Friday, February 7, 2014

Jerry Seinfeld on Jos. A. Bank and Men's Warehouse

The Jos. A. Bank and Mens Warehouse pacman like dance fascinates me. These are companies I don't quite get selling products I don't want. But the companies have surprisingly high valuations and in Jos. A. Bank's (JOSB's) case the business appears remarkably consistent and remarkably profitable.

I asked my readers to do some due-diligence for me, taking photos of JOSB stores over the Black Friday sales. I got back a small, biased sample. Most my readers (with a value-manager exception noted below) are not the sort of people who shop there. A typical response I got was this:
This [with attached photos] is the Jos Bank store at the Galleria Mall in Ft Lauderdale, FL. I started taking pictures and they asked why I was doing it. Tried to take the front from both sides and from the escalator so you get an idea, took pics of shelves and prices, hope it helps. This was Black Friday 7:30 pm, I was the only person in the store.
Several other people said that they were the "only person in the store". And yet JOSB reported in their conference call that their sales over the Black Friday period were great. Here is a direct quote from their last conference call:
We're particularly happy with our strong sales in week 4 of November which includes Thanksgiving and Black Friday, and also the first week of December so far which includes Cyber Monday. Customers really responded to our combination of fresh and timely product offerings, strong door-buster pricing and compelling values throughout the store. And we achieved these strong sales without deterioration in the efficiency of our advertising spending and without a deterioration of our gross profit margin rate.
Even by the standards of retail advertising there is double-talk here. The company does have "door-buster pricing" but it also has nine months of inventory, something they justify on the basis that a wide offering is a competitive advantage and that men's fashion changes slowly. "Fresh and timely product offerings" is not something I associate with JOSB. Nor is "fresh and timely" consistent with JOSB's accounts. And the sales aren't "door busters" if the seeming absence of customers is anything to go by.

Whatever: JOSB seems to work. For years they have had great sales from lightly trafficked stores. Indeed Vitaly Katsenelson (someone I make a point of reading) has commented on it in the past. This is from 2008 (at the height of the crisis). Vitaly made a pile of money on the stock:
When I think of the Jos. A. Bank (JOSB), I think of Yogi Berra’s saying “Nobody goes there because it is too crowded.” 
Only in the case of JOSB, it sounds like this: “EVERYBODY goes there because it is NOT crowded.” As most men who shop there will attest, you are lucky to see and handful of customers shop [...] at any given time. Nevertheless, it seems that JOSB operates in a very different economy and there is an incredible disconnect between its performance this year and the rest of the economy as well as other retailers. 
JOSB reported 3rd quarter numbers couple of days ago and they were stellar even by a healthy economy’s standards. 
They were truly incredible considering that negative double-digit same-store sales for retailers have become the norm. JOSB reported same store sales of 7% for the quarter (the company doesn’t report monthly numbers anymore). Total sales were up 13.7%. Operating profits before taxes were up 20.3%. Cash was up year-over-year, and inventory growth lagged sales. Every single metric was simply beautiful.

And Vitaly does shop at JOSB - and proudly shows me his cheap suits. He clearly spends a pile of money without achieving sartorial elegance. [Still he made good money on the stock and I would take that over a decent fashion sense any day...]

One of JOSB's tricks might be that they keep the average ticket per customer very high by getting them to buy several suits and multiple ties and shirts simultaneously with their "buy-one-get-three-free" marketing. A high average ticket means you can have lots of sales but not many customers.

[Contra: selling three suits at once would tend to fill most men's wardrobes. In most houses the wife has three to five times the hanging space of the husband. Six suits would fill mine permanently. Its hard to get return customers when their wardrobe is already packed with clothes.]

The situation at JOSB is so anomalous that people with a better sense of humour than me just decide to laugh at it. I can't do any better than this:






John

12 comments:

Nat said...

I purchased a blazer at Jos. A. Banks once, after a piece of luggage was lost by the Airline and I had a dinner event that required one ASAP. I was in a great rush an in my brevity the salesman snowed me into buying what must have been the most expensive blazer in the store. Still though, I think there is an undue snobbery when people discuss the place. Nothing wrong with selling middle market dress suits. Sweaty, high pressure salesman might be out of style, but they still get the job done.

Anonymous said...

I don't find Jos that hard to understand. They get a big chunk of a big market: the last-minute shopper who needs some visuals to match pants shirts & ties, and refuses to buy $2000 suits and $200 ties because wankers do that. Their product is good enough for most busy working guys and the price is right, so they end up buying more than intended. And it doesn't matter to Jos if you don't go back for two years because all your friends will go in between. Last minute is not particularly seasonal.

Anonymous said...

They sell THE generic middle market mens' wardrobe, so they have a steady flow of non-discerning, quick-to-buy customers. Top that off with steady, but subtle quality fade and you have a winner!

Greg said...

Another value manager here and an occasional JOSB customer.

I have always wondered how often they actually sell 3 suits to a customer. On my last trip, they had a 3 for 1 offering. When I told the salesman I didn't need 3 suits, without hesitation, he said they would sell me 1 suit at 1/3rd the price. This must happen all the time.

Does that come in pinstripes? said...

Right before my first job, I did a buy one suit get one free & get the third half off special coming out of college. Many years later, I now realize that was actually a bad deal. The suits while clunky were fine for an intern. They held up well, and I still have them in the closet to wear when the weather is terrible or if I want management to be dressed better than me.

Are the salesmen aggressive? Yes - I also left with several shirts and a couple ties.

Did they get repeat business? I bought a jacket when I arrived in NYC to find it snowing, one weekend, on which they had removed all discounts, but it was freezing and I had no jacket so they got my money. My mother also because of the college purchase still, 10 years later, thinks the quality is awesome and sends me the occasional tie from the store.

Chris said...

Yes, I'm a value guy. On a trip to the US I was caught without a jacket and went in for a last minute blazer. I was pleasantly surprised, their high end has a silk liner and not a bad wool. Other than the label, it is equivalent or better than 3/4 of the jackets at Brooks or Nordstrom. Just don't hang it at the club.

Do the suits make the man? Martoma certainly seems well dressed... Wonder how he will adjust to orange like so many other non JOSB customers have had to do.

Gordon Gekko said...

Bought a trench there last autumn. 70% off + because I'd recently had one "lost" at a hotel, they gave me an additional discount, just for asking. Never heard of that ever in my long & storied shopping history. Also, was only person in store, no surprise. To those who say they're the preeminent middle market men's wardrobe, have you been to Macy's etc lately?

Mr. Horse said...

When I was a senior in college (8 years ago) and all my prep-schooled frat brothers were wearing Lacoste and Brooks Brothers polos, I discovered JOSB and their "fantastic" deals while trying to upgrade my wardrobe from jeans and t-shirts. I still think the quality of JOSB clothes is pretty decent for the price - the fabrics typically feel nice, and they all held up well through many washings. If I weren't so skinny I'd probably have shopped there longer, since my main issue with their offerings was with the fit.

But ever since then, I've been wondering how on earth the company has been successful. Every commenter here is telling the same story - shopped at JOSB for a while, found the stores empty and the products unremarkable yet serviceable, eventually saw through the "doorbuster sales" marketing techniques, and stopped shopping there.

If there was even the slightest whiff of fish in any of their filings I'd have gone short years ago (and would be wearing a barrel today as my reward). Even when I was a fan of their clothes, I couldn't understand their business - I was invariably the only guy in the store, and I visited locations in several different cities and states. Combined with your anecdotes about Black Friday, I really wonder where their revenue comes from.

I mean, each of their store does ~$5k/day, only ~15% less than MW, whose stores are (anecdotally) larger and hit a similar price point when all's said and done.

Of course, a big flaw in this argument is that I have nothing to compare them to - I've actually never been in a MW store. Are they as empty as JOSB?

Mr. Horse said...

I should add that I never found their sales staff very pushy - perhaps because I was shopping there as a 21-year old, and they figured I wouldn't be easy to upsell.

John Hempton said...

This is a comment I got by email - but worth repeating - probably the most detailed on...

Fascinating, I say as a Joseph Bank shopper. Hempton’s blog article definitely provides food for thought. Sometimes I have been one of four or five customers in the Vinnin Square store, but that’s unusual. More often, it’s just me, and maybe one other customer. But, timing is an issue too. Men are more likely to shop at this store on their way home from work, or on Saturday morning, It’s also a very fast place to shop, so you tend to be in and out quickly. Just what most men like.

I’m inclined to believe that the Vinnin Sq. store is very successful, not because of the number of customers that I have seen in the store, but because of the number of men that I come across who have clothes from the store. As Hempton points out, they don’t have exciting clothes. In fact I doubt that there is a single item in the store, of which you couldn’t have purchased the identical item five years ago. It’s also convenience shopping. Because of the current rarity of men’s clothing stores, the choice is Joseph Bank or the big malls which are many miles further away. I’m never in the store for more than 5-7 minutes, and I can do it on my way to or from the grocery store. Women also find it convenient to pick up some socks, scarf or a sweater for their significant other. There is super low commitment to going in, and you know what you’re going to find. Think McDonalds of men’s clothing.

The price is right, if you’re careful. The game is “sales”. They send out a constant stream of Sale, Tomorrow Only, emails. The standard prices are bogus. You would do much better paying full price at Macy’s. Most of the sales are of the buy one (at full price) get one free nature. But if you are patient, and read the fine print carefully, you can actually get some good deals. For instance, around Thanksgiving, I picked up a heavy charcoal grey wool overcoat for $129. The coat is bland as mashed potatoes for style, but it fits and is reasonably well made. Now I would much prefer to be doing business with Bloomindale’s Men’s Store, but said overcoat is much more in tune with my current economy.

Anonymous said...

Funny video, thanks for that. I find the steady stream of "empty store" comments pretty vacant. JOSB doesn't get the two-hour browser with a high propensity to return items. JOSB shoppers buy quickly and don't return much (not worth it for $30 shirts, and who knows you might want it someday). Stores are highly convenient for office folks and you know what you are getting even if the sales are a bit deceptive.

If you are going to visit a store and are a blind amateur at retail (like 99.9% of finance folks), at least take the time to talk to employees especially if they have worked for other brands. With enough effort you will discover a lot that will surprise you. I understand passing on the stock, but shorting it with these superficial observations? Totally bananas.

Anonymous said...

I think one big synergy with JOSB and MW maybe be the rental businesses. Tuxedo rentals are big business but seem to be dominated by more local/regional outfits. JOSB just got into rentals a few years back, not sure how long MW has done rentals but there is definitely advantages increasing the size of a rental network. I also like that the stores are often single store/strip mall stores for those of is men that avoid the mall like the plague. I also think that both businesses benefit from repeat customers - just keep your sizes stored in there computer and tweak when needed. Big dept stores like Macy's are too complicated to just call up or stop by and have them tailor a suit with only a few quick measurements.

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The content contained in this blog represents the opinions of Mr. Hempton. Mr. Hempton may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Hempton's recommendations. The commentary in this blog in no way constitutes a solicitation of business or investment advice. In fact, it should not be relied upon in making investment decisions, ever. It is intended solely for the entertainment of the reader, and the author.  In particular this blog is not directed for investment purposes at US Persons.