85-Creative Price Reductions to Gain Share

 

Most of us would assume that, once a competitor enters bankruptcy, it would no longer be a significant challenge to the rest of the competitors in the industry. That is certainly true for many bankruptcies, but not for all. In some, very specific, industries bankruptcy can create an advantage for a company. It emerges from bankruptcy to continue causing havoc on its competition. This Blog explains how.

Posted 3/5/09

Not too many of us today would like to be in the retail clothing business. Fine retailers world-wide are suffering a dismal decrease in demand. Jos. A. Bank Clothiers has bucked the trend.

Jos. A. Bank used creative discount pricing to grow its same store sales while around them competitors faced margin carnage. For one day in September, and again for a few days after Christmas, the company offered a “buy one suit, get two free” sale. This was just one of its gimmicks. There have been several others. The company’s sales have grown by double digits in the past three quarters, and same store sales have grown at 7%. (See the Perspective, “Achieving the Low Cost Position” on StrategyStreet.com.)

The company is frank about its approach to pricing in this environment. They are looking to gain market share. These pricing gimmicks would not work unless competitors cooperated. The competitors for Jos. A. Bank must allow them to gain share with discounts by refusing to match their pricing promotions. It looks like Jos. A. Bank succeeded here, at the expense of their competitors.

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Update 2022:

The company, founded in 1905, operates around 200 retail locations.  Its parent company is Tailored Brands.  The parent company also owns K & G Fashion Superstores, Men’s Warehouse and Moores Clothing for Men in Canada.  In 2014 Jos. A. Bank merged with Men’s Warehouse to form the new entity, Tailored Brands.  Both companies appeal to a similar segment but approach it differently.  Jos. A. Bank sells only its own collections and creates product only for its own retail locations.  They are able to tailor their dress pants and jackets.  In contrast, Men’s Warehouse sells outsourced brands such as Vera Wang, Calvin Klein and Ralph Lauren which generally cannot be altered.  Covid and its cultural shift in fashion put so much pressure on both companies that Tailored Brands declared bankruptcy at the end of 2020.

Jos. A Bank and Men’s Warehouse are forms of Price Leader products. Jos. A. Bank is a Predator product claiming to offer men’s clothing items at a quality comparable to that offered by more expensive retailers. Men’s Warehouse is a Stripper product offering last year’s branded products at low prices. HERE is more information about Price Leader products.

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Update 3/26

Tailored Brands suffered through bankruptcy but emerged to continue competing. It emerged with all its store brands operating much as they had before bankruptcy. Taylor brands emerged as a smaller firm. The company closed 30% of its stores and shed nearly $700 million in debt. However, it remained a strong competitor and, today, leads the US market in sales of suits and formalwear. It turns out it competed well because the entire menswear segment shrank during the Covid years.

Bankruptcies are common in Hostile markets. Let’s consider other well-known companies who have gone through bankruptcy and have emerged at the other end. In this Blog, we will group our examples into some three sets defined by the company’s relative ability to challenge its industry competitors.

The first set is companies facing bankruptcy in capital intensive industries. The assets in these industries are often valuable in almost any market, providing the price for them is right. Often, companies facing bankruptcy in this set emerge as stand-alone companies. Among these examples are the legacy airlines (Delta, United and American), General Motors, Peabody Energy and Frontier Communications.  Their valuable-at-the-right-price assets might also emerge as part of a larger or more successful competitor. Consider Texaco, Chrysler and Linn Energy as examples. These companies continue to challenge their industry competitors because they emerge to operate from a new lower cost base.

Our second set includes well-known consumer brand name companies able to continue as operating businesses. As in the capital-intensive model, some emerge as standalone entities, such as Hostess Brands and Sbarro. Others become parts of competing companies, including Converse shoes, Gymboree, and Caesar’s Entertainment. Usually, these consumer brand companies continue life as much smaller and less threatening competition.

The third set encompasses consumer brands who are unable to sustain a viable long-term business. These businesses include such one-time highflyers as Polaroid, Sharper Image, Toys “R” Us and RadioShack. These companies continue a shadow existence by licensing their intellectual property and brand names. They no longer threaten their erstwhile competitors.

In a Hostile market, the most challenging competitors to deal with are in the first set. Their assets continue to cause price pressure and intense competition. When a company emerges from bankruptcy or is acquired, most of its productive capacity usually survives. The revived company or new owner, often an expanding competitor, usually reduces overhead and puts the capacity back into the marketplace with the lower cost, challenging all the other industry competitors.

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