MONDAY, APRIL 19, 2010

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WASHINGTON BUSINESS

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Economy suits Jos. A. Bank just fine

CHAIN GROWS IN DOWNTURN

Customers respond to bountiful promotions

by Ylan Q. Mui

In a recession that has felled some of the retail industry’s big- gest names, a scrappy menswear store headquartered outside of Baltimore has become the dar- ling of Wall Street. Jos. A. Bank began making headlines when — just days after the stock market plummeted to a 12-year-low — it offered to refund any suit purchase to customers who lost their jobs. It rolled out aggressive promotions — such as buy one suit, get two for free — to lure new shoppers. The retailer revamped its Web site, opened new stores and started renting tuxedos. Last week, it announced it would open five pilot outlet stores that could become models for a new line of business. Such moves have fueled an 11 percent increase in sales to a rec- ord $770.3 million during the last fiscal year and a 21 percent jump in profits at a time when many chains are struggling to stay afloat. Wall Street valued the company at $1 billion this spring for the first time. Its stock price has more than doubled since last summer, closing at $60.88 on Fri- day. “We are starting to get recogni- tion for the strong performance we have turned in,” Jos. A. Bank President R. Neal Black told in- vestors during a recent confer- ence call. It seems an unlikely time for a

rally. Retailers suffered massive losses as the financial crisis of 2008 froze consumers’ wallets and high unemployment rates stymied prospects for recovery. According to market research firm NPD Group, men’s clothing sales dropped 5 percent to $51 billion for the 12 months that ended in February, compared to a year ago. Competitors Men’s Wearhouse and Casual Male Re- tail Group saw sales decline last fiscal year, and the former report- ed a loss. Jos. A. Bank responded to the downturn with sharp pricing and inventive promotions. When the retailer launched its $199 suit sale last spring, it added a “risk- free” guarantee that any custom- er who bought a suit and then lost his job within four months

THIS WEEK, APRIL 19-23

Some key reports on Thursday

and Friday should shed light on whether the housing market is actually improving or whether the recovery in that sector has stalled. March housing starts rose 1.6 percent, the Commerce Department said last Friday, but that represented a rebound from February snowstorms and was weaker than expected, and it is not at all clear whether home builders will be keeping up the pace as the year progresses.

Thursday

JAHI CHIKWENDIU/THE WASHINGTON POST

The Jos. A. Bank location at Tysons Galleria is one of the company’s 473 stores, a number it hopes to increase to 600. The retailer also plans to open five outlet stores, with a goal of 75 such locations.

would get a full refund and still keep the suit. It reinstated the guarantee for the sale this year. “They have promotions practi-

cally every day,” said Margaret Whitfield, an analyst with Sterne Agee. “They have a compelling price-value message with a good- quality product. . . . In this envi- ronment, that is what draws the consumer.”

But discounting can become a vicious cycle, and many retailers have struggled to wean shoppers off heavy promotions. Jos. A. Bank experimented with more traditional pricing during Fa- ther’s Day last year — typically one of its busiest holidays — and found sales dropped off. When it returned to aggressive promo- tions, customers came back. It has tested traditional pricing sev- eral times since with limited suc- cess.

Black said the company will continue discounting as long as necessary. Because it manufac- tures nearly all of its products, the retailer has greater flexibility to determine prices. The promo- tions have squeezed profit mar- gins, but the company has made up part of the difference by sav- ing on shipping and materials and negotiating some lower rents. During the fourth quarter, profit margins slightly improved. “Apparel retailing is a volatile business, and the consumer is un- steady right now,” Black said. “We will stay price aggressive as long as the consumer continues to tell us what they want.” Strong sales have helped

strengthen the company’s bal- ance sheets, and it ended the fis- cal year with $192 million in cash and short-term investments, up 56 percent over the previous year. After leaving its $100 million credit line virtually untapped for about three years, the company has decided to close the account and use cash to pay for its expan- sion. J.P. Morgan analyst Brian Tunick named Jos. A. Bank one of his top 10 stocks in April, noting that shares have skyrocketed 3,000 percent over the past dec- ade. “These results have put the bears in hibernation for the time being,” Tunick wrote in a note to clients. The 473-store chain continued to open locations during the depths of the recession, when many other retailers were shut- tering stores. Black said he plans to take advantage of those va- cancies to open even more stores over the next few years. Jos. A. Bank built 13 stores last year and expects to add 30 to 40 more loca- tions this year. The company’s goal is to build a chain of 600 stores. The chain remodeled its flag- ship Washington store at 19th and M streets NW about a year and a half ago. Light filters through the store’s large win- dows displaying dapper manne- quins. The cash register was moved to the center of the store, with a large wall bearing the Jos. A. Bank logo not far behind it. Shelving was upgraded with a wood finish that calls to mind

clubhouse furniture rather than a department store. Customers ask for salespeople by name. The retailer’s trademark suits

have become increasingly impor- tant sales drivers, accounting for nearly 40 percent of sales last year compared to about 30 per- cent in 2008. Though Black said existing customers are purchas- ing less, the chain has enticed new shoppers away from com- petitors. Its customer file has grown 18 percent, to more than 5million names, he said, estimat- ing the chain’s market share at 10 percent. Meanwhile, Jos. A. Bank is test-

ing several new concepts. Early this year, it began offering tuxedo rentals at some stores through a third-party distributor. The com- pany is hoping the service will bring new customers through its doors, who could then be per- suaded to purchase other cloth- ing. The retailer also said last week

that it plans to open five test out- let stores, with a goal of expand- ing to 75 locations. Jos. A. Bank already operates an outlet store in Leesburg that primarily sells clearance merchandise. But many retailers supplement such discontinued or overstocked in- ventory with products manufac- tured specifically for their outlet stores to boost sales and profit margins. “In this tough environment,” Black told investors, “we are not just content to sit and wait until it is over.”

muiy@washpost.com

Learning from a dynamic duo in graphic design

VALUE ADDED

Thomas Heath

T

he business story of Pum and Jake Lefebure was pitched to me as a husband-and-wife team

weathering a recession. But it’s really about one couple’s business sense and passion. Pum, 35, and Jake, 37, are the co-founders behind Design Army, a nine-employee Northeast Washington graphics firm that juggles 50 projects at any one time. Those jobs run from an $80,000 contract to produce an annual report for Verizon to $2,000 for a hair salon’s snazzy logo. Clients range from locals such as Ritz-Carlton and Lord & Associates to nationals such as General Electric. I checked around, and Design

Army enjoys a good reputation. What impressed me when I interviewed the Lefebures by phone (they were attending a New York conference, staying at a $179-per-night hotel) was that they live beneath their means and they learn from their experiences. They are deliberate about their business, turning down certain clients — think health care — in pursuit of a high-end niche. They are fanatical savers, using the cash to make a couple of smart real estate plays. The Lefebures share

one car (a 2001 Honda CRV), shop at Costco and travel inexpensively. Their one extravagance is private school for their daughter. Their investments include healthy 401(k)s, three real estate properties and their graphic design business, which grosses nearly $2 million and nets a 20 percent profit. They estimate that their net

worth is in the $4 million range. That’s pretty good for a couple in their 30s. “We have seen great success,”

Jake said. “We are on a mission to do some different things for our company.” The couple met right out of

college in the late 1990s when both were working for a D.C. design shop that has since gone out of business. The dot-com bubble was in its heyday, and by the time they left to start Design Army in 2003, they were making nearly $200,000 between them. All the while, they saved like mad, scrimping on things such as lunches and automobiles. “We started socking money

away,” Pum says. Their savings allowed them to buy a newly built rowhouse at 12th and W streets NW in 2002 for $410,000. Then they bought an investment property near Howard University for $135,000, which they rented to graduate students. (They now live there.) They stayed two years at 12th

and W, long enough to be eligible for a tax break on the capital gains, and sold the house in 2004 for a $240,000 gain. Design Army found its first client after the couple put out fliers inviting people to their yard

sale and adding that they were starting a graphic design business. A former Clinton administration politico came by, saying he had a new company but no money. But he said he was “a human Rolodex.” Would they create some graphics for his nascent consulting firm in return for introductions? It was a smart move. The break came when they won some business from the Washington Ballet, whose extensive board of directors reached across many local communities: business, arts, nonprofit organizations and big corporations. Clients poured in. They pick clients based not on fees but on whether they are compatible and will lead to more business in the long run. “It’s the relationships you build.” Design Army grossed about $180,000 in its first six months of business. That number doubled in 2004. Revenue peaked at $2.1million in 2008 before dropping below $2 million last year. The Lefebures expect this year’s revenue to be close to $2 million. They rented office space on Ninth Street NW for $3,000 a month, for a couple of years, when they decided to look for a building to buy. They started shopping for

properties but were repeatedly outbid or too late. So the Lefebures decided to

put together a team of financiers and real estate agents that would allow them to act fast. They approached their lenders, SunTrust Bank, armed with a battle plan.

When 510 H St. NE came on

the market, “it took a few quick calls and we had a letter from the bank and our offer on the table from our agent. You have to have a great team in place to move this fast.” They paid $400,000 for the building and spent $1.8 million to rehabilitate it, with the help of a Small Business Administration loan (the SBA requires them to occupy more than half the building). The couple figure that owning

their office building saves them $28,000 a year in rent. In 2005, they also bought a home near Catholic University that they are rehabilitating into a rental. The Lefebures are survivors.

They have a successful high-end design business. They are building a small real estate empire. They are prudent spenders. Jake’s parents have moved in, helping with errands, doing day-care duty and making deliveries for Design Army. When other friends and colleagues left the graphics industry during the downturn, the Lefebures dug down, forgoing pay and passing on business initiatives like promotions. “We are in a husband-and-wife business where there is 100 percent transparency that you don’t get from business partners. It allows us to maneuver. Being married, we were in control of everything. And there was really no questioning of motive,” Jake said.

Who says love can’t pay the bills?

heatht@washpost.com

Follow me on Twitter at addedvalueth.

The question of whether home construction grows this year depends on what happens with sales and prices, and there are new indicators on both coming Thursday morning. Sales of previously owned homes are expected to show a 5.6 percent gain in March, following a 0.6 percent decline in February. That would be evidence of confidence among home buyers as the spring selling season gets underway, and sales activity is an important precondition for price increases. That said, analysts are

expecting that home prices edged down in February. The Federal Housing Finance Agency will release its home price index for that month, which is expected to show a 0.2 percent decline in prices. Home prices were rising in October and November according to that index, but February would mark the third straight month of declines, evidence that housing continues to drag on the economy. Also Thursday, the Labor

Department will report on wholesale prices. The producer price index is expected to show

Neil’s Must Reads

Risk-taking revisited

Economists Nicola Gennaioli, Andrei Shleifer and Robert Vishny offer a model of how financial innovation may actually encourage the taking of poorly understood risks.

The other sweet science

And, lest you think the tax system — and the incentives it creates — doesn’t matter, Henry D. Fetter at the Atlantic has a fascinating look at how taxes affected boxing.

Find links at www.

washingtonpost.com/ mustreads.

an increase of 0.5 percent in March, almost entirely due to higher commodity prices. Excluding food and energy, the index is expected to have risen 0.1 percent. Other recent inflation barometers have come in low.

Friday

A report on March

durable-goods orders is expected to show a 0.2 percent gain. The week’s final piece of housing data, new-home sales, is expected to show a 5.5 percent gain, along the same lines as the predicted rise in existing-home sales.

—Neil Irwin

A11

NEW AT THE TOP

RICHARD DAVIS AVECTRA

They took a risk; he made sure it paid off

Growing up in London, you know if you have a shot at col- lege by age 11. I didn’t. However, after lots of reading, I figured out that computing was the way to go — computing and cycling. I thought my way out of po- tential poverty in London was to become a professional cyclist. I spent a great deal of time train- ing, racing and rising up the ranks. This caught the eye of an American chief executive at a semiconductor company who was also interested in bicycle racing. I was very fortunate to land a job doing administrative work at his company. Of all the computing companies I sought out, they were the only ones that took a risk and hired me without my college degree. Being around so many vision- aries, I got a really good under- standing of what was happening in the computer world. Though I was trained to oper-

ate the company’s typesetting machine, I knew I wasn’t going to be a programmer or designer, so sales and marketing was the natural place to go. I also knew this was an area where you could really influence customers to solutions. I became a salesperson at an- other company. I drove revenue for them and became the top salesperson for three years. I eventually wanted to move to the United States because I had read so much about the op- portunity for promotion and success. Not having a degree would’ve limited my future in British companies. The company felt I was skilled enough to bring some stability to their New York office. So I went and became a top salesperson there. I got a call from an executive recruiter saying that a new com- pany was starting that had only four employees. I thought it would be exciting to take the risk and grow a company. I end- ed up joining them as vice presi- dent of sales. We grew our staff to 2,000 and our revenue from zero to $100 million. There were months when we

didn’t know if we were going to make payroll. It took patience and perseverance. You realize that the paycheck might not ar- rive if things don’t get done. It really wakes you up. I decided to move to Boston,

Richard Davis

Position: Chief executive at Avectra, a McLean-based provider of software for association management.

Career Highlights: President and

chief executive, Ultimus; president and chief executive, Ardence; president and chief executive, Rand McNally.

Age: 66

Education: Left school at age 15. Personal: Richard resides in McLean with his wife, Pippa; a son, Tim; and a daughter, Lucy.

I thought it would be exciting to take the risk and grow a company. We grew our staff to 2,000 and our revenue from zero to $100 million.

where there was a strong ven- ture capital presence. I estab- lished a name in the industry and was confident that I would find something. After a month, I did.

After starting in an office role and becoming head of opera- tions, I knew I was ready to be- come a chief executive. I headed a number of companies. Each one has been successful in its own way. The opportunity came to take this position at Avectra. I was really attracted by the size of the market. So many software prod- ucts are built for a horizontal market, but I saw that it had a very specific niche and can pro- vide exactly what the customer wants. I plan to do much more part- nering to bring other capabili- ties for associations to be more successful and efficient.

—Interview with Vanessa Mizell

Please send nominations for New at the Top to

newatthetop@washpost.com.

 Other new appointments in the D.C. area. A12 Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56