Joseph A. Bank (Jos. A. Bank), the men's clothing maker, is facing a horrible dilemma as its business model shows signs of cracking.
One sentence from the company's Friday release reveals just how bad the suit shop's problems are.
"Historically, we have had strength with these types of items, but our customers [specifically at our stores] didn't respond as well to our promotional offers as they had in the past," the company said.
Jos. A. Bank's business model is centered around promotions, particularly its famous "buy one, get seven free" deal.
The idea behind the company's marketing is to make customers an offer they can't refuse. In reality, Jos. A. Bank relies on higher initial markups before offering discounts to make money.
The higher markups also create the perception of better quality. While other retailers might offer a suit for $600 and offer 25 percent off, Jos. A. Bank's $1000 suit with 70 percent off seems like a better investment to customers.
The strategy has worked for years. Until recently, the company reported healthy gains in profit and sales.
But if these extreme promotions can't even hold consumer interest, Jos. A. Bank might have to rethink its entire strategy.
Investors aren't happy with the retailer either. Shares are plummeting after the company's Friday warning.
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