By John Jannarone
With one-third of the market, Men's Wearhouse appears to have a lock on tuxedo rentals. But even founder George Zimmer can't guarantee it.
The reason: Upscale rival Jos. A. Bank Clothiers last year entered the tuxedo-rental business, which generates some $1.2 billion in annual sales. Like Men's Wearhouse, Jos. A. Bank has a nationwide network that is convenient for groomsmen from different cities seeking matching tuxedos at local stores. That should help Jos. A. Bank take market share from the remaining competition, predominantly small, privately owned stores.
Mr. Zimmer's share of the market may also be at risk. While Jos. A. Bank sells some clothing that competes directly with Men's Wearhouse, it is typically more expensive. That could mean Jos. A. Bank has a chance to win rental business from many of its own customers who have previously gone to Men's Wearhouse to rent tuxedos.
Jos. A. Bank's payoff could be plus-size. The cost of a tuxedo is usually covered by just a few rentals, but the garments can survive dozens of wears. Even after accounting for overhead expenses, the tuxedo-rental business has an operating margin of 44%, estimates Margaret Whitfield of Sterne Agee. That means revenue from a mere 3% share of the market would translate into 34 cents a share in earnings, a roughly 10% boost.
A wealthier clientele also makes Jos. A. Bank more resilient. Men's Wearhouse-branded locations saw annual declines at stores open at least a year from 2007 through 2009. But Jos. A. Bank managed to maintain growth in comparable store sales through the recession. Investors who like the look of Men's Wearhouse should try on some new duds.
