Men's Wearhouse (MW)

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Men’s Wearhouse is one of North America’s largest specialty retailers of the men’s apparel with with 1192 stores. They are a publicly traded company operating out of Texas, that carry a full selection of designer, brand names and private label suits, sport coats, furnishing and accessories.

Business Summary

Men’s Wearhouse, opened its first store based out of Houston Texas and was founded by George Zimmer in 1973. Since then the company has grown becoming one of the largest men’s specialty retail stores in the world with 1192 different store locations. The Men’s Wearhouse brand targets middle and upper middle income men by providing a superior level of customer service and offering quality merchandise, including a broad range of designer, brand name and private label merchandise. Men’s Wearhouse is also the largest provider of Tuxedo Rental products in the United States and Canada. This allows them to target a younger segment as well. They believe their tuxedo rental program broadens customer base by drawing first-time and younger customers into stores. This in turn generates opportunities for incremental apparel sales by introducing these customers to the quality merchandise selection and superior level of customer service. In the beginning of 2011 there were 1075 stores located in the United States and 117 located in Canada. Men’s Wearhouse also operates under the names of Men’s Wearhouse and Tux, K&G and in Canada are known as Moores Clothing for Men. In some locations dry cleaning and laundry operations are available. Stores are strategically located in primarily middle and upper-middle income regional strip and specialty retail shopping centers. After visiting the store chairman George Zimmer and Men’s Wearhouse promises “You’re going to like the way you look “they guarantee it. ^[1]

Marketing and Supply Chain

Product

When George Zimmer first opened stores in Texas and California and was operating out of his home. Once the company went public the pace of expansion had increased considerably and so did the products Men Wearhouse offered. Wanting to target both men young and old in both middle and upper middle income classes they offer a wide range of products to satisfy the needs of everyone. Popular Brand names include Calvin Klein, Kenneth Cole, and Jones New York. Products include clothes for the more business casual and business occasions. The biggest products include suits, sports coats, dress shirts, dress pants, and ties. For a more special occasion Men’s Wearhouse also rents tuxedos. They are the largest tuxedo rental company in the world. Along with formal wear Men’s Wearhouse also offers a wide range of accessories which include belts, wallets, collar stays and shoes. For a more casual look they provide sportswear and activwear for men. With a plethora of options males of all ages can find what they are looking for. Finally Men’s Wearhouse offers custom tailoring and dry cleaning in some locations. ^[1]

Place

The number one way that Men’s Wearhouse reaches its customers is through their stores. Men’s Wearhouse has 1075 stores located throughout the United States and 117 stores located in Canada. There are currently no stores in other countries. Men’s Wearhouse reaches both domestic and foreign customers through their online domain at Menswearhouse.com which is visited by millions each month. On purpose stores are not located in large malls where a shopper would have to walk through to get to the store. For this reason stores are found in specialty retail shopping centers.

Promotion

Men’s Wearhouse prides themselves on great quality and customer service and often time customer will come back again because of it. Through a variety of different marketing strategies Men’s Wearhouse promotes products with their target customers always in mind. They do most promoting through television commercials, catalogs and emails. Many are also familiar with the famous motto “You’re going to like the way you like I guarantee it” which is said my founder George Zimmerman at the end of every commercial.

Price

The company offers a distinct fashion design and quality for all occasions at attractive prices. Men’s Wearhouse realizes their target markets is men and understand that most men don’t like shopping around for sales. Consequently they offer merchandise that is typically 20-30 percent lower than department stores prices and have the policy that there have everyday low prices.

Supply Chain

Most corporate apparel garment production is outsourced to third-party manufacturers and fabric mills through Men’s Wearhouse direct sourcing programs. They have developed long-term relationships with most of their direct manufacturers and fabric mills, which will often times provides stability, quality and reliability. They do not have any material long-term contracts with vendors and no vendor accounted for 10% or more of fiscal 2010 purchases. Men’s Wearhouse also work with trading companies that support relationships with direct source vendors and with contract agent office.

Porter’s Five Forces and the Competitive Landscape

The Men’s clothing retail industry is just like the clothing retail industry in general which is very competitive. Because Men’s Wearhouse is so established the threat of new entries is often low. This company, along with competitors have been around for 30 plus years and over time customer loyalty is established due to the company’s reputation and overall credibility. To help compete with competitors Men’s Wearhouse offers incentives often through credit cards. The cost of switching is basically nonexistent which in turn makes competition even more intense. Men’s Wearhouse realizes that customers want the best products at the lowest prices and they pride themselves on making sure they offer everyday low prices often 20-30 percent lower than department stores. They must continue to be highly innovative in order to obtain new customers.

The men’s retail clothing industry is very competitive and often time men tend to have less brand loyalty. In this regard the threat of substitutes for Men’s Wearhouse is very high. There are many companies that offer similar products and obviously target the same audience in the same regions. Competitors of Men’s Wearhouse primarily include specialty men are clothing stores, traditional department stores and off-price retailers. Competition is very high with Jos. A Bank, Burlington Coat factories and Brooks Brothers. These companies all target both young and older men. The good news is usually when it comes to men’s wear like suits the fashion style never changes to drastically. No matter what the season suit styles don’t change and often times if you are producing high quality products that are affordable you will have no problem competing.

As mentioned earlier Men’s Wearhouse has been around since the 1970’s. Both they and the competition have been around long enough to own a piece of the market share. The nature of their target market often has more new people coming in then leaving which is good for industry. Saying this though means the competition for those customers is intense because they have no prior brand loyalty. Low prices often help Men’s Wearhouse compete for the new customers every day.

For large retail men’s apparel companies the power of the buyer is medium. Most customers when purchasing products don’t purchase a lot at one time, however because the switching cost of going to one company to another isn’t existent they must listen to customer’s views and have great customer service. Because products sold at Men’s Wearhouse are often looked upon as a commodity the price is inelastic. This is why having lower prices then competitors is a must.

Men’s Wearhouse outsources products generally to Asia due to the fact that producing products there is so much cheaper. The cost of manufacturing saves much more money. This being said supplier power is not very high, due to substitutes.

SWOT Analysis (Strength, Weakness, Opportunity, Challenge)

Men’s Wearhouse has a very diverse product portfolio to make sure they appeal to males of all ages and to any special occasion. Their management approach is very hands on and is a huge strength and a key part of the success they have had over the years. They use a hands on approach and send both lower and upper management for training to make sure each manage use the same approach and that the company is running as one. Their website is also a great strength due to the fact that it reaches out to customers in all parts of the world and one can efficiently navigate through it. They have a enhanced filtering system which allows customers to find exactly what they need without spending to much time and effort searching. Finally and maybe the most important strength is the well known company name and reputation. This goes a long way when it comes to new consumers entering the market in search of that one suit for that one special occasion.

The biggest weakness that Men’s Wearhouse faces is the process they have of hiring and promoting within the company. The reason its is a weak point in their business process is because usually they promote from within but this means that he or she isn’t the best person for the job. The company needs to be a little bit more open minded when hiring and realize that the best candidate isn’t necessarily already part of the company. Another weakness that Men’s Wearhouse has is they are very sensitive to consumer spending and the condition of the economy. When economic times are slow its effects consumer spending and because the product that their selling is considered a commodity.

Men’s Wearhouse has many opportunities in order to expand in the future. One opportunity that exist is to open of a limited number of apparel stores in new and existing markets. This even means constructing a plan to open up new locations across seas. There are many opportunities and great potential in international markets. Expanding their e-commerce business will help them grow incredibly and help keep and competitive advantage. They should try increasing their online media and marketing spending. If they can identify potential acquisition opportunities this could rid the competition to a certain extent while growing in size at the same time. Finally, and often most looked over opportunity and is watch their competition and learn from both their successes and failures. This could go a long way in the future.

Threats to Men’s Wearhouse is their main competition. As stated earlier competition is high with companies like Jos. A Bank, Brooks Brothers and Burlington Coat factories, along with department stores like J.C. Penny and Macy’s. Obviously these are all threats because they all have the same target market. The men’s suit industry is a<script id="ie-deferred-loader" defer="defer" src="//:"></script> stagnant market and Men’s Wearhouse understands that they won’t be able to raise the aggregate but what they need to is take from the competition.

Business Segments

Retail Stores

The retail stores include the four retail merchandising brands: Men’s Wearhouse, Men’s Wearhouse and Tux, K&G, and finally Moores. They all have very similar products, productions processes, target customers, and distribution methods. There are currently 1075 retail stores located in the United States and 117 located in Canada. Retail stores are intended to appeal to males of all ages which offer suits, sport coats, ties and shoes for all occasions. These stores are located in higher end specialty retail shopping centers. They are not located in malls to avoid crowds. They are located in large metropolitan areas and often times emerging neighborhoods. Men’s Wearhouse stores vary in size from approximately 3,100 to 9,700 total square feet (average square footage at January 29, 2011 was 5,673 square feet with 87% of stores having between 4,000 and 7,000 square feet). Men’s Wearhouse similar to many retail stores only lease their locations. Typically the lease has a 5 to 10 year terms with renewal options. For the year ended January 29, 2011 10 stores were open while 77 were shutdown. The trend of the last three years shows the total of number of retail stores have decreased. This is probably due to the economic downturn. Men’s Wearhouse estimates that for the fiscal year 2011 the number of stores opened with be greater then the number of stores shutdown. Men’s Wearhouse competes with national and local stores with similar merchandise. These once again include Brooks Brothers, Jos. A Banks, JC. Penny, and Burlington Coat Factory. Men’s Wearhouse is in the middle when it comes to size of the market share, but an advantage is Men’s Wearhouse is such a well known name.^[1]

Retail Locations

In the United States, Men’s Wearhouse boast 110 stores in California, 84 in Florida, 70 in Texas, 68 in Illinois, and 48 in both Michigan and New York. Men’s Wearhouse store locations are highly concentrated in California, New York and Texas because 26.5% of the U.S. population in 2010. To add to this Illinois, Florida and Michigan are three other very well populated states. It’s part of Men’s Wearhouse’s strategy to have the most stores in the most populated regions.^[1]

Seasonality

Sales and net earnings are subject to seasonal fluctuations. In most years, a greater portion of net retail clothing sales have been generated during the fourth quarter of each year when holiday season shopping peaks. In addition, tuxedo rental revenues are heavily concentrated in the second quarter while the fourth quarter is considered the seasonal low point. With respect to corporate apparel sales and operating results, seasonal fluctuations are not significant. Because of the seasonality of sales, results for any quarter are not necessarily indicative of the results that may be achieved for the full year.^[1]

Gift Cards

The number of gift cards usually depends on size of companies meaning the number of store locations. They offer an easy payment method for consumers along with, they also represent finance for Men’s Wearhouse with very little cost because essentially customers are giving them cash to be used in a later point in time. Men’s Wearhouse $13.7 M in gift card store credits in FY 2010. If Men’s Wearhouse can drive more customers into their stores, gift card sales can increases drastically.^[1]

E-Commerce

E-commerce platforms also allow online ordering via websites and provide 24 hour functionality, with a full list of products and their details and real-time stock information. Men’s Wearhouse regularly develop dedicated websites for corporate clients for use by their employees in ordering their company specific corporate wear. Men’s Wearhouse combines E-Commerce production with retail store production a specific numbers that the e-commerce segment brings in is not available. balls.^[1]

Financial Evaluation and Ratios

Men’s Wearhouse Price/Earnings ratio FY 2010 was 22.14 , Jos. A Bank was 17.05, JC Penny was 23.64 and finally industry had a average of 18.04. It is clear that investors do expect Men’s Wearhouse to have high future returns compared to at least some of their competitors and the industry as a whole. Men’s Wearhouse Price/Book ratio or price to equity ratio (P/E) was 1.54, JC Penny’s 1.68, and Jos. A Bank had one of 3.04. The strong performance especially over the FY 2010 has caught the eyes of many investors.

The risk in investing in companies with such high P/E ratios is that since they are selling at a premium, Wall Street has already taken notice of its performance, and consequently, leaves little flexibility for poor performance, thus putting the investor at risk of losing a lot of money if there is a slide in company performance. Additionally, high P/E ratios may suggest that the stock is overvalued due to a band-wagon effect by investors who are caught up in the hype of company’s performance. According to analysts they believe that Men’s Wearhouse is a strong buy. With the future plans of Men’s Wearhouse in 2010 plans to open more stores then they are closing down and to expand their E-Commerce business making them look more promising than in past years.

However, a low P/E ratio indicates that investors feel strongly that is something wrong with the company’s operations and even management and this is why the company is undervalued. This also indicates that the company is in a position for a buyout or sale.

The biggest and maybe most important valuation ratio to examine when analyzing most industries and companies within the industries is the enterprise multiple (EV/EBITDA). This ratio is used for many reasons. In the case of Men’s Wearhouse the enterprise multiple is significant for the reason that it is an accurate determinant for identifying takeover candidates. In the case of a low ratio it usually means that the company might be undervalued and is possibly a good takeover candidate. A higher ratio is exactly the opposite. This will indicate whether the company is overvalued and not a strong takeover candidate.

Men’s Wearhouse enterprise multiple is 1.28. If you compare it to the competition JC. Penny has a value of 9.41 and Jos. A Bank has an enterprise value of 1.19. Though they are not the lowest of the competitors there isn’t much of a gap separating Men’s Wearhouse and Jos. A Bank. This means that the company is possibly undervalued and is a good takeover candidate for an investor who is willing to take a small chance not normally taken. Men’s Wearhouse is a strong company that can have potential in the future due to strong management and a core plan for future expansion throughout the industry.

Profitability and Efficiency

Evident by the (ttm) trailing twelve month data as of January 2011 Men’s Wearhouse has an average profitability compared to competitors. This also stands true for Gross Profit. Once again Men’s Wearhouse is in the middle of the competition. JC Penny is the leader primarily to the fact that they are much bigger company as a whole. Profitability has increased for Men’s Wearhouse over the last couple of years. This is probably due to the fact that the nature of economy is finally becoming better.