Despite falling profits, Jos. A. Bank looks to expand

February 10, 2013

Things were good for Jos. A. Bank Clothiers during the recession. The menswear company posted double-digit profit growth throughout the economic downturn as many of its competitors shut their doors.

But now, the Hampstead, Md.-based company, which has built its brand around extravagant promotions like “Buy-1-Get-3-Free” sales, is finding its marketing tactics falling short.

Analysts say customers are catching on, and many have begun to expect more, driving the company’s profit margins lower and lower.

“The customer just doesn’t seem to be responding anymore,” said Brian Tunick, an analyst for J.P. Morgan in New York. “It used to be ‘buy one, get two free.’ Now, we’re at ‘buy one, get six free.’ It’s just not as exciting or novel anymore.”

High cotton and wool prices, coupled with an unseasonably warm winter have made matters worse for the company, which recently announced that 2012 profits were expected to be 20 percent lower than in 2011. (In 2009, by contrast, profits rose 22 percent.)

“Over the years, they have raised their prices, but their promotions keep getting steeper because they can’t get their customers to pay any more than they have been,” said Mark Montagna, an analyst for Avondale Partners in Nashville.

A proposed class action lawsuit against the company claimed that it was misleading customers by putting its merchandise “continually on sale.” A U.S. District judge dismissed the lawsuit last month, but analysts say there is an overall sense that customers are becoming immune to sweeping discounts.

“The big debate is, how fatigued is the customer by all of the offers they’re seeing?” Tunick said.

At the same time, the company has announced plans to add 200 stores to its existing lineup of 602. About 50 of those are slated to open in 2013.

“Our belief is that we can get upwards of 800 [locations] before we’re fully mature,” said Bob Hensley, executive vice president of real estate for the company. “We think the Baltimore-Washington metro area in particular is an important part of our corporate legacy and success, and we’ll continue to look for opportunities there.”

Hensley said there was pent-up demand for growth. The company, which opened 46 stores in 2012, scaled back during the recession. In 2009, it added only 14 locations.

“We pulled back just to be cautious,” Hensely said. “We didn’t know how the economy was going to recover.”

Analysts say the company has room to experiment with new lines of business, such as the tuxedo rental arm it opened in 2010.

“There are more opportunities for Jos. A. Bank to become the local men’s store in a lot of small towns,” Tunick said.

But some say the plan could backfire.

“They have no problem opening new stores,” Montagna said. “The question is, will they face cannibalism? Will they just be taking revenue from existing stores?”

Abha Bhattarai covers local banking, retail and hospitality for The Washington Post’s Capital Business section. She has written for The New York Times, The Wall Street Journal, Reuters and the St. Petersburg (Fla.) Times.
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