Friday, July 23, 2010

JoS. A. Banks Factory Outlet Store Strategy Not Without Risks

With its new everyday-low-price factory outlets, will the men's clothier profitably extend its brand or cause confusion?

JoS. A. Bank Clothiers, a no-week-goes-by-without-a-sale retailer, is looking to burnish its credentials as a company that saves guys money on high-quality clothing with the launch of its first factory store concept in Riverhead, N.Y.

JoS. A. Bank's aggressive growth among apparel retailers that have generally held back on expansion during the recession has put it on many an investor's watch list. In issuing a "buy" recommendation for the stock this week, Zacks wrote, "JoS. A. Bank has been bucking the convention that retail, especially clothing, is dead in the water," and noted a return on equity of 22.1%, "well above the industry average of 13.1%."

However, the opening of the factory outlets begs the question: Will JoS. A. Bank be cannibalizing sales from its own customers or extending its reach to a new demographic?

"Outlet stores can be a growth vehicle, if Joseph A. Bank chooses its sites carefully to avoid overlap with its full-line stores," wrote Richard Seesel of Retailing in Focus LLC in a recent RetailWire online discussion. "But the company needs to be careful not to let everyday low prices undermine the perception it has built its brand around--that it is offering huge savings when it puts merchandise 'on sale.' I would advise the company to be careful about the content it develops for the factory stores--other than using them as liquidation centers, there ought to be a lot of 'everyday low' content that can't be found in their regular stores."

Especially in light of its new website, other experts on the RetailWire BrainTrust expressed concerns about the ease of making price comparisons and the way price strategies alter consumer perceptions. "Sometimes you don't want your customers thinking too hard about your offer," said Ryan Mathews, founder and CEO of Black Monk Consulting.

"Being known as a retailer that offers great sales keeps consumers looking and checking on your offering," wrote Camille Schuster, president of Global Collaborations. "Being known as a 'factory' or outlet store means consumers can come when they want and expect low prices. Does JoS. A. Bank really want to make this switch?"

Doug Fleener, president and managing partner of Dynamic Experiences Group, expressed concern that the sister websites may "blur the line between the regular channel and the factory outlets." However, he believes having a presence in outlet centers is wise.

"As someone who ran a chain of both factory and full-price [stores] for Bose Corporation, I like the move to the factory outlets," wrote Fleener. "The centers offer great traffic with consumers who are out to spend money."

With plenty of successful precedents in this vertical, the overall message to JoS. A. Bank seems to be that it's all about execution.

"Saks has done a good job with its positioning at very high-end fashion stores and keeping the message coherent across the online, specials, promotions, and its Off 5th Premier Outlets," commented Anne Biele of Packaging and Technology Integrated Solutions.


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