My fear is that Men’s Wearhouse will attempt some sort of revamping that takes the focus off of customer satisfaction. If growth becomes the new focus then the customer experience will likely suffer. Zimmer’s relentless focus on the customer is what made Men’s Wearhouse great, and without the founder involved the future of the company has become murky. Hopefully management won’t change that.
While the namesake The Men’s Wearhouse, Inc. (NYSE:MW) stores sell mid- to high-end suits, the K&G stores focus on the low end as well as more casual clothing. While Zimmer opposes the sale of K&G, on this point I tend to agree with management. K&G is somewhat outside of the company’s core competency and has no discernible advantages over other low-priced retailers. Margins on low-end items are not as high as the items sold at the namesake stores, and K&G doesn’t have anywhere close to the brand awareness Men’s Wearhouse maintains.
K&G competes with companies like Kohl’s Corporation (NYSE:KSS) and J.C. Penney Company, Inc. (NYSE:JCP), both of which focus on low prices. The problem with K&G is that, prior to discovering it upon researching Men’s Wearhouse in January, I had never heard of the stores before. It turns out that I live 15 minutes away from a K&G store. While everyone knows about Kohl’s and J.C. Penney, there seems to be very little awareness about K&G.
K&G only has around 100 locations, compared to Kohl’s Corporation (NYSE:KSS) and J.C. Penney Company, Inc. (NYSE:JCP)’s 1,100 each. Kohl’s is arguably the leader in the realm of value department stores, with nearly $20 billion in annual sales and convenient locations. J.C. Penney has struggled in recent years with a failed turnaround effort and mounting losses, but its $13 billion in annual sales still make it a go-to destination for many value-conscious shoppers. K&G is too small and too generic to compete against the the big boys. Buying the company in the first place was likely a mistake, and selling it is probably the best option.
The bottom line
The departure of George Zimmer from The Men’s Wearhouse, Inc. (NYSE:MW) is a bit concerning. I like the company, and I think that the stock is reasonably priced, but the path the company takes from here is unclear. Selling K&G is a good move, removing a low-margin drag on the company, but the loss of Zimmer’s iconic image could lead to customers jumping ship. If Men’s Wearhouse sticks to its focus on the customer then the company should be fine. Otherwise, there could be trouble ahead for Men’s Wearhouse.
Timothy Green has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Timothy is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article The End of an Era for This Retailer originally appeared on Fool.com and is written by Timothy Green.
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