At first glance, Jos. A. Bank seems like a bargain-hunter's dream. In the past year alone we've seen the store take an average discount of up to 66% off in its sales, and an extra 28% off clearance prices. Of course, where Jos. A. Bank really shines, however, is in its BOGO sales; in the past year, we saw 27 separate "buy x items, get y items for free" promotions from the menswear store. That's more than two BOGO sales per month!
And therein lies a potential problem for the merchant. It seems that Jos. A. Bank is always offering huge discounts, practically giving away its stock. (See the "buy one, get seven free" ad below.) How could a store like this afford to stay in business? Unfortunately, the reason why it can offer such deep price cuts is that the retailer's entire business model relies on high initial markups.
According to Business Insider, "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 [it] and still make a profit." The site then relates this concept to Jos. A. Bank, explaining that, "a typical store might sell you a $400 suit and offer 25% off, [but in] Jos. A. Banks' world, they'd rather price a suit at $1,000 and offer it at 70% off."
This Year, Markups Fall Short
This pricing strategy has been extremely successful for Jos. A. Bank in the past, but recently sales have slumped. In its earnings report for fiscal year 2012, Jos. A. Bank announced that it expects last year's profits to be 20% lower than those from 2011. The retailer claimed that this winter's warmer weather caused customers to shy away from sales.
"[O]ur customers (specifically at our stores) didn't respond as well to our promotional offers as they had in the past," a press release, posted by Yahoo! Finance, read. "Our customers responded well to our suit promotions during this period, but our non-suit customers responded poorly to our holiday season offerings, even at very low prices."
Other retailers, too, have blamed the mild winter for poor sales. We previously mentioned that cold weather-dependent brands like UGG Australia and Columbia Sportswear have a glut of winter-wear stock, forcing them to offer steep discounts. But market analysts seem to think that Jos. A. Bank's troubles may have more to do with their pricing model than the weather.
According to CNN Money, after Jos. A. Bank announced its expected shortfall, trader and blogger David Blair tweeted: "I just told salesman I wanted 3 free suits after buying 1 at regular $ [sic]. He said I could have shirt off his back too."
Do Constant Discounts Become Meaningless?
After years of selling expensive suits at what appears to be a substantially lower price, it could be that consumers are getting wise to Jos. A. Bank. If, as we mentioned before, you can walk into the store on any given day and see a sale for up to 66% off, couldn't that mean their prices are just inflated by 66%? On the other hand, however, now may actually be the best time to buy from Jos. A. Bank. A flagging stock figure is a big incentive for the merchant to offer even steeper discounts in order to lure customers back in.
What do you think, readers? Are you tired of Jos. A. Bank and other merchants offering big discounts on marked-up prices? Or are you a savvy shopper who can easily separate the real bargains from the fake?