Potential Integration Problems:
MW closed on the acquisition of Jos A Bank (Bank) on June 18, 2014. The company has announced over
$100 mln in cost synergies with another $50 mln of revenue synergies. First a little background on the
deal. Bank actually offered to buy the larger MW first before, and MW eventually purchased Bank. It
appears to us that MW may have never really wanted to buy Bank but had its hand forced by the offer
and Bank’s move into the Tuxedo rental business. Bank was a notoriously promotional business, with
commercials offering Buy One, Get Two and even sometimes Three suits free. The campaign was even
lampooned on Saturday Night Live http://www.nbc.com/saturday-night-live/video/jos-a-bank-cleaning-
product/2768588, comparing the suits price to paper towels. MW is not promotional, and they have
been cutting discounting at Bank since the acquisition. Of course, a retailer eliminating discounts has
never faired too well and has never been a blueprint for success, with JC Penney (a painful experience
for the author) being the most primary example. Investors expect sales to rebound with easier comps,
but if you look at the results so far, things could be getting worse, not better.
|Exhibit 2: Same Store Sales Showing Disturbing Trend
|Joseph A Bank
|MW - Joseph Bank
Bank, as you would expect, has had weak sales since the acquisition (highlighted in Exhibit 2 above), but
it appears, based on headline numbers, to be slowly improving. However, by analyzing further, we can
see that the delta between MW and Bank stores has gotten worse every quarter. Therefore, it is likely
that Bank was just benefiting from a very good quarter in suit sales industry wide but is losing market
share and at an increasingly rapid pace. The lost sales are unlikely to be picked up by other MW stores,
since there is only a roughly 20% overlap in customers.
I do believe that MW will fully execute on the $100 mln of cost synergies, with possibly some small
upside. I am extremely skeptical that the company will get much, if any, of the projected $50 mln in
revenue synergies. These are largely from things like more slim-fit suits and increasing Big & Tall sizes,
which basically assumes that Bank, a fairly well-run store, was too stupid to sell these products to begin
with. The one area where there could be some upside is increasing tuxedo rentals at Bank, but that will
likely cannibalize MW.
Long-term Downward Trend in Suit Sales and Newer Competitors:
Data on suit sales is tough to get, but it does seem like the industry is picking back up as millennials
appear to enjoy occasionally getting dressed up. This compares to the roughly 100-year trend towards
more casual dress. I believe that the recent surge in men’s suits will just be a blip on its long-term
decline. If the trend towards more suits just showw more staying power, it is not fully clear that MW will
be able to fully participate. There seems to be a new much hipper wave of online upstarts like
Jackthreads looking to outfit more style-oriented millennials. The competition is not limited to online, as
Suit Supply, a very fashion forward chain in Europe, is rapidly expanding into the U.S. with 13 stores
currently and 5 opening soon. These are still small compared to MW, but if menswear continues to grow,
I believe competition will grow with it. MW is like Icarus, fly to close to the sun and you will get burned; too close to the ground and be swallowed by the water. Either way, MW appears to be headed for trouble.
grow, I believe competition will grow with it. MW is like Icarus, fly to close to the sun and you will getgrow, I believe competition will grow with it. MW is like Icarus, fly to close to the sun and you will get burned; too close to the ground and be swallowed by the water. Either way, MW appears to be headed for trouble.