’s barbecue sauces this year.
Men’s Wearhouse’s problems have drawn comparisons to those experienced by J.C. Penney Co. which tried to break away from its sales model under former CEO Ron Johnson, who was ousted after the department store lost billions of dollars with that strategy.
On Friday, Men’s Wearhouse founder and ousted CEO George Zimmer, who was fired in 2013, said the merger was dead on arrival.
“They had a problem,” Zimmer told Bloomberg Television last week. “Joe Bank had really damaged their brand over a number of years by running incessant promotions so that nobody wanted to go there and pay regular price.”
If Men’s Wearhouse wants to turn things around with Jos. A. Bank, experts say, the company will have to come back to the promotional model that drew customers in the first place.
“I don’t think they have a choice but to go back to some kind of discounting strategy and preparing the Jos. A. Bank product for change,” said Leggio.
In an age where people can scan a barcode with their smartphone and get the best price for a product, Millman sees Men’s Wearhouse’s current strategy to stay away from buy one, get three deals and to market itself as a high-quality clothier as a tough sell.
“People are very value conscious in this day and age,” said Millman. “At the end of the day, it’s all about the price.”
The idea of marketing Jos. A. Bank’s suits as a higher-quality product is also difficult, after so many years of bargain deals.
“It sends a message about the quality of the product,” said Leggio, adding that customers feel that they are now expected to pay more for what they think is a “lower-quality product.”
Even if Men’s Wearhouse changes strategies, Jos. A. Bank may not recover, said Millman.
“They have a lot of damage control to do, and I’m not sure it’s going to work,” he said. “In the retail world today, there’s no loyalty.”