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The economic downturn suits menswear retailer Jos. A. Bank just fine

The Jos. A. Bank location at Tysons Galleria is one of the company's 473 stores, a number it hopes to increase to 600. The retailer also plans to open five outlet stores, with a goal of 75 such locations.
The Jos. A. Bank location at Tysons Galleria is one of the company's 473 stores, a number it hopes to increase to 600. The retailer also plans to open five outlet stores, with a goal of 75 such locations. (Jahi Chikwendiu/the Washington Post)
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By Ylan Q. Mui
Washington Post Staff Writer
Monday, April 19, 2010

In a recession that has felled some of the retail industry's biggest names, a scrappy menswear store headquartered outside of Baltimore has become the darling of Wall Street.

Jos. A. Bank began making headlines when -- just days after the stock market plummeted to a 12-year-low -- it offered to refund any suit purchase to customers who lost their jobs. It rolled out aggressive promotions -- such as buy one suit, get two for free -- to lure new shoppers. The retailer revamped its Web site, opened new stores and started renting tuxedos. Last week, it announced it would open five pilot outlet stores that could become models for a new line of business.

Such moves have fueled an 11 percent increase in sales to a record $770.3 million during the last fiscal year and a 21 percent jump in profits at a time when many chains are struggling to stay afloat. Wall Street valued the company at $1 billion this spring for the first time. Its stock price has more than doubled since last summer, closing at $60.88 on Friday.

"We are starting to get recognition for the strong performance we have turned in," Jos. A. Bank President R. Neal Black told investors during a recent conference call.

It seems an unlikely time for a rally. Retailers suffered massive losses as the financial crisis of 2008 froze consumers' wallets and high unemployment rates stymied prospects for recovery. According to market research firm NPD Group, men's clothing sales dropped 5 percent to $51 billion for the 12 months that ended in February, compared to a year ago. Competitors Men's Wearhouse and Casual Male Retail Group saw sales decline last fiscal year, and the former reported a loss.

Jos. A. Bank responded to the downturn with sharp pricing and inventive promotions. When the retailer launched its $199 suit sale last spring, it added a "risk-free" guarantee that any customer who bought a suit and then lost his job within four months would get a full refund and still keep the suit. It reinstated the guarantee for the sale this year.

"They have promotions practically every day," said Margaret Whitfield, an analyst with Sterne Agee. "They have a compelling price-value message with a good-quality product. . . . In this environment, that is what draws the consumer."

But discounting can become a vicious cycle, and many retailers have struggled to wean shoppers off heavy promotions. Jos. A. Bank experimented with more traditional pricing during Father's Day last year -- typically one of its busiest holidays -- and found sales dropped off. When it returned to aggressive promotions, customers came back. It has tested traditional pricing several times since with limited success.

Black said the company will continue discounting as long as necessary. Because it manufactures nearly all of its products, the retailer has greater flexibility to determine prices. The promotions have squeezed profit margins, but the company has made up part of the difference by saving on shipping and materials and negotiating some lower rents. During the fourth quarter, profit margins slightly improved.

"Apparel retailing is a volatile business, and the consumer is unsteady right now," Black said. "We will stay price aggressive as long as the consumer continues to tell us what they want."

Strong sales have helped strengthen the company's balance sheets, and it ended the fiscal year with $192 million in cash and short-term investments, up 56 percent over the previous year. After leaving its $100 million credit line virtually untapped for about three years, the company has decided to close the account and use cash to pay for its expansion. J.P. Morgan analyst Brian Tunick named Jos. A. Bank one of his top 10 stocks in April, noting that shares have skyrocketed 3,000 percent over the past decade.

"These results have put the bears in hibernation for the time being," Tunick wrote in a note to clients.

The 473-store chain continued to open locations during the depths of the recession, when many other retailers were shuttering stores. Black said he plans to take advantage of those vacancies to open even more stores over the next few years. Jos. A. Bank built 13 stores last year and expects to add 30 to 40 more locations this year. The company's goal is to build a chain of 600 stores.

The chain remodeled its flagship Washington store at 19th and M streets NW about a year and a half ago. Light filters through the store's large windows displaying dapper mannequins. The cash register was moved to the center of the store, with a large wall bearing the Jos. A. Bank logo not far behind it. Shelving was upgraded with a wood finish that calls to mind clubhouse furniture rather than a department store. Customers ask for salespeople by name.

The retailer's trademark suits have become increasingly important sales drivers, accounting for nearly 40 percent of sales last year compared to about 30 percent in 2008. Though Black said existing customers are purchasing less, the chain has enticed new shoppers away from competitors. Its customer file has grown 18 percent, to more than 5 million names, he said, estimating the chain's market share at 10 percent.

Meanwhile, Jos. A. Bank is testing several new concepts. Early this year, it began offering tuxedo rentals at some stores through a third-party distributor. The company is hoping the service will bring new customers through its doors, who could then be persuaded to purchase other clothing.

The retailer also said last week that it plans to open five test outlet stores, with a goal of expanding to 75 locations. Jos. A. Bank already operates an outlet store in Leesburg that primarily sells clearance merchandise. But many retailers supplement such discontinued or overstocked inventory with products manufactured specifically for their outlet stores to boost sales and profit margins.

"In this tough environment," Black told investors, "we are not just content to sit and wait until it is over."

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