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FREMONT, Calif. — Like the man himself, the stories have become larger than life.
As the legend goes, the Men’s Wearhouse business started with $8,000 and a cigar box to hold cash. “But there’s one other piece to that story,” related George Zimmer, the retailer’s founder, chairman and chief executive officer. “You don’t get a store full of merchandise for $8,000. My father manufactured inexpensive double-knit sport coats and slacks, and he fronted me $100,000 in merchandise at cost.”
Sales were brisk, but within a year and a half that $100,000 loan had become $150,000, prompting a little life lesson from dad.
“He told me, ‘George, in 18 months you’ve lost $50,000. Something is not working. Clearly, you can see your prices are too low.’ My dad taught me the importance of margin.”
Lesson learned. Since that inauspicious beginning in Houston in 1973, Zimmer has systematically built the largest men’s specialty store chain in the country, a $2.1 billion behemoth with 1,192 stores in the U.S. and Canada. Today, one in every five suits in the U.S. is bought in one of his stores.
But on June 15, Zimmer, 62, will hand the ceo reins over to president and chief operating officer Douglas Ewert following the firm’s annual meeting.
However, he’s not retiring. He’ll remain as executive chairman, helping Ewert develop strategies for the business and continuing to participate in marketing and corporate culture initiatives.
“This is just another good decision in a line of great decisions,” Zimmer said during an interview in his suburban San Francisco office. “Every company has to deal with this. I just made the decision to do it relatively young. I’m in good health, business is good and we have none of the problems that we had over the past three years, so it’s the perfect time.”
Zimmer said in many ways this shift in responsibility is just a formality.
“I expect to actually retire when Doug does, so it’ll be a long time,” he said. “I expect to be his sidekick the entire way. I’m just removing myself from being the point guy. It’s like a store manager, even on your day off you call the store. The ceo is never off. So I’m looking forward to giving that responsibility up.”
Even so, Zimmer said he doesn’t expect to be working significantly less. “But now I can travel without guilt,” he said. “I always feel guilty when I go somewhere — I haven’t been to Europe since 1975, but I’m planning to take my wife to Europe this fall.”
It won’t be all pleasure, though: One of the stops on this long-awaited vacation will be Birmingham, England, the headquarters of Men’s Wearhouse’s most recent acquisition, Dimensions and Alexandra PLC, a U.K.-based corporate uniform and workwear producer.
“You can’t really walk away from something you’ve been doing for 38 years,” he said. “I do believe I won’t reduce my efforts here until I drop dead or get really ill. I wouldn’t want to abandon this organization.”
And so Zimmer will continue to be the public face of the company. His ubiquitous TV commercials and their tagline — “You’re going to like the way you look. I guarantee it.” — have become part of the vernacular and made him a well-recognized face. Zimmer also is the linchpin of a corporate culture that has resulted in the retailer being named one of the best companies to work for by Fortune magazine for 10 of the past 11 years.
Just last month, the company surprised its employees by delivering 42,400 pizza slices to its stores in the U.S. and Canada just to say thanks. This is simply the latest in a long line of employee appreciation gestures, which include an on-site child care and fully paid sabbaticals.
Every December, Zimmer hosts some 15 black-tie holiday parties for employees around the country, staying up until the wee hours posing for photos and dancing. “Most men don’t like to dance; they only dance to get sex. But I like to dance.
“I am an icon within the organization, but I enjoy it,” he said. “As long as I can make it work personally, I’ll keep doing it. Having a corporate jet makes it easy. So it’s not a hardship to do it indefinitely.”
Zimmer will also continue to participate in the company’s training classes and management meetings. Managers are flown to California in groups of 250 for an annual meeting/training event and the company conducts weeklong intensive manager training classes called Managers University at its California offices as well.
“We lay out our new plan for the year,” Zimmer said. “Most of the benefit of those meetings takes place over meals and cocktails. It’s how people bond into the corporate culture.”
Zimmer and Ewert are front and center at the training classes.
“Doug and I give the same presentation 11 times,” he said. “We could make a video, but that’s the difference between Men’s Wearhouse and other companies. Three thousand people think they work for George. Doug is one of the few men comfortable with that. He understands this is how you have a company with 1,200 stores where everybody feels they’re working for one person.”
It is this marked lack of ego that made Zimmer realize Ewert was the right man to succeed him as ceo.
Over the years three other men have served as president of Men’s Wearhouse and were heir apparents to the top job: David Edwab, vice chairman, dealmaker and the catalyst for the company’s successful public offering in 1992; Eric Lane, the chief merchant who opted to retire at the age of 44 and coach high school basketball in Idaho, and Charles Bresler, executive vice president of human resources and Zimmer’s childhood friend, who is the architect of the company’s corporate culture program.
“All of them have had the position of president and could have replaced me, but it didn’t feel like the right move,” Zimmer said. “David and I are best friends, Eric still consults for us and Charlie and I have been friends for 50 years, but Doug is a unique man.”
Despite its size, Men’s Wearhouse is “a home-grown company,” Zimmer said, noting that his brother Jim is the tailored clothing merchant and “buys 50 percent of what we sell.”
“Many of us have never worked anyplace else, but Doug is a professional merchant and spent a decade learning the trade.”
Ewert joined the Men’s Wearhouse 16 years ago after working his way up the ranks at Macy’s West. “There’s never been a ceo less involved in merchandising,” said Zimmer of himself, “but it’s a new era and now our ceo is a merchant. And most of the buyers were hired by Doug.”
There’s a pool table in the office for the employees to use, and the buyers often congregate there. “But they’re not shooting pool, they’re shooting the breeze. Doug understands the significance of our corporate culture.”
He said Ewert has a “subtle but powerful sense of humor” and a “very small, controlled ego. Most people who have success in life have very large egos. When you’re the founder, you can get away with it. And Doug understands that.”
And he doesn’t take himself too seriously. Ewert has stood under a home-made shower at corporate events to illustrate the attributes of waterproof clothing, and has shared the stage with a dryer to demonstrate the company’s new non-iron dress shirts.
“He has high EQ, emotional intelligence,” Zimmer said. “That’s why Doug’s the guy. And David and Charlie love him, so it feels perfect.”
It’s squarely on Ewert’s shoulders to continue to steer Men’s Wearhouse on the growth path that has marked the company’s way for nearly four decades.
Once Zimmer took his father’s advice and tweaked his pricing strategy to actually turn a profit, it didn’t take long before he branched out into other locations. By 1981, he had expanded to San Francisco and soon after, to other cities.
“It took 15 years before I realized, ‘Oh my God, this formula will work any place,’” Zimmer said. He met David Edwab in 1983 — he was with Deloitte & Touche, the firm’s accountants — when the company was doing $25 million in sales.
“We were in Houston, Northern California, Dallas and Sacramento, it was working well and I was now the TV spokesman. We had moved away from promotional pricing to everyday low pricing,” said Zimmer.
The idea of going public was discussed but dismissed. But after Edwab came on board as vice president of finance in 1991, that idea moved closer to reality. The company took the plunge the next year, raising $13 million and giving it the capital necessary to create a national chain. “After the IPO, we started opening around one store a week,” Zimmer said.
The company introduced sportswear in 1993 and hit $1 billion in sales in 1998.
The following year was perhaps its most ambitious. “In 1999, we made two acquisitions, Moores and K&G,” he said.
Moores Clothing for Men was the leading men’s specialty store chain in Canada and still occupies that position today. It operates 117 stores in 10 provinces and accounted for 12.5 percent of the company’s sales in fiscal 2010.
“Moores is one of the greatest men’s apparel concepts that ever existed,” Zimmer said. “They’re stronger in Canada than we are in the U.S. Their market share is 25 percent and ours is 5 percent.”
Although Moores is impacted by the strength or weakness of the men’s tailored clothing business, its performance has essentially mirrored that of the flagship 585-unit Men’s Wearhouse division since the two were joined.
In fact, the performance of Men’s Wearhouse historically has been impressive. Including dividends and splits, $1,000 invested on its first day as a public company would be worth $14,227 today. Last year, the company’s net income grew 46.5 percent, to $67.7 million, while overall revenues were up 10.1 percent to $2.1 billion. Gross margin expanded by nearly a full point, to 42.7 percent of sales from 41.8 percent.
“It has not lost money yet, not one year,” said chief financial officer Neill Davis.
The fortunes of K&G Fashion Superstore have been a bit rockier. The Atlanta-based chain, which has 102 stores in 28 states, was a weekend warrior superstore concept when it was brought into the Men’s Wearhouse family. It accounts for 18.2 percent of sales and is also the only division to sell women’s wear.
The stores no longer operate only on weekends and over the past few years have struggled more under the weight of the recession than the other divisions. In fiscal 2010, the division’s comparable-store sales decreased 1.5 percent to $360 million after a 1.9 percent drop in 2009 and an 11.7 percent decrease in 2008.
In fiscal 2007, the company acquired 509 After Hours and Mr. Tux tuxedo rental stores from Federated Department Stores for $100 million, a purchase that helped cement Men’s Wearhouse’s position as the leading tuxedo rental company in the U.S.
Over the years, vice chairman Edwab has quietly negotiated the purchase of several other businesses, including Kuppenheimer in 1996, C&R Clothiers and Walter Pye in 1997 and arch-competitor Today’s Man in 1998. Until the 11th hour, the company was the leading bidder for Filene’s Basement, which ultimately went to Syms.
Other channels of distribution include a corporate uniform division called Twin Hill, a rental dry cleaner and laundry business called MW Cleaners, and the U.K. workwear company.
Janet Kloppenburg of JJK Research said she “never thought they’d get this big and control the business by becoming the dominant retail for men’s tailored clothing in this country.”
But Edwab never doubted it. “When we went public in 1992, we said we would become the dominant suit seller in the country. We have the number-one suit position in the U.S., the number-one suit position in Canada, the number-one tuxedo rental business in the U.S. and Canada, and we’re number one in the business-to-business uniform business in the U.K. It’s not like George is Bill Gates or the Men’s Wearhouse is Whole Foods — we’re in the tailored clothing business — but he’s done pretty well. We’ve survived a lot and been fairly consistent and nobody says anything bad about the company. That’s something he should be very proud of.”
And there’s more to come.
According to its 2010 annual report, future growth will come from diversifying the product mix, expanding e-commerce, seeking further opportunities in international markets and exploring additional acquisitions.
According to Zimmer: “There are three primary stakeholders: the employees, the customers and the shareholders. If you take care of your employees and your customers, you will take care of your shareholders. Short-term pops for Wall Street ultimately weaken the company.”
But despite how much Men’s Wearhouse has grown, Zimmer said the “core of the business has not changed.”
“Too much credit has been given to the executives,” he said. “The customers never meet the executives. They meet our incredible store people.” He said most Men’s Wearhouse employees are just “average people, but if you create an environment where they like coming to work and feel good about the values, there’s a lot of energy released.”
Zimmer cited author Tom Peters (“In Search of Excellence”), who said productivity can be increased by 50 percent just by unleashing human energy.
When Zimmer starts talking about philosophy, his roots as a child of the Sixties become apparent. On the Men’s Wearhouse Web site is a recently completed documentary on Zimmer entitled “Hippies Use Side Door.”
He has come out in favor of legalizing medical marijuana and spiritual leader Deepak Chopra is on the company’s board. But Zimmer is not your typical beatnik.
Born in New York City and raised in upscale suburban Scarsdale, N.Y., Zimmer said he was “a tightly controlled guy. I did everything my parents, coach and rabbi told me to. I didn’t do any alcohol, drugs or sex in high school. I never missed a class.”
So when he got to college at Washington University in St. Louis during the height of the Vietnam War, he was impacted by his peers and their causes. Even so, Zimmer managed to morph the two sides of his personality.
“I was a fraternity guy,” he said. “I was the liaison between the freaks and the greats. I was equally as comfortable in black tie or jeans. I know which fork to use but can drool watermelon seeds into my beard at the company picnic.”
Although an economics major in college, his future success was less than guaranteed. In fact, his father, Bob Zimmer, said in the documentary: “I’m surprised he became such a success in business.” His brother Jim called him a “leftist who got rich.”
George Zimmer acknowledged: “I’ve always had a different relationship to business. Very few hippies thought there was anything good in business.”
He now looks back on his education skeptically. “Everything I was taught was wrong. The first paragraph of the Economics 101 textbook said: ‘Economics is the study of the allocation of scarce resources.’ Well, that may have been the truth with oil and gold, but now the most significant economic resources are unlimited: information and relationships with people.”
Nevertheless, he made his fortune in business, but it was business with a distinctive George Zimmer twist.
“I’m a conscious capitalist,” he said in the documentary. “I won’t squeeze out every last nickel if it’ll undermine our culture. I could not be in business any other way. I would waste my life.”
Zimmer’s compensation fits that pattern, totaling less than $2 million last year. His salary in 2010 was $932,000, down from $1 million in 2008 and $956,000 in 2009. The company’s proxy for 2010 points out that he’s elected not to accept stock or option incentive awards, and his nonequity compensation last year rose 51.5 percent, but just to $100,000. His other compensation, including use of the corporate aircraft and tax gross-up payments, rose to nearly $940,000.
The proxy also cites Zimmer’s “significant ownership interests in the company.” He holds nearly 2.3 million shares of the company’s common stock, or about 4.3 percent of the total outstanding, which, as of Tuesday’s closing price, are worth $78.2 million.
He added, “I brought my values into a for-profit world. Compassion and empathy must stand side-by-side with accountability and hard work. I love talking about that on Wall Street.”
He also loves talking about his company culture. “We have a totally different relationship to our sales force.” Unlike most companies, Men’s Wearhouse encourages people to take risks. “If you make honest mistakes, we want to reward that. We celebrate risk. And this is still one big family and you can’t get thrown out of the family for making a mistake.”
Carole Souvenir, vice president of employee relations, said the “ethos of the corporation comes from George Zimmer. He believes people should be self-actualized but have fun.”
Ewert added, “Having fun is the key ingredient to our secret sauce.”
Zimmer said: “We spend millions of dollars on training and partying.”
Now that his duties at the company will be reduced, Zimmer can spend more time having fun.
“I only exercise two times a week. I don’t like to get up at 5 o’clock,” he said. “But I promised myself after June 15 that I will exercise every morning.”
He’ll also be able to devote more time to his interests, which include the Oakland Zoo and the Oakland A’s. He’s on the board of the Institute of Noetic Sciences, an organization founded by Apollo 14 astronaut Edgar Mitchell whose mission is “supporting individual and collective transformation through consciousness research, educational outreach and engaging a global learning community in the realization of our human potential,” according to its Web site.
Zimmer explained it a little more succinctly: It’s a group that believes you can gather information from beyond the five standard senses.
“It’s like intuition,” he said. “It’s when you know something but you’re not sure why.”
He relates the story of how he met his wife, Lorri, 17 years ago. “I was divorced and having dinner when I saw her in the restaurant.” Saying he is “sensitive” to what the “universe suggests to me,” he said he immediately thought: “This is a woman I might fall in love with.”
She left the restaurant before he could approach her, but returned two minutes later and walked over to him to ask if he would meet with her so she could pick his brain about business. They married soon after and now have two children, aged 9 and 11.
“The universe conspires to help you fulfill your dreams,” he said. “I feel everybody has this, it wasn’t given to me specially.”
But in many ways, he has been blessed and he’s proud to give back. “We still give more money to children of the Men’s Wearhouse employees for college scholarships than they pay me. That’s why I can sleep well at night. It’s the right thing to do and the world would be a lot better if more business people had my attitude.”