J.C. Penney: Eventually Maybe Not Worth a Penny
Jane is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Last week, in after-hours trading J.C. Penney’s (NYSE: JCP) stock dropped 12.1% to $29.27, with a 52 week range of $23.44 to $43.18. Chief executive officer (CEO) Ron Johnson had announced the net loss of $163 million or 75 cents per share versus a $64 million profit or 28 cents per share a year earlier. That year earlier was before the Fair and Square strategy. Johnson also eliminated the quarterly dividend of 20 cents a share. Store traffic had plunged 10% during the week, with an even greater drop on weekends. The week ended with the stock even lower at $26.29.
Yet, this CEO continues to stick to his Fair and Square plan and asks for investor patience. In essence, that plan is intended to rationalize the wild and crazy discounting shoppers had become used to. In place of that there would be planned sales which make sense. Some of us have a hunch that the sense they are supposed to make should find its way to the bottom line. Customers will simply have to adjust, seems to go the thinking. But adjust they haven’t, have they?
There are three problems with Fair and Square, at least. Number one, as a midlevel retailer Penney can’t just opt out of wild and crazy discounting. Unilaterally Johnson can’t parachute in as the change agent who will detox American society of its addiction to always paying less than the marked price. Thanks to the recession-generated new frugality, that’s become standard at just about every retailer but the true luxury sectors. No one walks into Tiffany with coupons, at least not the discount kind.
Look at Penney’s main competitor Macy’s (NYSE: M). The last time I checked, on its website it currently hawks two kinds of sales. One is the special on bed and bath of 20% to 50% off, with an extra 15% possible. Beneath that is a blurb for 40% to 70% off bedding closeouts. You bet, I checked if I could use some new sheets. The other type of discounting is “Hot Savings Sitewide.” Just click on the categories ranging from “women’s” to “dining.” Macy’s stock is at $37.01, with a 52 week range of $22.66 to $42.17.
The most successful players in the tier beneath midlevel, before you get to the big boxes and dollar stores, operate primarily on daily deals, extra special deals, coupons, and cash back on purchases. Those like Kohl’s (NYSE: KSS) make that a seamless shopping experience from web to store. For example, buy online and then bring into the Kohl's store the $10 back for each $50 spent, along with the coupon. There is every dollar and cents reason for prospective Penney shoppers to bypass that retailer for more and deeper discount options.
Even at the high end but beneath the luxury segment, retailers like Nordstrom (NYSE: JWN) dangle discounts before their upscale shoppers. On its site Nordstrom features,among its myriad bargains, Vince Camuto Tribal Stripe Faux Wrap Dress for $64.94, down 60% from $165. There is every reason for prospective Penney shoppers to trade up.
Number two, bargain hunting is at the core of most of society’s shopping experience. Former Feline’s Basement stood as a living symbol of the range of emotions that precipitated. Those included euphoria at snagging a bargain along with bragging rights back in the neighborhood. And there was despair at losing out, despite having a mean set of sharp elbows. This was and remains America's top contact sport for us females. A current commercial on the radio captures just that. A woman starts out talking about how she focuses herself to “get in the zone.” But it turns out that the concentration isn’t for an athletic event. It’s for scooping up the best selections at the best price. Where there isn’t a broad range of bargains, there isn't excitement. And that’s what is lacking at Penney, ranging from the sales associates, who Johnson has pulled off commission, to shoppers. Business media describe the atmosphere of the stores as somber.
And number three, no business stays in business long which imposes mandates on customers. In essence, Johnson is telling shoppers his way is the right thing to do. Even in the semi-medical service of weight loss, successful companies like Weight Watchers International (NYSE: WTW) keep resetting their plans to align with what customers want. As I learned when I used to do freelance communications for WWI, it pulls out all stops to integrate what are metabolic and nutritional realities with shifting likes, dislikes, and lifestyles. WWI started out with primarily a fish food plan. At that time those with a weight problem were so relieved at finding a healthy, dignified, effective approach that they put up with that. However, had WWI kept superimposing such rigidity it would have faded away.
At this point of the “experiment” with Fair and Square, Johnson should be doing some serious course correction. The puzzle is that he isn’t. That’s unfair to investors. Eventually the stock may not be worth a penny.
janegenova has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.