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How to Lose 1 Billion Dollars

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By Kent Mulkey

Recently, I stopped by my local Jos. A Bank store to buy a pair of shoes and a few button-down shirts. The selection is good. The store is squeaky neat and clean. The employees are friendly and knowledgeable.  

So why are they losing so much money?

Discounting

The clothes they sell are too cheap. Yep, they have discounted their clothes through the floor, leading the parent company to close 80-90 stores as well as over 100 stores from sister company Men’s Wearhouse.  And they were on their way to losing $1B dollars. In one quarter.

One time when I went into a Jos. A Bank store the offer on the table was that if I bought one suit at full price I could get two additional suits free. My first thought was that these suits must be inferior and would fall apart within a few months. I found myself not really trusting that Jos. A Bank was selling a quality product as they promised in their advertising and on their website. I passed on the offer.

In senior housing we see it all the time. A community is not filling as quickly as we’d like and nervousness sets in that we may not meet the lender covenants to convert from the construction loan. So what do we do? Discount. Start cutting deals. And it is often not long after discounts start that profit and occupancy drops.

When providers begin to discount rates, the message to the market is that they are in some sort of trouble. Perhaps they started out with rates that were mistakenly too high, but I’m not talking about that.

The lesson: Don’t be cheap

You don’t have to give stuff away. Be fair with your rates. Charge fair prices and manage your expenses wisely.

Everyone benefits. And you stay in business.

Remember: The bitterness of poor quality remains long after the sweeetness of low prices is forgotten.

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