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Men's Wearhouse Wasted $1.8 Billion Buying Jos. A. Bank

By Rich Duprey - Updated Jun 1, 2018 at 5:20PM

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The men's clothing retailer is struggling to stop the loss of customers who had become accustomed to steep and regular discounting.

The acquisition of Jos. A. Bank by Men's Wearhouse hasn't turned out as planned as sales continue to plunge at the men's clothier.

The acquisition of Jos. A. Bank by Men's Wearhouse hasn't turned out as planned as sales continue to plunge at the men's clothier. Image source: Getty Images.

Tailored Brands (TLRD), which used to go by the name Men's Wearhouse, isn't exactly hurting for money, but the $1.8 billion it spent buying rival Jos. A. Bank could have been to better use. At this point, it's clear the acquisition has been a failure.

The men's clothing retailer released preliminary fourth-quarter sales numbers, and where its Men's Wearhouse stores saw a healthy 4.3% increase in comparable-store sales, the Jos. A. Bank division plunged 32% from the year-ago period. While it was a barely perceptible improvement in performance from the third quarter, when comps tumbled 35%, it's a change with a difference. Tailored Brands' attempt to remake its one-time rival has been an utter failure.

Certainly the buy-one-get-seven-suits-for-free model championed by Jos. A. Bank was unsustainable. Even before the merger, the clothier's earnings were being pressured by its excessive promotional activity; it calls into question why Tailored Brands bought the chain to begin with.

As was apparent to everyone at the time, consumers don't like when their discounts are taken from them. J.C. Penney (JCPN.Q) was struggling to survive at the time because management tried to reimagine what a department store could be like, which included in part jettisoning doorbuster sales for everyday low pricing. It was only when the retailer got rid of that pricing policy -- and the management team that implemented it -- and restored its previous policy of regularly scheduled sales, that J.C. Penney was able to back away from the brink.

Similarly, Ascena Retail Group (ASNA) suffered a collapse in sales at its Justice tweens clothing store when it abandoned "gimmicky" promotions in favor of a more full-price policy.

These were retail conflagrations occurring in real-time as Tailored Brands was angling to acquire its rival, but it still thought it would be able to bring the chain into the fold and have its customers go cold-turkey on discounting. That it didn't work is an understatement.

Comparable-store sales at Jos. A. Bank have simply fallen off the table, and the customer burn has accelerated.

JOSB Comps
Create column charts

As the chart above indicates, comps were running high just before the merger was completed, then began falling rapidly until they picked up steam going downhill in the back half of 2015.

That was the time consumers became acutely concerned with getting a discount on goods purchased. As they headed into the holiday season, it became clear that only those retailers giving discounts were prospering. Off-price retailers like T.J. Maxx and Marshall's were excelling, while outlets customers had typically shopped at, like Macy's and Kohl's, stumbled badly.

Yet it was why J.C. Penney was still thriving and surprising Wall Street at almost every turn. Although they didn't think the department store operator could sustain its momentum, the combination of regular sales and lower-priced name brand goods allowed the retailer to even gain market share again.

That's important where it concerns Tailored Brands and Jos. A. Bank, because J.C. Penney is also one of the leading stores where men shop for suits, and its third-quarter earnings report listed its men's department as the leading division driving sales higher for the period.

Tailored Brands said it finally got the message that cutting off discounting was not a winning strategy, but it was going to be more targeted in its sales. That's not working either, though the effort is only in its early stages.

This has become a nightmare for the retailer, and it validates the concerns founder and former CEO George Zimmer expressed at the time when he said Tailored Brands would become too aggressive in making cuts to make the integration work and would ultimately undermine its ability to grow sales. Investors, though, should look at it as a waste of time and $1.8 billion in shareholder resources.

Rich Duprey owns shares of J.C. Penney Company. 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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Stocks Mentioned

J. C. Penney Company, Inc. Stock Quote
J. C. Penney Company, Inc.
Macy's, Inc. Stock Quote
Macy's, Inc.
$19.96 (2.20%) $0.43
Kohl's Corporation Stock Quote
Kohl's Corporation
$33.18 (1.72%) $0.56
Ascena Retail Group, Inc. Stock Quote
Ascena Retail Group, Inc.
Tailored Brands, Inc. Stock Quote
Tailored Brands, Inc.

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