Ralph Nader, look out. There's a new consumer advocate in town, and he's gunning for your job. New York Attorney General Eliot Spitzer was already famous for his several investigations of the mutual fund industry, then for prosecuting Express Scripts (NASDAQ:ESRX) for fraud. Recently, Spitzer brought the full weight of the New York Attorney General's office down on little clothier Jos. A. Bank (NASDAQ:JOSB), accusing the company of engaging in "potentially misleading or false advertising" of its clothing as being "on sale."
In a contest between the Trial Lawyers' State and a suit merchant from rural Maryland, it comes as no surprise that Spitzer came out on top in this battle. Yesterday, Jos. A. Bank (Joe) agreed to settle the charges for $475,000 and to change its advertising strategy. What strategy was it that had Spitzer so upset, you ask? Well, it wasn't anything novel. Or even terribly misleading. On almost any given day that you walk into one of Joe's stores, you will see signs all around you advertising a "sale." The name of the sale, the size of the discounts available, and other variables are always changing, but it doesn't take long to realize that there is pretty much always one sale or another going on over at Joe's place.
Spitzer certainly noticed. And it got him really mad that, in contrast to other retailers, who advertise sales on only the rare occasions of Independence Day, Labor Day, Flag Day, Presidents Day, Groundhog Day, Earth Day, and Tues-Day, Joe actually has sales running 99% of the days out of the year. Huge difference there. Well worth a lawsuit. Bravo.
But enough with the sarcasm. What does this settlement mean to investors in Joe? Not much, I suspect. Yes, Joe will have to change its marketing strategy, and probably nationwide. States with empty coffers are not likely to pass up an easy half mil in cash when all they have to do is photocopy New York's complaint and negotiate settlements of their own.
But I doubt that the forcible change in its pattern of sales will really hurt Joe all that badly. After all, Spitzer is essentially asking the company to raise its standard prices. Hardly a threat to profit margins. In the alternative, Joe could just as easily switch marketing strategies to imitate the successful campaigns ongoing at retailers such as CarMax (NYSE:KMX), Wal-Mart (NYSE:WMT), Costco (NASDAQ:COST), BJ's (NYSE:BJ), and General Motors' (NYSE:GM) Saturn unit. Instead of running perpetual "sales," Joe can just advertise its wares as "low prices, all the time," and customers shouldn't notice any difference. Nor should Joe's investors.
In a string of three recent articles, we examined Joe's potential to be chosen as a Motley Fool Hidden Gem. Read all about it in:
Fool contributor Rich Smith believes that Jos. A. Bank was a classic Hidden Gem at the time he first found it in 2001. Over the next three years of the bear market, the company proceeded to appreciate in value by five times. Are you looking for similar success stories? Consider taking a free trial subscription to our Hidden Gems newsletter right now. Or if you're already a member, join us on the HG: Stocks That Interest You discussion board to discuss Joe's merits.
