Fool Me Once, Shame on You; Fool Me Twice, Shame on Me: Jos. A. Bank Clothiers Inc (JOSB)

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In my opinion Jos. A. Bank Clothiers Inc (NASDAQ:JOSB) is a scam, not an ingenious marketing company.  Its entire business model depends on its ability to continue to grossly over-inflate its stated selling prices to the public and then to liquidate its inventory by running continuous sales and promotions that average about 70% of the ticketed selling price.  The initial markup from landed cost is roughly 7 times, while the actual selling price is roughly 2 times.  It is pure caveat emptor.  I urge you to read “Is Jos. A. Bank Clothiers a Scam?”  It presents a clear picture of how the scam works.

It would be magic to discount one’s product by 70% and still earn a gross margin of 60%.  I cannot speak as a legal expert–courts and regulators evaluate evidence.  However, I can speak from 25 years of experience in the industry, as well as from publicly available retail trade statutes.  There are three critical factors in determining if a company is employing misleading and prohibited retail marketing practices.

Jos. A. Bank Clothiers Inc (NASDAQ:JOSB)1). An original ticketed sales price must be considered within the normal range for similar products.  This means simply that prices can vary within a normal range. Validation is primarily the fact that a major portion of sales are at the original ticketed price.

2). Does the retailer maintain its original price and both advertise and promote the product at that price for normal but sustained periods of time?

3). Are sales infrequent and for reasonable purposes, such as the end of a season, broken assortments and sizes, a non-performing product, etc.?  If sales are frequent or constant on the same or similar products and have expiration dates, the consumer is misled.  The consumer is led to believe that if they don’t buy before the expiration date, the product will go back up in price.

To be brief, JOSB violates all of the above.  It is also not a virgin in this area.  It has paid a penalty in the past to New York State, and signed a letter of Assurance with the state to change its practices.  According to JOSB’s most recent 10K, that agreement is being reviewed and the company is hoping for a resolution that will not be too disruptive.  News should be coming soon.  It is hard not to believe, based both on the company’s performance, the law, and the states previous actions, that there may be serious sanctions and fines.  The company is also currently subject to investigations in GA, FL, and lawsuits in IL and NJ.  There is also a class action suit proceeding in CA concerning violations of labor laws.

One special point I would like to note is that by using its now well-known advertising slogan ‘buy one suit at regular price and get two free,’ the company can sell some product at regular price.  Over the past few years, virtually all of its regular price sales have been derived from that deceitful practice.  Substantially less than 5% of its product and probably closer to 1% of its product is sold at regular price, as near as can be publicly determined.

It is also hard to imagine that this is not a thought through scheme.  Why does management believes a suit originally and honestly ticketed at $600 can only be sold for $200?  Wouldn’t $300 or $400 still represent a bargain?  The answer is simple.  The suit was never worth $600 and the company never expected to get more than $200.  At $200 even after a large SG&A expense, the company makes an excellent pretax margin and a high gross margin.

For the past several months, JOSB has been experiencing some sales and profit difficulties.  It has warned shareholders about this, but its reasons seem less than straight forward.  Some have a basis in fact, while others seem without any merit.  Its new promotions, in some cases, come with an android device, and I think that says more than management did in its update.

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