Earlier today, Men's Wearhouse (NYSE:TLRD) announced that founder George Zimmer had been removed from his position as executive chairman, and that his ongoing relationship with the company was uncertain. The news came just a week after the company announced a 5.1% increase in total quarterly sales over its 2012 first quarter.
The Men's Wearhouse brand made up the bulk of sales, accounting for $561 million of the $617 million total. That brand saw a slight increase in comparable sales, up 1.6% versus the same period last year. The company's other brands experienced sharp comparable sales declines, though. The mixed quarter ended up being a mixed end for Zimmer.
The earlier years
Zimmer founded the company in 1973, opening a small store in Houston with friends of his. His background was not in menswear, but his father was a manufacturer of men's clothing and after college, he sent Zimmer on a trip to Asia to see how the business was run overseas. Back on home turf, it wasn't long before Zimmer was deeply embedded in the business, and the progression from travelling salesman to store owner was natural.
At the time, Zimmer was working with limited capital -- about $7,000 -- and a whole book full of his father's contacts. That small start allowed Zimmer to open one storefront, where he sold sports coats and slacks. The business took off, and Zimmer opened a store a year for the next 10 years.
Things went south for Zimmer in the early 1980s, and were it not for the good sales coming out of the company's new California store, the business may have gone under then. But it survived, and by the mid to late '80s, Zimmer had convinced himself that the business could work around the U.S.
The rest of the decade was spent gearing the business up, and in 1992, Men's Wearhouse went public. For a decade, it opened 50 stores a year until it was the dominant player in the men's suiting market. The business got another boost in 1997, when Zimmer and his ad agency struck on the now famous tag line: "You're going to like the way you look. I guarantee it." Zimmer has delivered the line in his thick voice in commercials ever since.
Zimmer was known for his strong personal code, and he was vocal about the business being more than just a way to make shareholders rich. In fact, he treated the business as having five stakeholders -- employees, customers, shareholders, vendors, and communities, in descending order of importance. Business decisions needed to be good for three out of the five to make sense.
Zimmer was also a strong proponent of hiring diverse employees, even though his target consumers were largely men. That diversity has also appeared on the board, with Zimmer bringing in Deepak Chopra in 2004.
Zimmer is also known for his stance that people all deserve a second chance. As a result, Men's Wearhouse employees don't undergo criminal background checks. That stance was largely tied to Zimmer, so its future may be in jeopardy.
Zimmer's end may not be a period, but merely a semicolon. The board may bring him back in some capacity, and his voice is certainly worth a great deal to the company. For now, though, it seems like he's on the outs. In an interview from 2010, Zimmer was asked how he managed to stay in a leading role as founder, when so many other founders are pushed out by boards.
He said, "I have the, I think, advantage here of being the television spokesperson, so that although I have an independent board, like any public company, I have a little more leverage than most CEOs, I believe." It looks like that leverage finally ran out.
After the announcement, Zimmer told CNBC that he had expressed concerns about the future of the company, and that his removal was a way to silence those concerns. For investors, this will likely be a big turning point for the business. With Zimmer gone, the board will be free to focus more exclusively on shareholders and generating higher earnings. Whether that trade-off -- more cash for less consciousness -- will work for the company in the long run remains to be seen.
Fool contributor Andrew Marder has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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