Photo: Jos A Bank
Jos. A Bank is the menswear retailer that offers the most ridiculous discounts you’ve ever heard of.You may have heard of their newest promotion: Buy 1, Get 7 Free. You buy 1 suit at regular price, and they give you 2 more free suits, 2 dress shirts, 2 silk ties, and an Android smartphone.
And they seem to be running these types of promotions all of the time. Two common promotions include 70% off all suits and buy one suit, get two free.
So, how can a company like this make money? Reformed Broker Josh Brown posed this question (of course rhetorically).
Three words: higher initial markups.
You’ll see those three words all over their regulatory filings.
The markup is the difference between the cost of a good and the price it’s sold at. The higher the markup, the more you can discount and still make a profit.
For example, a typical store might sell you a $400 suit and offer 25% off. In Jos A Banks’ world, they’d rather price a suit at $1,000 and offer it at 70% off.
Either place you shop, you pay $300 for a suit that might be of identical quality to the one sold at the other place.
But the $1,000 initial price tag gives the perception of higher quality. And the 70% discount gives the illusion of a great deal. Combine those two things and it’s no surprise why the bargain-hunting American male would be seduced by Jos A Bank’s offering.
All it took was a little psycho-mathematical salesmanship.
And how’s business at Jos A. Bank?
Well, their recent quarter was a bit disappointing. But long-term, business has been good. Sales and profits have been climbing for years.
And more importantly, the gross profit margin has trended up from 58% to 62%.over the last five full fiscal years.
So, that’s how they make money.
Photo: Jos A Bank, SEC
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