Men’s Wearhouse’s Ouster of Founder Seen Hurting Brand

June 19 (Bloomberg) -- Bloomberg senior markets correspondent Julie Hyman reports that the board of Men’s Wearhouse Inc. fired founder and public face of the company George Zimmer as executive chairman without saying why. She speaks on Bloomberg Television's "Market Makers."

Men’s Wearhouse Inc. (MW) has ousted its telegenic founder as the chain grapples with how to appeal to a younger generation.

George Zimmer, who started Men’s Wearhouse 40 years ago, was fired yesterday as executive chairman. The termination followed repeated clashes over strategy between Zimmer, 64, and Douglas Ewert, his hand-picked chief executive officer, according to a person familiar with the matter. The clashes centered in part on plans to sell K&G, a men’s, women’s and children’s apparel chain, and to buy back shares, said the person, who asked not to be named because the matter is private.

Zimmer became known to U.S. television viewers -- young and old -- for his cheesy commercials and signature tagline: “You’re going to like the way you look. I guarantee it.”

If he ceases to be the Men’s Wearhouse pitchman it would be a “blow to the company,” Laura Ries, president of marketing strategy firm Ries & Ries in Roswell, Georgia, said in an interview. “He was the best thing for that brand.”

Sales at the Houston-based company have been choppy since Ewert became CEO on June 16, 2011. In the quarter ended May 4, sales grew 5.1 percent from the previous year; next quarter they’re expected to rise 2 percent, according to the average of five analyst estimates compiled by Bloomberg. The company has the lowest price-to-earnings ratio among its peers at 13.8 compared with 20.3 on average.

Photographer: Patrick Fallon/Bloomberg

Men's Wearhouse Inc. founder George Zimmer speaks during a panel discussion at the annual Milken Institute Global Conference in Beverly Hills, California. Close

Men's Wearhouse Inc. founder George Zimmer speaks during a panel discussion at the... Read More

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Photographer: Patrick Fallon/Bloomberg

Men's Wearhouse Inc. founder George Zimmer speaks during a panel discussion at the annual Milken Institute Global Conference in Beverly Hills, California.

The shares fell 2.2 percent to $36.22 at the close in New York. They’ve advanced 16 percent this year, compared with an 11 percent gain for the Standard & Poor’s 500 Index.

Zimmer Involved

Even after Ewert became CEO, Zimmer remained involved. In February and March, he held 12 strategy meetings with 3,000 people, including vice presidents and senior executives, he said during a Mar. 14 earnings call.

Zimmer took issue with decisions to buy back shares and possibly sell K&G, the person said. In March, Men’s Wearhouse said it hired investment-banking firm Jefferies & Co. to explore strategic alternatives for K&G. In the first quarter of fiscal 2013, the company spent $30 million buying back about 1 million shares, according to filings.

While the company provided no reason for the termination, Zimmer said in a statement that his firing was a way to “silence” his concerns over the company’s direction.

“Over the past several months I have expressed my concerns to the board about the direction the company is currently heading,” Zimmer said. “Instead of fostering the kind of dialogue in the boardroom that has, in part, contributed to our success, the board has inappropriately chosen to silence my concerns by terminating me as an executive officer.”

Annual Meeting

The firing came on the day the retailer’s annual meeting was scheduled and a month after Zimmer had been nominated for re-election as executive chairman in the company’s proxy. The annual meeting was canceled.

Ken Dennard, a Men’s Wearhouse spokesman who works for Dennard - Lascar Associates, declined to comment beyond previous statements.

Zimmer opened the first Men’s Wearhouse in Houston with his college roommates, selling $10 pants and $25 polyester sport coats, according to the company’s website. He began appearing in the company’s commercials in 1986, extolling the company’s low prices. Men’s Wearhouse now operates 1,143 stores selling suits, coats, clothing and accessories through its namesake, Moores, Tux and K&G chains.

Authentic Spokesman

What set the company apart from competitors such as Jos. A. Bank Clothiers Inc. was Zimmer’s authenticity as a spokesman, said Ries. The abruptness of his firing, besides confounding investors, may hurt the brand, she said.

“There is a case to be made that an icon never lasts forever and he was definitely getting long in the tooth,” she said in an interview. “But this is abrupt.”

Marketing alone won’t necessarily persuade younger shoppers to frequent Men’s Wearhouse, she said.

“Just because you change the messaging doesn’t mean kids will think you’re cool,” Ries said. “Taking George out doesn’t make that appealing to them.”

Zimmer still owns about 3.5 percent of the company’s shares, making him the seventh-largest shareholder, according to data compiled by Bloomberg.

The company said the board expects to discuss with Zimmer the extent and terms of his relationship with Men’s Wearhouse. The company has hours of video featuring Zimmer so he could continue to play pitchman, according to Richard Jaffe, an analyst at Stifel Financial Corp.

“The question is if the future of Men’s Wearhouse is tied to the millennial shopper,” he said in an interview. “Does George resonate with the children of the baby boom as he did with my Dad? The answer is we don’t know.”

To contact the reporters on this story: Matt Townsend in New York at mtownsend9@bloomberg.net; Carol Hymowitz in New York at chymowitz1@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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