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Alysia Rowe
Mr. Key
MGMT 485W
3 April 2014
Jos. A Bank to Buy Eddie Bauer
Identification of Subject
Firm Name: Jos. A. Bank
Article Title: Jos. A. Bank to Buy Eddie Bauer in Blow to Mens Wearhouse (1)
Source of Article: Businessweek
Date: February 14, 2014
Author: Lindsey Rupp

Summary of Article
This article discusses how Jos. A. Bank made a deal to buy the Eddie Bauer brand. The
terms of the agreement were that Eddie Bauer will receive $564 million in cash, and 4.7 million
new shares of common stock, each valued at $56.
This acquisition was a defensive move to forestall acquisition attempts from Mens
Wearhouse, a rival suit company. Jos. A Bank and Mens Wearhouse have been in conflict since
October 2013. Mens Wearhouse made an unsolicited bid for Jos. A. Bank, and they have been
in flux ever since. Jos. A. Bank is hoping that the Eddie Bauer acquisition will make the deal too
large for Mens Wearhouse.
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The article then goes on to discuss Iconic Brands. The Eddie Bauer brand, founded in
1920, has a lot of history. Jos. A. Bank believes this will contribute greatly to the companys
earnings.
Although Jos. A. Bank is very optimistic, there have been many echoes of doubt. There
are many obstacles to face when acquiring a company with little product overlaps. Furthermore,
Jos. A. Bank has never been through an acquisition before, so the management team is
inexperienced with this matter. Additionally, the purchase price for Edie Bauer is 9.5 times 2013
earnings, which makes this a large risk for Jos. A. Bank.
However, the article states that there is a loophole for Jos. A. Bank. There is a clause in
the contract that states, Jos. A. Bank can terminate its agreement if it receives an offer that
would create greater value for Jos. A. Bank shareholders.

Business Level Strategy
Jos. A. Banks business level strategy is integrated cost leadership and differentiation.
Jos. A. Bank is one of many suit retailers in the world. Their business strategy is partially cost
leadership because of their price range. Jos. A. Bank suits are not as inexpensive as Walmart, but
they are cheaper than their competitors targeting the middle class. Additionally, as a retailer of
stylish suits, they are far cheaper than some more famous designers, such as Gucci or Dolce &
Gabbana.
Jos. A. Bank has also slightly differentiated its suits. It has many different cuts and styles
of suits, some of which are found exclusively at Jos. A. Bank, such as the Joseph Suit. They
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also offer these suits in many materials, colors, and cuts, along with availability in big and tall
sizes.

Corporate Level Strategy
Jos. A. Banks corporate level strategy is the dominant business strategy. According to
Jos. A. Banks 10K, they have two business segments which are Full Line Stores and Direct
Marketing (10K, p. 2). Their Direct Marketing Segment encompasses both the internet and
catalog call center, while the the Full Line Stores segment includes their 552 retail locations.
One can determine that their strategy is the dominant business strategy using the
information found of page F-19 of the 10K. In 2012, Jos. A. Bank reported that their net sales
were $890,700,000 for their stores, and $120,137,000 for their direct marketing, for a total of
$1,010,837,000. By taking each of those totals and subtracting the corresponding depreciation,
operating income (loss), and capital expenditures, the net revenue for the stores is $666,095,000
and $89,290,000 for the Direct Marketing. $666,095,000 is 88% of the total revenue,
$755,385,000, making this a dominant business strategy.

General Environment
Jos. A. Bank is facing the same challenges as most US businesses. The economic
environment in this country is deteriorating, which causes challenges for every business.
Probably the largest obstacle facing businesses today is consumer spending. Consumer spending
has decreased, making it hard to earn the same returns as previous years, and even harder to
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expand. Additionally, credit and lending markets are smaller than they used to be, affecting all
borrowers (10K, p. 12).
There has also been a shift in consumer attitude toward retail stores. Department stores
used to be the go-to place for many Americans, but lately this is not the case. Today dollar stores
and low end retail such as Walmart are thriving. On the opposite end of the spectrum, high end
designers such as Prada and Louis Vuitton are also doing great. However, middle-of-the-road
stores like J. C. Penny and Sears are really struggling.

Industry Environment
Jos. A. Bank is also facing industry wide challenges. The popularity of the suit may be
on the decline. Employers want their employees to be comfortable and many white collar jobs
have transitioned to jeans and flip-flops. In less extreme cases, many companies have gone
smart casual, recommending a button up shirt without requiring a tie or jacket. Dress down
Fridays have also become common in many companies. As work places increasingly become
more casual, the market for suits shrinks (Castella).
The threat of new entrants is also very real in this industry. There are no real barriers to
entry in the suit business. Anyone with some capital can open a store front and sell suits,
because there is nothing proprietary about them. Product differentiation is minimal in suits,
making customers less loyal to a specific brand. Furthermore, there are no switching costs. A
customer can wear multiple brands in one week and alternate back and forth.
Bargaining power of suppliers and buyers also plays a large part in this industry. Because
there are a few big names in the suit industry, suppliers will favor them. The reasoning behind
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this is the larger the amount they supply, the greater their profits. Buyers also keep the
competition intense. Because the goods are not extremely diversified, price plays a large role in
consumer minds, necessitating competitive sales. Many customers will view suit brands as
substitutes for each other.
Rivalry among competitors may be the most dangerous factor of the suit industry. The
big players in the industry are constantly trying to acquire each other or stamp out their
competition. For example, Mens Wearhouse has been trying to take over Jos. A. Bank for
months. Firms in the industry need to have defensive strategies to deal with the intense
competition.

Financial Analysis
The table above shows the past three years gross profit, total operating expenses, and net
income. From 2010 to 2011, net income increased by 14%. This is a good sign and means the
company is growing and flouring. However, from 2011 to 2012, net income decreased by 18%,
making it the lowest of the past three years. Because gross profit increased, it follows that total
operating expenses would also increase. However, operating expenses should not have increased
so much for the small addition to gross profit. In 2010 and 2011, operating expenses were 73.6%
and 73.1% of gross profit, respectively. In 2012, operating expenses were 79.0% of gross profit.
2010 2011 2012
Gross Profit $537,543,000 $608,275,000 $611,762,000
Total Operating
Expenses
$395,936,000 $444,868,000 $483,322,000
Net Income $85,799,000 $97,491,000 $79,696,000
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If this becomes a trend, it will be extremely detrimental in an industry with such a low profit
margin.

Strengths and Weaknesses
Strengths
Famous Brand Name
Reputation for Quality
Outrageous Promotions (ex. Buy 1 Get 2 Free)
Large In-Store Inventories
Weaknesses
Inflated Initial Markups (to allow for extreme sales)
Low Profit Margin
Decreased Differentiation

Reason for Strategic Action
The reason for this strategic action is to thwart Mens Wearhouse. In a last ditch attempt
to defend from hostile takeover, Jos. A. Bank has decided to acquire Eddie Bauer. The strategy
behind this strategic action is to make themselves look less desirable to Mens Wearhouse.
As a competing member of the suit industry, Mens Wearhouse wants to acquire Jos. A.
Bank. With one swift motion, this would eliminate a key competitor and expand their business.
Although, if Jos. A. Bank acquires Eddie Bauer, Mens Wearhouse would be taking on a business
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with a sector in a different industry. Eddie Bauer, a casual clothing line with an Out-door-sy
air, has a completely different customer base than the suit industrys modern business male.
An additional reason Jos. A. Bank might have for acquiring Eddie Bauer is the size of the
deal. Adding this new company makes the purchase price a lot bigger for Mens Wearhouse,
should they decide they still wish to buy out Jos. A. Bank. Jos. A. Bank may simply be in the
market for any company to buy that is the right size.

Likely Outcome
Acquisitions are challenging to make work at the best of times, but the grasping at
straws air to this deal has disaster written all over it. The timing, economys general
environment, and the level of diversification between Jos. A. Bank and Eddie Bauer would make
the strategic actions success nearly impossible.
Now is not the right time for a strategic action for Jos. A. Bank. Because this is a
defensive action, they may not have had enough time to give Eddie Bauer due diligence. Haste
often lets small things be overlooked that manifest into real problems. The timing also looks bad
from a numbers stand point. This past years net income has been the lowest of the past three
years. Whether this is Jos. A. Bank isolated case, or retail clothing stores on the whole have had
net income decline, neither bodes well for an acquisition.
Not only would an acquisition of any kind be bad for Jos. A. Bank, but Eddie Bauer,
specifically, is not the right match. Eddie Bauer has a completely different customer base than
Jos. A. Bank. Although one could argue that people who wear suits to work need casual clothing
as well, the styles are very different. Learning to sell to a different customer takes time and
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money, and is it really worth Jos. A. Banks time and capital? Integration of cultures is a huge
challenge when companies merge or get acquired. The culture difference between these two
companies is vast and would lead to difficulties.
After considering this strategic action from many different view points, it seems there is a
clear answer to the question, Is this a good idea? The answer is no.

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Works Cited
Castella, Tom De. "Are Work Suits on the Way Out?" BBC News. BBC, 11 Feb. 2011. Web. 07
Apr. 2014. <http://www.bbc.com/news/magazine-12418046>.

"JOSB FY 2012 10-K." Annual Reports. N.p., n.d. Web. 03 Apr. 2014. <http://
www.annualreports.com/Click/15499?
_SID_=20140403095651-632b472ed7e8807fee027a83e0362137>.
Rupp, Lindsey. "Jos. A. Bank to Buy Eddie Bauer in Blow to Men's Wearhouse (1)." Bloomberg
Business Week. Bloomberg, 14 Feb. 2014. Web. 03 Apr. 2014. <http://
www.businessweek.com/news/2014-02-14/jos-dot-a-dot-bank-to-buy-eddie-bauer-in-
blow-to-mens-wearhouse>.
"The Expert in Men's Apparel." Jos. A. Bank. N.p., n.d. Web. 03 Apr. 2014. <http://
www.josbank.com/menswear/shop/Home_11001_10050>.