Photo: Wikimedia Commons
Jos. A Bank is facing a horrible dilemma as its business model shows signs of cracking. One sentence from the company’s Friday release reveals just how bad the suit shop’s problems are.
“Historically, we have had strength with these types of items, but our customers (specifically at our stores) didn’t respond as well to our promotional offers as they had in the past,” the company said.
Jos. A Bank’s business model is centered around promotions, particularly its famous “buy one, get seven free” deal.
The idea behind the company’s marketing is to make customers an offer they can’t refuse. In reality, Jos. A Bank relies on higher initial mark-ups before offering discounts to make money.
The higher mark-ups also create the perception of better quality. While other retailers might offer a suit for $600 and offer 25 per cent off, Jos. A Bank’s $1000 suit with 70 per cent off seems like a better investment to customers.
The strategy has worked for years. Until recently, the company reported healthy gains in profit and sales.
But if these extreme promotions can’t even hold consumer interest, Jos. A Bank might have to rethink its entire strategy.
“It comes down to the investment perhaps in a job where income growth is next to nothing,” said Brian Sozzi, chief equities analyst at NBG Productions. “Or, for a job interview that they may never call back.”
Investors aren’t happy with the retailer, either. Shares are plummeting after the company’s Friday warning.
Sozzi also said that the shopping experience at Jos. A Bank might be turning off consumers.
“It could take two to three weeks to receive the suit since it has to be tailored and the store associates also try and sell you add-on items,” Sozzi said. “So, that alleged ‘great deal’ you are getting has hidden costs, in addition to the fact you can’t leave that day with the suit.”
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