Jos. A. Bank's success story reflects overall competence

February 23, 2003|By JAY HANCOCK

IT WAS a great story while it lasted, but the quasi-Edwardian get-up known as the men's business suit has not made a big comeback.

Workers are not rejecting Dockers for Brooks Brothers out of shame for the lax excesses of the 1990s or any other reason. There is no known correlation between casual Fridays and casual balance sheets. The first Enron guy to plead guilty, Michael Kopper, wore Armani.

Sales of "tailored menswear" fell by 1 percent last year, says New York researcher NPD Group. The number of garments sold in that category rose by 5 percent - more than the growth in working-age population but not a big comeback.

With luck and a few more attacks by Levi's, the men's suit will become a costume prop like the hoop skirt or codpiece, fit for Halloween and Merchant Ivory films but not decent society.

So how to explain the puzzling and amazing results of Jos. A. Bank Clothiers Inc., the Hampstead suit-monger?

As almost all retailers struggle, Bank thrives. As chain after chain posts sales declines, Bank's sales are rising by double-digit percentages, even without accounting for new stores. In an economic slump, Bank's profit probably doubled last year. Fourth-quarter earnings arrive next month.

And in a terrible market, Bank's stock tripled last year, putting it in the top 1 percent of companies traded on the Nasdaq electronic exchange.

Bank operates in one of the most brutally competitive and growth-proof businesses in America - selling apparel to the consumer. As rents, shipping costs and worker pay have risen, clothing prices have actually fallen, producing great deals for shoppers but squeezing merchants in a profit chopper.

Consumer prices for men's suits, sport coats and "outerwear" - Bank's staples - have fallen by 6 percent since 1998, according to the Labor Department.

So how could Bank's gross profit - the difference between what it pays for goods and what it sells them for - have risen from less than 49 percent of sales in 1998 to 56 percent in last year's third quarter?

How could Bank's store-for-store revenue have risen 5 percent last year and 10 percent last month? How could its catalog/Internet sales have popped by more than 20 percent last year?

A silver-bullet explanation such as a run on suits would make a good headline, but, as usual, reality is subtle. The factors of Bank's success are numerous, not monolithic, and apparently have more to do with internal competence than anything going on in the market.

Men's Wearhouse, another trafficker in suits, ties and button-down shirts, has seen its stock drop by half since May. Brooks Brothers was nearly killed by former British owner Marks & Spencer and is still wobbling under debt. Ralph Lauren has apparently become an outlet-mall brand.

Which Bank products are propelling its sales?

"It's everything," says Michael Via, director of research for Richmond, Va., brokerage Anderson & Strudwick.

"A lot of people were saying these guys did great because business casual came in" a few years ago. "Then last year everybody was saying, everybody's going back to suits, and that's why Jos. Bank did great.

"Well, you want a suit? They got suits. You got a golf shirt? They got golf shirts."

Golf shirts are part of the Bank story; after several stumbles, the company successfully integrated khakis, sweaters and other casual wear with the suits and sport coats for which it is known. Like all successful retailers, Bank does the little things right, keeping track of fashions, not overpaying for real estate, hiring good employees.

But perhaps the key element in Bank's boom is a shift in its buying habits. Having quit manufacturing its own suits in Baltimore and Hampstead a few years ago, the company started ordering from middlemen but found it had less control over quality and cost.

In a world of apparel deflation, Bank couldn't raise prices much. The only way to boost profits was to cut costs, and it has done so with zest, eliminating the middlemen and outsourcing directly to Poland, Italy, Canada and elsewhere, including some contracts in Maryland, says Bank boss Robert N. Wildrick.

Financier and anti-globalist George Soros is Bank's biggest shareholder; the globalization he questions is responsible for much of Bank's prosperity.

While Wildrick says there's no big men's suit comeback, he contends the bear market in coats and ties has ended and "the workplace is becoming more formal again."

But he claims not to have a preference. "We don't care. We sell it either way."

Lately, they have.

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