Surprise Me Once!

AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

On two beautiful weekend afternoons, I am inside the mall, checking out its three anchors, Sears, J.C. Penney, and Macy’s (NYSE: M). I’ve said it before, what I won’t do for you Fools. In this case, it’s a mid level suburban mall, not a higher end mall with an Apple Store or a Nordstrom. Just your Main Street, mainstream mall. And it’s busy but two of these anchor stores are not as busy as I thought they should be. These three stocks had traded in lockstep until mid-2010 when Macy's started taking off.

Macy’s is doing all right but there are clearance signs everywhere. The cosmetic counters are not as busy as they should be and while it is twice the size as the Penney’s with more high end merchandise it is looking cluttered with all the clearance signs. The sales associates are very pleasant but they don’t have enough to do.

JC Penney’s looks totally different than it used to, the aisles are clearer and there are fewer clearance signs than Macy’s. The amount of traffic looks virtually the same as Macy’s even accounting for the disparity in square footage. Speaking with a sales associate, she says she likes the cleaner look and it’s better working there than it was. This particular Penney’s doesn’t have a Sephora but it does have the Levi’s popup area. CEO Ron Johnson has definitely changed the cluttered and fusty look they used to have.

Sears Holdings Corp (NASDAQ: SHLD)  looks more downtrodden than ever, the only busy areas being the Craftsman tools section and Automotive. Sales associates are clustered at counters sadly waiting for custom. Sears is really a sad looking stock, too, with negative EPS of -26.08 and down $25.92 from its 52 week high of $85.90

On Friday, the Sears Hometown and Outlet Stores (NASDAQ: SHOS) spinoff debuted. It dived during the first day only to close just below even. Parent Sears holdings earned $446.5 million from the spin-off.  Sears is also planning to halve its interest in Sears Canada by year end.  How all this improves the Sears shopping experience besides moving money around to pay down debt and  possibly cut down costs is not at all clear.  While Sears Holdings stock got a boost from customer confusion during Penney’s turnaround with more traffic at Sears apparel and footwear, it certainly wasn’t apparent these last two afternoons.

A Pleasant Surprise

 Why did I visit J.C. Penney Co (NYSE: JCP) in the first place? I had gotten an email from CEO Ron Johnson as  I was a JC Penney customer in the past and I liked that he would write such a personalized email to his loyal customers. Also he had a one time $10 gift and I had been planning to compare these three at some point (and get some new pillows.) The email was intriguing because they were discussing the new popup stores with Levi’s, Sephora, and Liz Claiborne already in place. Michael Graves and Jonathan Adler designer brands popups would be initiated soon as he wrote in the email ,“We’re turning jcpenney into a collection of shops staffed by specialists who really know their products.” He also highlighted a line of clothes, their own jcp brand. I think Johnson is tearing a page out of Target’s playbook with these popup stores, a game plan that has worked very well for Target in differentiating itself from Wal-Mart.  

Eventually the Penney’s stores are to be a sort of modern bazaar with lounging areas with Wi-Fi for customers. I just hope they don’t go too far and evolve into a Barnes & Noble where people just hang out for hours and don’t spend any money. It gave me hope as a former shareholder that Johnson will be offering iPads and such for associates to help customers check out on the move or check for available inventory rather than search for a salesperson or wait in lines at a counter.

I do believe I am warming to Pershing Square’s Bill Ackman’s belief that Penney’s is a bargain here. As of June 29 his hedge fund held 39,075,771 shares worth almost $910 million, give or take a few hundred thousand. It still has a negative EPS of -2.51 but it has a yield of 3.10%. It was a much improved shopping experience than of years before and was looking much fresher and cleaner than either Macy’s or Sears. I only wished they had a Sephora at this location as it’s well known that the cosmetics counters at Macy’s are an important part of Macy’s CEO Terry Lundgren’s strategy to get customers in the store.

Macy’s is already decorated for the holidays, by the way, with a small section of Christmas trees pre-decorated for sale by the entrance. You just can’t remind people too early that it’s time to get cracking and pony up for presents. Macy’s divergence from its peers in mid-2010 is most likely due to the extensive tailoring for local shopping preferences it instituted around that time and also likely due to an upsurge in consumer spending.

With a 2.00% yield and a 12.46 P/E  Macy’s is one of the best retail names with a very successful ecommerce site and a brand name synonymous with Department Store in capitals. Macy’s also owns Bloomingdales’s a very familiar destination for fashionistas and urbanites. September same store results were disappointing, however, but Macy’s is planning some huge holiday hiring and the holidays will be critical to get those same store sales numbers back up to 2011 growth levels.

Of all these three names, I think that jcpenney (that’s how Johnson spells it in the email) may be finally, finally on the right track and could be a good hold over the next few quarters but Sears is just a dismal place to shop compared to its glory days of decades ago. Macy’s, at least my Macy’s, needs to clean up its act and get a little energy in the store. With all the clearance signs it’s beginning to look like the old jcpenney.  Macy’s and J.C. Penney report on November 7 and Sears reports on November 12.



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