September 16, 2014
Can Jos. A. Bank wean its customers off BOGO sales?
Jos. A. Bank, recently acquired by Men’s Wearhouse, is in the process of sharply reducing the number of BOGO (Buy One Get One) sales and other extreme discounting measures that have lifted sales over the last few years at the expense of margins.
"The biggest challenge we face at Joseph Bank is reversing the margin corrosive strategy that drive top-line results by progressively lowering prices and increasing promotional marketing spend over multiple years," said Doug Ewert, CEO of Men’s Wearhouse, last week on the company’s second-quarter conference call. "I believe this strategy is unsustainable, produces diminishing returns and erodes brand equity."
Soon after the June acquisition was completed, the company began testing new promotional and advertising strategies aimed at stabilizing gross margins. During July and August, Jos. A. Bank refrained from lowering prices below the previous year and that led to some revenue erosion, "illustrating the challenges we will face moving forward," said Mr. Ewert.
Comps were down 1.3 percent in August and are expected to be negative for the balance of the year given the pricing changes. The chain will also be facing positive year-ago comps, driven by promotions.
On the merchandise side, Jos. A. Bank may be able to take advantage of untapped opportunities to reach younger consumers and in big & tall, as well as in expanding footwear, pants and accessories. But slow turns and long inventory lead times inherent in men’s wear will prevent a quick change.
"Of course we will careful to make sure we don’t take our eye off our loyal customers by seeking their permission to testing before making wide spread changes," said Mr. Ewert. "Bottom-line, we anticipate at Joseph Bank some volatility in top-line sales as we stabilize the margin, test alternative messaging, develop revenue synergies and ultimately build a foundation for future growth and a return to historically high margin levels."
The tailored clothing market has become highly promotional over the years and the challenges facing Jos. A. Bank were evident on josabank.com. The lead promotion featured "Buy 1, Get 2 Free" on "Most Everything Online." By comparison, menswearhouse.com was playing up its new Joseph Aboud collection but still included a "Buy One Get One for $100" deal on suits and sports jackets.
- Men’s Wearhouse Reports Fiscal 2014 Second Quarter And Six Month Results – Men’s Wearhouse
- Men’s Wearhouse Second Quarter 2014 Conference Call – Men’s Wearhouse
- Men’s Wearhouse Second Quarter 2014 Conference Call – Seeking Alpha
- Men’s Wearhouse to phase out Jos. A. Bank’s ‘unsustainable’ buy-1-get-some-free deals – Dallas Business Journal
Discussion Questions
Should Jos. A. Bank retire its BOGO sales? What would you advise the chain do from a communications standpoint as it transitions away from these types of events?
Poll
BrainTrust
Recent Discussions
More Discussions
Would Recording In-Store Associates Help as a Training Tool?
Ethosphere is banking on AI-driven recordings of in-store associate practices as the next big thing in…Some Retailers Are Trimming Holiday Sales Discounts: Is This a Dangerous Play?
Some retailers are pulling back from deep discounts this holiday season. Is this a dangerous play?Has Kroger Discovered the Limits of Automated Warehouses?
Kroger is winding down its relationship with Ocado, citing cost overruns and a reorganization of its…
Jos. A. Bank should move away from its BOGO strategy, unless it can find a way to make it more profitable, and that’s going to be much easier said than done. Bank has trained customers to expect deep discounts; in fact, discounts became its brand identity.
The company needs to still have sales, but not offer BOGOs. It should emphasize quality and fit and should add designer labels. Bundled packages of suits and accessories are also a good way to provide value without slashing prices.
This is not going to be a quick turnaround, but it can be done.
To me, the retailer is a more extreme version of what Ron Johnson was supposed to fix about J.C. Penney—and ultimately, couldn’t. And the question isn’t so much about how to wean existing shoppers off of deep discounts. It’s about how to fire your existing bottom-feeder customers while simultaneously attracting new, less price-conscious customers, and doing so without alienating both sets of customers at once.
One thing I do agree with—Bank’s race to the bottom was unsustainable. I hope Men’s Warehouse got a really good deal, because I suspect they are going to be in for a rough ride in bringing Bank back to fashion legitimacy.
This is a challenging dilemma, rather like a drug addict breaking an addiction, something that must be done but without killing the patient. Quit cold turkey and the BOGO junkie will likely look for their fix elsewhere. My one lifetime experience with Men’s Wearhouse, preparing my son to attend a funeral, was very positive. Not only did they quickly put together and entire ensemble, including trench coat, in extra-long and size 15 shoe, but I was delighted with the price. They had a team approach and used a lay-out table very effectively. I went there for price but left impressed with the service. In our time crushed society, Jos. Bank may be well served to move into a highly efficient service model in a deliberate manner, watching retention of their existing customers and pushing personalized offers to those who appear to be lapsing, and in effect weening the junkies off the drug.
For better or worse, Jos A. Bank has worked the BOGO concept into its very “brand” image. Men’s Wearhouse will be between a rock and a hard place trying to re-brand the image of Jos. A. Bank, to the point where it might be better off simply converting the stores to something else; for example, Men’s Wearhouse Limited. Otherwise, Men’s Wearhouse will need to embark on an aggressive re-branding change for Jos. A. Bank to re-educate the consumer on an entirely new concept. Men’s Wearhouse will need to take the direct approach with consumers and say, “Jos. A. Bank is not what it used to be, it’s something different now.”
The short answer is yes, but ever-so slowly. Too abrupt a change and Jos. A. Bank will find itself without its old customer base before it has had time to build a new one.
Men’s Wearhouse knew (or at least I hope they knew) what they were buying when they purchased Jos. A Bank: A retailer who had built its business on price-sensitive shoppers. Changing its price strategy will not be an easy task. As has been pointed out, doing so will take time—if it can be accomplished.
This is going to be very difficult, as customers have gotten used to the BOGO deals, or worse yet the BOG2 deals, which really brings out the deal shoppers.
All of us in business are faced with lower sales, as consumers demand stuff for free or less, and with the excessive amounts of choices out there, this transition will be hard to swallow for their loyal army of BOGO clients.
Years ago I used to do BOGOs in our ads, but in the last 15 years we haven’t done any, as smart shoppers know when they are being taken advantage of.
You have to raise the retail so high in order to do a BOGO that you look like a thief in the night, as consumers know a 6oz. yogurt is not $1.49 everyday.
I hope they can get away from this by offering excellent values store wide every day, and with the buying power they have, it can be done. There are premium-branded clothing lines with huge markups, and 40-50 percent off in the store goes a long way (plus the custom fitting), and service can change the perception of how they do business in a positive way, plus still make money.
Take it slow on the weaning strategy. Also, start to introduce better service and quality commensurate with higher pricing. Sales staff is inconsistent and the quality of their materials and tailoring should be improved, based on my personal experience in the NYC market.
The observation that: ” … this strategy is unsustainable, produces diminishing returns and erodes brand equity” is almost a laugh line. BOGO is nothing—just BOGO would be sustainable. It’s the BOG4 offer that has done them in. The consumer can’t help but conclude that either Bank is selling at a serious loss or, if they are making money, they must be selling the poorest quality stuff imaginable, and/or they are taking unconscionable advantage of a suit-making sweat shop in some third world rain forest.
No one has paid full rack rate for a Jos. A. Bank suit since the beginning of time. I own about six of them and frankly regard them as almost disposable. And customers won’t start doing it any time soon. If the chain is to be repositioned price-wise, they need to be repositioned product-wise. That starts with finding company buyers who have style, imagination and creativity. Right now this product functions under two Capital Cs: Cheap and Conservative. Neither will lead to sustainable profitability.
The race to the bottom is unsustainable by any retailer. Unfortunately, change means firing some (maybe lots) of customers and creating a value proposition that is not rooted in cheap. I think this is doable because they sell a good product and their service model is definitely focused on customer engagement, the two necessary ingredients.
The real trouble they will have is enduring the beating they will take from Wall Street during the transition. Taking a slow and measured approach will probably do the least damage to comps and the customer base.
Ask Apple’s Ron Johnson, who tried to convert J.C. Penney to an EDLP environment from the traditional hi-lo promotions in the apparel industry, if transitioning abruptly away from an existing promotional position is advisable.
While not impossible to make such a transition, it must be done iteratively and with plenty of “perceived” alternative value to the shopper. Buy-One-Get-Ones are only unsustainable when they are run too deeply and too frequently. My counsel is: Find a middle ground. There are too many promotion optimization tools and smart merchants out there for Men’s Wearhouse to find a “happy place” that mixes promotions profitably.
Didn’t we see this store when J.C. Penney stopped having huge discounts and drove away the core customer, only to reverse the decision and go back to its roots? This is a long and difficult road. I agree with Nikki Baird.
If BOGO and other very heavy promotional but costly activities are going to be reduced by Men’s Wearhouse in Jos. A. Bank stores, why did they buy Jos. A. Bank? As such promotional reductions occur, Men’s Wearhouse has to find a better paradigm to compensate for taking away the hottest promotional program in men’s clothing. Most consumer don’t like being charged more for these same quality goods. Good luck with this new strategy.
Jos. A. Bank has a deal addiction plain and simple. This is not unlike what the auto industry faced a few years ago. What this means is the normal retail price is perceived at too high for the quality provided. First, one reduces the number of promotions while reducing the discount. Second, they need to create a message around quality and comprehensive shopping. Compare their quality to other upscale retailers. Inform the consumer they have everything needed in men’s clothing.
BAD move: They build the business not on the quality of the merchandise but on the quality of the promotion. Now their customer base has been trained over the years to believe that their merchandise is grossly overpriced at retail, and unless they can get it at drastically-reduced prices it is not worth it.
This is going to be a tough mindset to change.
I’d like to see RetailWire re-post this with results six or 12 months from now to see how the panel predictions worked out.
It will take some time for Jos. A. Bank’s new owners to figure out the right formula. What’s the right mix of promotions that will drive higher gross margin rates—and even gross margin dollars, which are the name of the game—at some expense to topline sales? And are there other ways to drive sales (and the brand) through more credible pricing and merchandise quality?
I agree with most of the comments here about testing and being deliberate, instead of walking into the same trap that J.C. Penney set for itself two years ago.
For the record, I’m not a “bottom feeder” as one commentator called their customers. I needed a jacket in April and they had one of their buy 1 get 2 free promos. I got 3 because I could. Were they like my Armani? Not at all, but their regular sales made their prices 1/3 of what they were ticketed.
I suspect many guys would not pay full price since we’ve been trained in what their quality is worth.
The bigger issue is how Jos. A. Bank develops an appealing assortment to capture new customers in a category that is largely substitutable outside the high end.
GO SLOW or the majority of your customer base will flee! Bank has disguised the correct price of their merchandise to the point that no matter how and where they settle this will be a very rocky road. A consumer will not pay $795 for a suit next month when they got 3 last month for that price.
Men’s Wearhouse should be very cautious and test several strategies in their bid to correct the balance between price and margin. This was the ultimate Hi-Lo retailer and if 80% of their volume was on the giveaways, I am not sure they can adapt.
Why transition away? Over the years, I have made a few purchases from Jos. A. Bank and NONE from Men’s Warehouse. And Jos. A. Bank hasn’t offered a BOGO in 10 years. Their offers are always buy one get three or four free, not buy one get one.
The fact is that the clothing being sold by both retailers is in much less demand today than 10 years ago. The market is shrinking and will continue to shrink. While Jos. A. Bank pricing has been attractive, it has the effect of loading the closet. Don’t need to shop but once every five years!
Maybe both should look at Target and price quality goods reasonably. If the advertising and marketing cost were eliminated, Jos. A. Bank could probably sell a suit for $79-$89 and a dress shirt for $16. These guys don’t stand a chance of replacing Brooks Brothers but they could fill the void that J.C. Penney has created by transitioning everything to polyester blends. I would also encourage them to take to the internet and become a much larger e-commerce company. They already have large inventories to sell from and can provide off-the-rack fit for almost every shopper except the grossly obese.
These guys need to compete with the department store sales. Macy’s, Belk, and others offer brand name suits if you are buying just one suit at prices about 30% lower than Jos. A. Bank or Men’s Wearhouse OR maybe Jos. A. Bank should become a brand and be sold through high volume retailers. The sad fact is that the vast majority of consumers could care less. These guys are like RadioShack—a concept frozen in time. (1950?)
I’m curious what image EITHER of these two halves is aiming for: JAB was noted for its endless promos and SHOUTING ADS, while MW had George’s ever present (if slightly oily) smile; now they want to get rid of both of them. The only thing they seem to have left is a near-monopoly in a market which is rapidly disappearing (low/medium cost men’s “business” attire)…I don’t see this ending well.
I”d go for incremental margin with small incremental change. There is no cold turkey in changing the business model, just dead ones if you move too fast. In some respects, the combination company probably has enough market share to change the game over time. It’s as much what the competition is doing that impacts your need to promote as anything else. They just have to stay more attractive/promotional than the shopping alternatives. That gives them some latitude to reduce the promotions—if they really want to or need to—which is probably the first question to be asked.
BOGO…. This is the lane that Jos. A. Bank has chosen to be in. It’s been working for them. To change may erode some of their loyalty. However, if the change is managed well, it may pick up new customers they didn’t have before. To cut it “cold turkey” would be a mistake. The change must evolve and they must keep their longtime loyal customers engaged with them—if they want to keep them. A rebranding or culture change is something that takes time. The strategy and process are key.
As many people already wrote, this has Ron Johnson’s name all over it. The BOGO is a part of the brand, and you can’t just turn it off. If you do, you’ll lose your core customers with nobody there to replace them.
My advice: figure out how slow the changes can be made…then go even slower. If not, sales loss will easily outpace margin gain.
Of course they can make headway. “Retire” is a strong word! They should move like the great barbeque masters proclaim: Low and slow. Move slowly and keep a low profile while doing it. Take a best practice page from Pier 1 Imports, who did exactly this in a quiet and profitable manner just a couple of years ago!