TakeAway: Jos A Bank responded to the downturn the way many companies did – discount, discount, discount.
But Jos A Bank, unlike most companies, appears positioned to carry its short-term success into long-term profitability.
Thanks to several operating decisions (maintaining control over most of its manufacturing and shipping, and exploiting the downturn real estate market to negotiate low rent leases), Jos A Banks is maintaining profitability while acquiring new consumers.
Did Jos A Bank figure out how to successfully execute and beat the margin killing promotion cycle?
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Excerpted from Washington Post, “The economic downturn suits menswear retailer Jos. A. Bank just fine,” By Ylan Q. Mui, April 19, 2010
… 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 … during the last fiscal year and a 21 percent jump in profits … Wall Street valued the company at $1 billion this spring for the first time. Its stock price has more than doubled since last summer …
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 …
Jos. A. Bank responded to the downturn with sharp pricing and inventive promotions … “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 …
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 …
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 …
Edit by TJS
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Full Article
http://www.washingtonpost.com/wp-dyn/content/article/2010/04/18/AR2010041802777.html?hpid=artslot
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