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Men's Wearhouse Sticking with BOGO Strategy

Buy-one-get-one-free approach has led to increases in sales, traffic.

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George Zimmer

George Zimmer

Photo By Courtesy Photo

Men’s Wearhouse said it will extend indefinitely a buy-one-get-one free suit promotion, and the retailer reported an almost 90 percent drop in fourth-quarter net income.

In addition, senior executives will take annual pay cuts totaling $35 million to help lower costs during the recession.

Fourth-quarter net income dropped 89.9 percent to $1.5 million, or 3 cents a diluted share, from $14.8 million, or 29 cents, a year ago, on an 11 percent decline in sales to $476.4 million.

Along with “lowering costs, we’ve redefined our value proposition at Men’s Wearhouse and Moores stores to mean deep discount, sometimes even buy-one-get-one-free,” chief executive officer George Zimmer said Wednesday. “This change was made following evidence that store traffic and suit unit sales rose dramatically when this promotion was advertised.

“We believe that this strategy is necessary in the current economic environment, and still allows us to offer our customers extraordinary value while maintaining adequate margins,” he said.

The company instituted the buy-one-get-one-free (BOGO) strategy during the holiday season to bolster sales. Zimmer said that model “is being reconstituted so that it can run indefinitely. We’re making 30-second commercials, which have a nice story with the BOGO message being just a part of the overall message. So we’re actually planning on running this on a regular basis.”

He said the company routinely undercuts department stores’ regular prices on suits by $100, “and then we throw in another suit for free.”

In the quarter, comparable-store sales declined 9.7 percent at Men’s Wearhouse, 10.7 percent at K&G and, based on constant Canadian dollars, 10.5 percent at Moores.

Zimmer said his base compensation will be trimmed by 20 percent, the board of directors’ compensation will drop by 10 percent and other senior executives will take a 5 percent cut.

In fiscal 2007, Zimmer was paid $420,000 in salary and total compensation of $1.67 million.

A bright spot continues to be the company’s tuxedo rental business, which posted a net sales increase of 3 percent in the fourth quarter. Tuxedo rentals account for 7.5 percent of net sales.

Clothing sales, which accounted for 85.4 percent of net sales in the quarter, fell 12.8 percent. However, the declines were less than expected because of “increased customer traffic from our elevated promotional posture in January,” said Neill Davis, chief financial officer.

The company also has aspirations for its K&G superstore division. “Because the discount value sector should do better in tough times, we’re hopeful K&G has turned the corner,” Zimmer said. He pointed to a growing women’s business, a new branding campaign and a store-refurbishment program as other positive developments for this division.

For the year, profits at Men’s Wearhouse fell 59.9 percent to $58.8 million, or $1.13 a share, from $147 million, or $2.73 a share, a year ago. Sales in the 12 months slid 6.6 percent to $1.97 billion from $2.11 billion in the prior period. Excluding one-time items such as a $1.2 million impairment charge and a $5.8 million gain from the sale of a distribution center, the retailer recorded a loss of 6 cents a share in the fourth quarter ended Jan. 31.

Davis said the company expects comp-store sales to be down in the range of 6 to 10 percent in the first half, while tuxedo rental sales are anticipated to rise 7 to 9 percent.