DealBook: Men’s Wearhouse Owner Files for Bankruptcy

Gillian Friedman

6-8 minutes - Source: NYT

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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.

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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.”