Jos. A. Bank Still Likes Men’s Wearhouse Look
Oh, the wacky world of men’s apparel retailing. It’s made for some entertaining reading of late.
First, there were soap opera-like goings on in the Men’s Wearhouse boardroom where the founder and "voice" of the company found himself getting the boot. Recriminations, played out in the public eye, went back and forth.
Next, Jos. A. Bank, Men’s Wearhouse’s smaller rival, made an unsolicited bid to acquire the chain. Analysts and investors liked the offer — and the stock price of both companies shot higher — but the board at Men’s Wearhouse didn’t take long before flatly rejecting it.
A portion of a statement by Bill Sechrest, lead director of Men’s Wearhouse, published on the Bloomberg News site, read, "Jos. A. Bank’s unsolicited proposal is opportunistic, subject to unacceptable risks and contingencies, and would deprive our shareholders of the value inherent in Men’s Wearhouse for inadequate consideration."
Understandably disappointed by the rejection, Jos. A. Bank’s board replied, "We find the response by Men’s Wearhouse to our all-cash $48 per share proposal inexplicable."
Jos. A. Bank contends it has made an offer higher on a per share basis than Men’s Wearhouse has reached in the past five years. While that may be true, others including Richard Jaffe, retail analyst at Stiffel, believe the offer is too low. Mr. Jaffe told USA Today that he puts the value of Men’s Wearhouse at $52 per share.
In a unique twist, Jos. A. Bank board chairman Robert Wildrick told The Wall Street Journal that if Men’s Wearhouse did not want to be acquired for the $48 per share price, than it should offer the same deal for a merger with his company.
Aside from Men’s Wearhouse’s snub, analysts see a lot to like in the merger of the two companies.
"Any time you take two companies in a similar business, there should be cost savings in the supply chain,’ James Gellert, CEO of Rapid Ratings, told USA Today." This has the makings of a reasonable deal."
Jos. A. Bank, which pushes a steady stream of BOGO offers, has more than 600 stores and sells online. Men’s Wearhouse, which takes more of an EDLP approach, has over 1,100 units operating under the Men’s Wearhouse, Moore and K&G banners.
- Men’s Wearhouse Rejects Jos. A. Bank’s $2.3 Billion Bid – Bloomberg News
- Men’s Wearhouse Rejects Jos. A. Bank’s $2.3 Billion Bid – The Wall Street Journal (sub. required)
- Jos. A. Bank Will Continue to Pursue Its $48 Per Share Cash Acquisition Proposal – Globe Newswire/NASDAQ
- Men’s Wearhouse suits Jos. A. Bank to tune of $2.3B – USA Today
Discussion Questions
Does a Jos. A. Bank/Men’s Wearhouse merger make sense? How do you expect this deal to play out?
It does make sense, especially for Men’s Wearhouse, as I think that Jos. A. Bank has a higher perceived quality and service level than Men’s Wearhouse.
Some may argue that they are about the same, but there is definitely a difference. It is not Brooks Brothers for sure, but it has its place. I have noticed that the Jos. A. Bank chain does have some inconsistencies depending on the location, which could be resolved if this deal goes through and they apply a standardized look and feel to each store throughout the larger chain. They need to do a better job on alterations too!
Men’s Wearhouse has, from the beginning, operated a straightforward, disciplined model which has proved to be very successful in the continuing consolidation of the men’s clothing industry. Jos. A. Banks has embraced a highly promotional calendar that started out years ago as Buy 1 Get 1, and after years of coming up against these same promotions the next year, has gone to Buy 1 Get 3 or 4 or 5. Put differently, they are completely different models.
The question for Men’s Wearhouse is, if it works, why change it?
In a time when the world is going “corporate casual” it makes intuitive sense to me that these two companies should be able to find some common ground and synergies that will help both survive into the future.
Without knowing the details of the MWH business, such as real estate assets, debt, competitiveness of salaries for associates, it is difficult to say whether $52 a share is too high or $48 is too low. However, the difference should be negotiable provided they don’t involve John Boehner and Harry Reid in the process!
This is no different than a boxing match when both participants feel the other out in the early rounds to find a weakness. I am also reminded of the movie “When Harry met Sally” in one scene she repeatedly tells him she hates him and then later they are happily married.
I see this playing out to a draw and both sides return home to manage their respective businesses. But the stage is being set for a merger of some part to be a reality in the future.
Only a BOGO strategy like JAB’s could turn MW into an aspirational brand! MW is a lifeline for JAB but MW must make sure they control merchandising and pricing strategy. MW has always featured known brands at low prices (like Syms without bankruptcy) and offers a decent customer experience. BOGx just implies that the quality either supports or (worse) necessitates multiple products from one purchase. The ultimate purchase price could be too high to ignore, but it would be a shame if JAB “won” only to ruin MW in the process.
It might make sense, logistically speaking. To say that Men’s Wearhouse has more of EDLP approach, I believe, is false. I am subscribed to their emails which are constantly promoting “Buy 1, Get 1 Free” sometimes only on suits, sometimes store-wide. If you have ever seen a few of their TV ads, you will notice this to be true as well. Their offers come and go constantly.
However, as a consumer who has been to both stores, I have only made purchases at Men’s Wearhouse. I think the two different stores draw different ages of men. I am under 30 years old, and I definitely see Men’s Wearhouse as more trendy and typically for younger men, as their ads portray. If they were to merge, would that target be blurred? Would they try to sell to the whole age gamut? It would be interesting, but I personally hope they don’t merge.
If either company were to acquire the other, the most appropriate strategy is to keep the brands separate. Each firm has its own personality and while there is common ground in some customer segments, the outer bands of each company’s customer group is probably quite different.
I would venture to say that Men’s Wearhouse has some customers who would never shop at Jos. A Bank, while almost all of Jos. A Bank customers would occasionally find reason to shop at MW.
Any opinions on that comment?
It is not possible without having knowledge of the financial models to say whether a merger or acquisition makes sense. However, since most M&A deals in retail have proven to destroy rather than create shareholder value, my first instinct is to say leave it alone. In any case, removing choice from the marketplace is rarely good for the consumer and since there is likely little value for the shareholders (other than a short term play), again I say leave it alone.