The Men’s Wearhouse: Paying for what was free…

November 15, 2010

If the story in the video clip on the Men’s Wearhouse (MW) website is true, back in the 1960s company co-founder George Zimmer was a hippie. At some point in the past four decades, though, he seems to have gotten firmly in touch with his inner capitalist.

On Nov. 10, the company filed this 8-K, which disclosed that it had entered into a License Agreement with Zimmer so that it could use his image to sell its clothing… something that it has been doing for free for the past few decades. Here’s the snippet from the filing:

Pursuant to the terms of the License Agreement, the Company has the right to use George Zimmer’s likeness, which is a registered trademark, in connection with the Company’s advertising and marketing (the —License) for so long as Mr. Zimmer is an employee of the Company for an annual license fee of $10,000. If Mr. Zimmer ceases to be an employee of the Company for any reason, then the Company would be required to pay Mr. Zimmer or his estate $250,000 per year for four years for the continued License. Thereafter, the Company will have the option to continue the License on an annual basis for $250,000 a year.

Right now, the $10,000 annual fee – while 61-year-old Zimmer is still Chairman of the Board and CEO – is peanuts compared to what he’s already paid. According to the proxy filed May 3, Zimmer pulled in total compensation of nearly $1.5 million for FY 2009, and he also gets to fly on the company plane for personal use “from time to time.” But after he retires or otherwise departs from the company, shareholders will continue to pay Zimmer at a clip of $250,000 per year. That could easily add up to a few million dollars in the years to come.

The deal calls to mind footnoted perennial Martha Stewart, who repeatedly finds unique and creative reasons to take increasingly more money out of Martha Stewart Omnimedia (MSO) (such as paying her $2 million per year to film her own television show at one of her own homes, or her $3 million retention bonus), even though her company’s performance has been underwhelming and shareholders foot the bill for the extravagant terms.

In the case of The Men’s Wearhouse, the stock price has fluctuated quite a bit. It is currently selling for more than it did in the summer, but it’s still selling for less than it did in late April of this year. We don’t think the price fluctuations have anything to do with Zimmer appearing in the ads, but we also doubt that his photo or appearance in ads really prompts people to shop at the store, either. Perhaps if the board is willing to pay for a George who could definitely drive up sales, they should be scrambling for the phone number of George Clooney.

Image source: The Men’s Wearhouse

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