However, the future looks increasingly bleak for K&G, which is an off-price retailer similar to Ross Stores, Inc. (NASDAQ:ROST). Off-price retailers such as K&G, Ross, and TJ Maxx utilize a strategy of buying off-season brand name items at steep discounts, putting them in storage, and then slowly rotating them into the store.
The problem is that K&G’s rivals are pulling this off more successfully, rendering K&G’s tiny footprint of 97 stores, which accounted for 11% of the company’s 2012 revenue, increasingly irrelevant. Ross Stores, Inc. (NASDAQ:ROST), for example, reported a 15.1% year-on-year increase in profit last quarter, while its revenue rose 7.8%. Same-store sales climbed 3%. Ross and its larger peer, TJ Maxx, are now as commonly associated with off-price retailing as Costco Wholesale Corporation (NASDAQ:COST) is with discount wholesale.
Men’s Wearhouse total operating expenses have risen 28.5% over the past four years, which could explain this conflict over the future of the company. Should it slim down by ditching K&G or buff up by renovating its stores?
Zimmer issued a statement to CNBC, stating that the company “has inappropriately chosen to silence” these concerns by firing him. Over the past 40 years, Zimmer expanded Men’s Wearhouse from a single Texas store to 1,143 locations across North America.
A fresh new approach?
Meanwhile, some market researchers and analysts are debating the future public image of Men’s Wearhouse. Will the company continue using the image of George Zimmer, who is featured prominently in advertising, or will they introduce a new spokesman for a younger demographic?
Branding expert Eric Gustavsen, from Graj + Gustavsen, believes that using an older spokesman like Zimmer has distinct advantages and disadvantages. He refers to Dos Equis’ “Most Interesting Man in the World” as an advertising campaign centered on an older spokesman that works.
Yet he also mentions Old Spice, which ditched its grizzled old sailor in favor of younger models to reach out to a younger generation. Gustavsen notes, “There’s a tipping point between being aspirational and just being old or irrelevant.”
In my opinion, Zimmer’s image was well suited for his purpose. I think abandoning his image would turn Men’s Wearhouse into just another anonymous retailer. If the company tries to go the hip route with a younger spokesman, it could come off as condescending, in sharp contrast to Zimmer’s words of fatherly advice. Stifel analyst Richard Jaffe notes that Men’s Wearhouse will retain the legal rights to Zimmer’s image and over 500 hours of his video footage, should the company choose to keep its existing ad campaign.