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Aug 3, 2020
DealBook: Men’s Wearhouse Owner Files for Bankruptcy
Tailored
Brands, known for its clothing chains Men’s Wearhouse and JoS. A. Bank,
struggled as the pandemic shut stores and consumer demand for office
attire dropped.
Credit...Chang W. Lee/The New York Time
The
owner of Men’s Wearhouse and JoS. A. Bank, which once dominated the
market for affordable men’s suits, filed for bankruptcy protection late
Sunday, as demand plummeted for its corporate clothing with the
coronavirus pandemic keeping America’s office workers at home.
The company, Tailored Brands, had approximately 1,400 stores and 18,000 employees. It had already announced
plans in July to eliminate 20 percent of its corporate jobs and close
up to 500 stores, and on Sunday said that it planned to use the
restructuring process to slash its debt by at least $630 million.
“Our
enduring commitment to help customers look and feel their best will
allow us to overcome the challenges of Covid-19,” Dinesh Lathi, chief
executive of Tailored Brands, said in a statement accompanying the filing in United States Bankruptcy Court for the Southern District of Texas.
The apparel industry has been hit particularly hard by the pandemic, prompting bankruptcy filings from retailers like the Neiman Marcus Group, J. Crew and J.C. Penney. Lord & Taylor,
once a major presence in America’s department stores, and its owner Le
Tote filed for bankruptcy several hours before Tailored Brands on
Sunday. The owner of Ann Taylor and Lane Bryant, Ascena Retail,
which just a few years ago was one of the country’s largest retailers
for affordable professional clothing for women, sought Chapter 11
protection on July 23.
Many clothing stores
shut their doors during the lockdowns, leading to unpaid rents and staff
furloughs. That blow to brick-and-mortar retailers came as they were
already struggling to adapt to the rise of e-commerce and changing
consumer behavior.
With millions of Americans unemployed or
working from home, and a pause on proms and weddings, demand has
plummeted for Tailored Brands’ core product: men’s suits. The company reported that net sales had fallen by 60.4 percent in the three months that ended May 2, compared with the same period last year. Brooks Brothers,
a more upscale seller of suits and preppy clothes that has been in
business since 1818, also saw demand for its wares crater during the
pandemic. It filed for bankruptcy in early July.
Men’s Wearhouse
was founded in 1973 by George Zimmer, who became known for his catchy
slogan in TV and radio commercials: “You’re going to like the way you
look. I guarantee it.” The business, catering to the common man who
wanted to look sharp for work without breaking the bank, took off. Men’s
Wearhouse had about 100 stores when it went public in 1992.
“They
came out with an inexpensive option that allowed a guy to go in and buy
everything from one place, all at a certain quality and all at a
certain price point,” said Mark-Evan Blackman, assistant professor and
men's wear specialist at the Fashion Institute of Technology. “For many
years, they were considered by certain customers to be the only game in
town.”
But the company’s troubles predate the pandemic. In 2013, the company abruptly fired Mr. Zimmer,
then the executive chairman, saying he had been unwilling to cede
control to the board and had pushed to sell the company to private
investors against shareholders’ interests. In response, Mr. Zimmer released a letter expressing his concerns that the company was heading in the wrong direction.
Mr.
Zimmer, now 71, said it was painful to see the company seek bankruptcy
protection after he had invested so much of his life building it. He
attributes the company’s downfall to decisions made after his
contentious exit.
“It’s a crying shame,” Mr. Zimmer said in an
interview. “I spent 40 years creating a really neat company, and it only
took seven years to destroy it.”
In 2014, Men’s Wearhouse
acquired the men's wear company JoS. A. Bank, forming the parent
organization Tailored Brands. The merger was meant to unite the two
retail companies and capture a bigger share of the market of
budget-conscious suit buyers and renters.
Image
Credit...Justin Sullivan/Getty Images
Instead
of increasing sales, the merger mired Tailored Brands in debt. On May
2, the company had long-term debt of $1.4 billion and $244.2 million of
cash and cash equivalents.
“When you merge two poorly performing
companies together and layer on a lot of debt, it’s usually not a recipe
for success, and it hasn’t been,” said Ivan Feinseth, director of
research for Tigress Financial Partners.
The
merger was ill-conceived, Mr. Feinseth said, because the two companies
had fundamentally different business models and it was difficult and
expensive to consolidate their inventory and brick-and-mortar locations
into one seamless enterprise.
At the same time, Tailored Brands
faced other pressures. It struggled to compete with the rise of fast
fashion and the dominance of online retailers, while saddled with the
extensive real estate and operating costs of maintaining stores.
It was also hurt by the relaxation of office dress codes,
inspired by tech start-up culture. The casual workwear trend had such
sweeping influence that Goldman Sachs, a leader in an industry known for
its formality, gave its employees the green light in 2019 to wear casual clothes.
“Fifteen
years ago, every guy had a suit in his closet, whether he was a plumber
or a middle management administrator,” said Mr. Blackman of the Fashion
Institute of Technology. “That’s no longer the case. Tailored garments
have been hurting for a very long time.”
Tailored Brands, like
most of the retailers that have filed for bankruptcy during the
pandemic, plans to stay in business and use the Chapter 11 filing to cut
down on debt and close stores. To sustain its business moving forward,
Tailored Brands will have to reinvent its business model and
significantly improve its online presence, said Anthony Campagna, global
director of fundamental research at ISS EVA, an analytics firm.
“There
is a place in the market you can sell lower-tier men’s clothing,” he
said. “It’s just a matter of positioning it correctly.”
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