The majority of stores that Tailored Brands plans to close as part of the Chapter 11 bankruptcy process are Jos. A. Bank locations, a sign that the pandemic is deepening the strategic challenges and real estate fallout after Men's Wearhouse bought Jos. A. Bank six years ago.
Men’s Wearhouse acquired Jos. A. Bank in 2014 for $1.8 billion in cash after a protracted back-and-forth battle involving activist investors and lawsuits. That eventually led to the forming of parent company Tailored Brands, which has 1,400 stores in the United States and Canada and filed for Chapter 11 bankruptcy protection in August.
At the time of the acquisition, proponents thought the companies could benefit from the brand loyalty and goodwill both brands created among low- and mid-tier formalwear shoppers, while streamlining operations and saving overhead, said Anthony Campagna, global director of fundamental research at ISS EVA, a corporate governance and investment consultancy.
But instead of bolstering its market share, Tailored Brands had to shrink its footprint to avoid cannibalizing sales. At one point, they had 24 stores in the New York City area, Campagna noted.
“We can call it a failed merger. They were encumbered with too many stores, too much overhead and too much carrying cost to sustain their business,” Campagna said. Tailored Brands declined to comment for this story.
When Tailored Brands filed for bankruptcy protection last month in the Southern District of Texas in Houston, it said it planned to close 500 stores, leaving the formal menswear retailer with about 900 stores, almost half the number of locations it had at the time of the Men’s Wearhouse-Jos. A. Bank deal.
So far, Tailored Brands is asking the court to allow it to reject leases at 274 locations as part of the bankruptcy process, with 65% of those stores comprising Jos. A. Bank locations, according to an analysis of court filings by CoStar News.
The tendency to close Jos. A. Bank stores comes as the brand already is a minority of Tailored Brands' real estate footprint. As of Feb. 1, Tailored Brands had 474 Jos. A. Bank stores in the United States, plus 14 franchised stores, according to filings with the Securities and Exchange Commission. Tailored Brands, which has a split headquarters between Houston and Fremont, California, also owns the brands Tux, K&G and Moores.
With the lease rejections, Tailored Brands may walk away from the unexpired leases, leaving landlords with millions of square feet in empty retail spaces across the United States to fill on short notice during a pandemic. For many landlords, it won’t be clear how much they might receive in unpaid rent until the bankruptcy process is complete.
Several retailers are using the bankruptcy process to get out of leases and, as of mid-September, nearly 130 million square feet of space once occupied by a retailer in bankruptcy was expected to be without a tenant, according to CoStar advisory services.
Changing Consumer Tastes
The retail industry has seen a wave of bankruptcies because of the pandemic and temporarily forced store closings but a lot of the companies had already been struggling because of changing consumer habits and the rise of online shopping.
Tailored Brands faces a big challenge ahead in capturing more online sales and said in its latest earnings report it is investing in its e-commerce platform at the same time it is trying to slash its debt by $630 million through restructuring.
Over the years, Tailored Brands under-invested in its online presence, struggling to bring the formalwear experience online, said Campagna.
This was happening at a time when Amazon was quickly redefining consumer expectations and subscription clothing services such as Trunk Club and Stitch Fix were reshaping customizable online shopping experiences, retail analysts noted.
Many major retailers in the formalwear industry were not given big enough budgets to transform their e-commerce platforms, said Rod Sides, vice chairman and U.S. retail leader at the global consultancy Deloitte. Although many brick-and-mortar brands took steps to boost buy-online, pickup-in store and other e-commerce models, it was a challenging prospect to sell to investors when most of their revenue still came from brick-and-mortar stores.
Retail executives were challenged with investing in online strategies when most of their business was through the traditional channels, said Sides. “When you have a big infrastructure of stores and that is where the majority of your revenue is, it takes a long time to shift to a new model” and shareholders might not want to allocate resources to an unproven online segment, Sides said.
Like Brooks Brothers and the owner of Ann Taylor, Tailored Brands struggled to adapt to shifting consumer tastes and the casualization of the workplace as everyday became Casual Friday and suit coats were replaced with sports coats, analysts noted.
“The last time I was at client meeting where executives wore full suits was probably seven to 10 years ago,” Sides said.
While it is a challenge to buy suits online without trying them on, Sides said there are other ways formalwear brands can capture the e-commerce shopper with more customizable options, in-home tailoring and a generous return policy for products purchased online. Formalwear retailers also will have to invest in bringing more of a “fast fashion” mindset element to quickly adapt to trends that can change with the whims of a season or social media, Sides noted. The next step would be to figure out how to bring those new trends rapidly to the market online and in profitable store locations.
“It’s about having strategic locations and [putting] style back in the brands,” Sides said.
While brands like Men’s Wearhouse are struggling now, Campagna, the ISS EVA director, said there is a still a place for the company in the retail landscape post-pandemic.
“I do think there is a light at the end of the tunnel where they structure the overload, some of the debt and come out of this as the viable middle-market men’s fashion brand,” Campagna said.