It’s tuxedo time. The time of year when men whose usual idea of formalwear is chinos and a tie have to dash off to the nearest rental shop(Shop Fixture) to suit up for black tie events. As the season gets into full swing, the two biggest retailers in formalwear are in a slow dance of their own, looking to merge as they fight to cut costs in an ever more casual world.
Men’s Wearhouse, which runs 1,137 menswear outlets across the US, has offered to buy its smaller century-old rival Joseph A Bank(Belt Display Rack) for over $1.5bn. The bid comes after Jos A Bank, as it styles itself, made its own, unsolicited, $2.3bn offer for its Houston-based rival in early October.
Back then, Men’s Wearhouse rejected Jos A Bank’s offer, arguing it was taking advantage of a share price slip following a slow quarter. But the retailer left the door open for possible talks in the future. In an unusual tactic during the takeover bid(Belt Display Rack), Jos A Bank chairman Robert Wildrick said his company would be receptive to being bought by Men's Wearhouse instead of acquiring its rival.
Now his wish has come true. Bill(Belt Display Rack) Sechrest, lead director of Men's Wearhouse, said Tuesday the deal had “a strategic logic and the potential to deliver substantial benefits to our respective shareholders, employees and customers."
“Together, we can create the premier men's apparel retailer, with enhanced scale and a broader(Bag stand Rack) best-in-class offering for our valued customers, which we expect to drive significant shareholder value," said Doug Ewert, president and chief executive officer of Men's Wearhouse.
While(Wire Display) the dance continues, some retail analysts are wondering whether the two parties have had a few too many pre-dinner martinis. “It’s insane,” said veteran retail consultant Howard Davidowitz, chairman of Davidowitz & Associates.
“When you make an acquisition, you want to carve out a new growth area,” he said. “This isn’t a retail deal, it’s a real estate deal. All they are doing is buying the other retailer's property portfolio.”
“The bottom line here is formal. One company, Men’s Wearhouse, does a better job than the other. The theory is they will add more formal expertise to Jos A Banks. But so what?” he said.
Davidowitz also argues that the combined entity may face competition issues. When Whole Foods bought smaller rival Wild Oats in 2007, the federal trade commission stepped in arguing the deal eliminate “the substantial competition between these two uniquely close(Clothing Display) competitors.” The deal was held up for years and Whole Foods eventually sold the chain.
“They’ll argue that Macy’s and others are all in formalwear, but Whole Foods made the same points about WalMart and others,” said Davidowitz.
The main advantage of a deal will be cost-cutting in a tough sales environment. Jos A Bank has more than 600 stores(Store Fixture), about half as many as Men's Wearhouse. The two would be able to combine back office functions such as purchasing and close unprofitable stores while keeping a wide geographic spread. Men’s Wearhouse said Tuesday it would save $100m to $150m in “synergies” through improving purchasing, optimizing customer service and marketing practices, and streamlining corporate functions.
The proposed deal comes after a tumultuous spat in Men's Wearhouse’s boardroom. In June, George Zimmer, the retailer's chairman, was ousted from the company he co-founded 40 years ago. The gravel-voiced Zimmer(Sunglass Display) was the face of Men’s Wearhouse and famous for TV ads and his catchphrase: “You’re going to like the way you look. I guarantee it.”
The board said Zimmer had wanted full control of the company. After he was ousted Zimmer hit back saying he had argued against the direction the company was taking and "the board has inappropriately chosen to silence my concerns."
