I've found myself fascinated by the ongoing J.C.Penney overhaul saga since CEO Ron Johnson took the helm last November. For those that haven't been following it, Ron Johnson was the mastermind behind Apple's retail operations, and previously worked as a Vice President of Merchandising at Target.
He pioneered the concept of Apple's retail stores and its Genius Bars. Under his watch, Apple's retail operations achieved over a billion dollars in sales within its first two years of existence.
After seven and a half years at Apple, he moved to J.C. Penney as its new CEO. His mission: to transform J.C.Penney into a modern department store powerhouse.
Nearly a year in, the results of his overhaul can best be described as a total disaster.
Now, I imagine most everyone reading this has spent time in an Apple store and is intimately familiar with the Apple brand. The J.C.Penney brand, I imagine, is a lot more foreign. I asked a friend of mine who used to cover retail companies at one of the big banks to give me a quick overview of the brand and its customer base. Her comments boiled down to this:
JCP, at its heart, is a department store that sells no frills, value priced items to value oriented customers. Its customers aren't particularly hip or fashion forward, rather, they are the types of consumers who keep things basic and appreciate a good deal.
Now, obviously this is generalizing a bit. But, even so, does that sound like your typical Apple customer at all?
Not even close.
Ron Johnson's entire overhaul was seemingly created with total disregard for the people who actually shop at J.C. Penney. Let's take a look at a few of the major facets of his plan and analyze them through the lens of a typical JCP customer:
- The New Logo - As you can see in the image attached to this post, JCP's newest logo is very clean and very modern. I mean, look at the effective use of white space! The evocations of the American flag! Now, that's all well and great, but it's also the Company's third logo in as many years. I suppose it was at least a bold move to show the consumer that change is coming, whether or not they were asking for it.
- The End of Promotions aka the Death of Coupons - "Fair and Square" pricing was introduced, with the end of constant sales, the introduction of consistent low prices, and the best prices on everything available on the first and third Friday of each month. Now, this might sound like a neat idea. You might even like the sound of it yourself since, on the surface, it seems to deliver the best value to the customer without the need for gimmicky sales and a deluge of coupons. You, however, are not the typical JCP customer. They are not looking for "fair and square" and everyday low prices. If they were, they'd go to Wal-Mart. No, they very much enjoy their coupons and were both confused and angry when they came to a halt.
- Their New Advertising Campaign - If you spent any time watching the Olympics, I'm sure you saw a few JCP ads. And, if you're anything like me, you have absolutely no idea what they were trying to do with their ads. If anything, I expect them to be advertising for Target, not JCP. Not to mention, they're use of gay couples and gay parents in their ads simply makes no sense. Don't get me wrong, I'm as pro-gay rights as they come, but your average JCP customer probably doesn't want to see a two dad family as the face of one of their fathers' day advertisements. Again, it's as though Ron Johnson believes that Apple's customers shop at JCP.
The overhaul of J.C.Penney has been a complete disaster. Through his attempt to reshape the company from the inside-out, Ron Johnson has shunned JCP's core customer base, failed to attract new customers, and upset the company's rank and file.
Last week, JCP announced earnings for one of the company's worst quarters in its history. Sales dropped 23%, same-store-sales dropped 22%, and internet sales dropped 33%. You'd expect the CEO to be conciliatory, downtrodden, or perhaps defensive. As Business Insider outlined earlier this week, Ron Johnson simply seemed delusional, claiming that the company's transformation is on track, and that floor traffic being down 7% year over year equals progress. Again, a total disaster.
Now, obviously this is a very high-level look at things, and perhaps his vision simply needs more time to take root. But, I'm highly skeptical. Plus, if any department store brand is in need of this drastic of an overhaul, its Sears, not J.C.Penney. But, I think we all know that Eddie Lampert wouldn't let that happen on his watch.
interesting...i was actually wondering what the status of this "transformation" was....I guess a really good example of not "knowing your audience".
but maybe it's too early? unlikely....are they profitable?
Roaming checkouts at a store like JCP sound like the dumbest thing ever.
Eddie Lampert is a wall street legend. Did you ever hear the story about him being kidnapped after work one night?
Interesting that Bill Ackman believes that JCP is going to turn around and is headed higher. His presentation on why he believes the company is a winner: http://www.scribd.com/doc/94429141/Bill-Ackman-s-Ira-Sohn-JCP-Presentat…
All we need for retail giants:
--clothes-- mid-market: Macy's higher end: Saks
--misc shit-- mid-market: Wal-mart higher end: Target
The rest is just noise.
I think even Macy's and Sak's (along with Bloomie's and Neiman) are becoming increasingly superfluous. They rarely have a decent selection for any given item and half the time you can forget about getting your size ("I'm sorry sir, we only have those pants in a size 27 and a size 46 currently"). There was a time when you needed a brick and mortar to try things on and test things out, but with all these online retailers offering no-hassle returns, made-to-measure options, and user reviews that's a thing of the past. Look for JCP, Bloomie's, Macy's et al. to go the way of their brick and mortar cousins in the electronics and media sectors (i.e. Borders, Circuit City, Best Buy) over the next 5-10 years.
Totally agree. I don't shop at any of those stores haha.
This might be one of the most ignorant posts I've seen on this site.
I think that for one to really believe that JCP will bottom out and then shoot upwards, you really need to think it'll become a higher-end version of Target. Frankly, I'm not sure I see this working because it would require a major shift in its customer-base.
Now, with that said, I don't want to sound like some master prognosticator here. Either way, I think the story is really interesting to follow and its not often that you get to follow this big of an overhaul at such a big, storied company, that happens in such a short period of time.
Ok, but if you had to buy puts or calls here, sounds like you'd be in the put camp. How long before you see them go chapter 11? 2015?
Sooner, hopefully.
Its a huge undertaking, one that by Ackman's estimation will take years to complete. Will I ever shop at a JC Penny? Probably not.
However, Bill Ackman is a boss; so I want to believe he'll be successful with this. I really enjoyed his fact about how much time corporate employees spend on youtube and netflix to show that there is fat to be cut.
Apparently Ackman's already made 16x his money.
On JCP...? No, he's down.
Try to find his Q2 investor letter. I think he mentions his return on JCP in there.
You have to think, though - it is not easy to make the drastic shift from inundating your customers with promotions to everyday-low-prices. It is going to take time for the customers to get comfortable with the new business model. They are definitely going to lose out on the extreme couponers, that's for sure (lol).
Shopstyle.com is the only shopping website you'll ever need.
I don't see a rebound for JC Penney, to be honest. Maybe a temporary bounce, but I think they are in long term decline. All large department stores have been challenged due to the advent of online shopping, but JCP caters to the crowded lower middle market.
Target and Walmart have beaten JCP on price, with Target arguably matching them on quality. And when you go to Target/Walmart, you can buy stuff other than clothing. From what I can tell, Target also carries more fashionable items.
Then you have competition from smaller retailers who can lease a store and fill it with inventory for a few hundred thousand. Nobody needs a store where you can buy both women's jewelry and male casual wear. The cost of opening those department stores is staggering.
Their balance sheet is fine now, but I think they're looking at long term earnings decay. When I want a dress shirt, where do I go? Unless I'll be at Century 21 in the near future, I just order it online. Same with suits, pants, shoes, etc. And the only woman I know who shops there is my grandmother.
I see them going the way of Montgomery Ward. They face similar competitive pressures, although JCP has not yet tried operating outside its area of expertise (Wards tried electronics). I just don't see any reason for the store to exist.
but they're giving away free haircuts??
I've been following JCP on and off since Ackman's involvement last year. It initially sounded like an interesting turnaround story, but here is why I've been turned bearish: Ron Johnson's new ideas don't make much sense, plus they're boxed in by Target and Wal-Mart on the low end, and Nordstrom on the high end.
-Ron Johnson keeps hyping that they're rolling out "stores within a store." Wait...isn't that just what EVERY department store is? -Then he says they're rolling out a "denim bar"...you mean a table with jeans on it? -He says they'll have full iPad integration and Wifi everywhere. Problem: no one cares. JCP is marketed towards middle America, not the hipster community. They're not going to be impressed by the gimmicks like yoga classes and so forth. If anything, it just says to me that JCP is wasting money on stuff that won't drive sales.
Look, I get that Johnson designed the Apple store--but even thinking about that some more, Apple's products were so popular that you could probably sell them out of a cardboard box and it would still be popular. Johnson is probably a very smart guy, but JCP is a whole different animal, and I am not confident in the way he has taken it.
I'm curious though if someone here disagrees and has a bull case on them and what their reasoning is, aside from Bill Ackman's involvement. It is interesting that they miss hard on both rev and EPS, yet trade up this week.
I sat in on the call (they had a big room on 37+10 rented out for it) and the guy is a fucking animal on stage. I personally agree with your logic, but as a short you have to stomach the fact that they can keep pushing out when the turnaround is supposed to take place and listening to Johnson speak gets a lot of people hard for the story. Plus, if you're a PM, you see downside as ~high teens and upside at 35/40... makes it hard to argue for the short. I personally do think it's a short, but if comps next Q move up to even -15%, this will be at $30.
JCP has negative brand equity, as far as I'm concerned. They would have a better chance of a turnaround if they changed the name of the store while making all of these changes.
I agree with Julian above about things like denim bar..that's hilarious...could you imagine anyone who shops there caring? I haven't been to a JC Penney in 20 years, but I have a picture in my head of the average customer wearing an oversized Looney Tunes t-shirt, white cut-off jean shorts, and flip flops.
Why would anyone shop at JCP if they can get brand name stuff for ~the same price at TJ Maxx/Marshalls? I think TJX's YoY stock price pretty much speaks for itself.
Isn't part of the change in "shopping experience" a direct effort to attract a younger crowd? JCP wants to change its demographic and is trying to make inroads with the 18-34s.
It's not an unreasonable point, but there are other issues. One of which is that the new stores haven't been rolled out yet. Another is that the target shopper is really probably female. When Johnson talks about shoppers, he always uses the pronoun "she".
imo maceys >> kohls >> jcp >> target >> meijers >> walmart
all of which sell the same socks/tshirts/undewears
fruit of the loom/nike
JCP: Yet more proof of insider trading (Originally Posted: 03/04/2013)
JCP announced a 10mm secondary offering (~5% dilutive) after-market, yet the stock traded down 6.4% intra-day, starting up ~1% and steadily declining to -5.4%.
http://i.imgur.com/OQPlhPh.png
After HNZ options trading, this is further evidence that insider trading remains rampant despite the SEC's attempt to crack down on the practice.
Interesting - I wonder if there were any rumors of this offering floating around bbg msgs during the day...
Selling shareholder secondary transaction is not dilutive
I need to double-check my posts. Thought it was a secondary by the company and not Vornado.
Thanks for pointing it out. Unfortunately can't edit the post.
Anyone else taking this as a buy opp? I'm considering it after things with the lawsuit clear up and top line sales come out.
tough for me to buy, but perhaps firing of Ron could be catalyst as well? A la grpn
-30 comps = Death. This will most likely go through bankruptcy at this point especially if Icahn can tip the scale. Easy trade for paper trading kids in college, trying to locate blocks to short in real life, bit harder. Ron Jon will be around for a while longer, Ackman will lose his shirt if he is out as he is one of main drivers that brought him in. Personally hoping Ron Jon will remain so more hilarious video conference calls will happen.
This. And I love Ron Johnson but nobody can save this piece of shit, plus the real talent that was needed was the Mike Francis marketing types that knew how to identify the in and out fashions and market them properly. They forced him outside of his circle of competency (same thing happened to Ron Jon?) which was purely marketing - which he dominated at TGT - and he got overwhelmed by it. Nobody involved in this business knows how to run it anymore, and Ackman definitely did not help.
I just bought JCP this morning, New clothing line will look like a catalyst, I'm giving ron jon a chance here.
Kohls sucks, I agree with you
Definitely don't think the stock was moving on the REIT 'news'. The guy @ ISI is an idiot and that analysis was beyond stupid. I do still think jcp is going to work though
http://www.marketwatch.com/story/jc-penney-jumps-after-ceo-said-to-be-o…
[quote=tt1254]http://www.marketwatch.com/story/jc-penney-jumps-after-ceo-said-to-be-o…]
To be clear, the 12:30-1:00pm spike today was really shady looking at first glance but I think there were some rumors that hit the wire right around 12:40pm or so that had mentioned the possibility of a buyout by Apollo and/or Leonard Green.
Regardless, JCP still sucks balls.
oh nice! definitely helps explain the pop... Looks like mkt after hours agrees with you BlackHat
Why the fuck would the board go back to this guy. The definition of retarded needs to be changed to JCP. The leadership is just awful.
A billionaire hedge fund manager that lives on the Upper West Side and a guy that flies in a private jet from California to headquarters for 4 days a week try to turn around and revitalize a discount clothing store? What could go wrong?
Really low blow (even for Ackman) to go out and talk about how bad the "execution" was when it was a retarded idea to begin with.
I grew up in a very middle class family in the middle of the country and my parents took me to Kohl's, not JC Penney. The clothes are junk and the idea that two rich guys could totally turn it around was ridiculous. It was a company built on coupons/daily sales. They lost at least a third of their foot traffic and they are going back to their old model. This won't be as bad as Pershing Square IV/Target but it will be up there.
JCP CEO Johnson is out (Originally Posted: 04/08/2013)
I beat myself up for not buying call options on this stock about a month and a half back when i started looking into JCP more
Recent news a few minutes ago show that ex-Apple retail guru Johnson has just been removed as CEO and ex-CEO Mike Ulman has returned
source- http://blogs.barrons.com/stockstowatchtoday/2013/04/08/ron-johnson-out-…
So what do you guys think (for those that have been following this attempted retail turn around)? Should Johnson have stayed longer? Retail is known to be notorious for how long it takes for a big turnaround and JCP was no exception. Should they have left him in for another 6-12 months?
Note- Ackman (also chairman of the board) hand selected this guy from Apple since his HF has like 16% i think ownership...
I think he needed more time.
Should he have stayed longer? To what end? Bankrupting the company?
JCP does not have a business model. Ackman is out of his mind. Johnson got lucky and was part of the iPhone revolution -- which happened because of the amazing technology of the phone, not because of Johnson's supposed retail skills. Wrong guys for the wrong job.
It's pretty hard to understand why anyone would have thought that firing your core customer in an already struggling business would be a viable idea at all, let alone THE idea that the entire turnaround is based upon. Too little, too late on the leadership change, the customer is pissed off now and won't be coming back any time soon.
JCP will occupy the dustbin of history, it's just a matter of time. Ron Johnson was delusional about how customers thought about JC Penney. The new guy will have to undo what Johnson did and try to delay the inevitable bankruptcy.
This, it is a speed bump pm the freeway to bankruptcy, during which time they will probably dramatically scale back / liquidate real estate to pay off the bonds, leaving little or nothing for the equity. After that, JC Penney will be a bed time story for the next generation, "When I was a kid, I used to shop at this giant and very poorly merchandized retail store in the mall, but then someone invented mass merchant retail and the internet, and the giant store in the mall went away."
It would have died anyway eventually, Ron Johnson just sped up the process.
Well look at BB there is only so low you can go before it must go up.
Ron Johnson couldn't tell the difference between an iPhone and Tommy Hilfiger...thats why he failed.
This is a historically huge failure. He absolutely destroyed shareholder value and ravaged the company. Simply stunning.
Remember that time JC Penney got its shit pushed in by a bunch of non-retail guys trying to run a retail company?
To be fair, Johnson ran merchandising at Target during their turnaround before going to Apple.
Seriously, strip it apart, and let's all move on.
Some of the criticism is well deserved of Ron Johnson (e.g. them building retaining walls in the office, and taking lavish corporate jets and just blowing money) but the core strategy could still potentially work. Best Buy is going to implement the the same strategy of a store of within a store.
Anyone long JCP understands that the risks are high but so are the potential returns. To think JCP automatically is going down in the crapper is crazy and short sighted. GAP experienced the same type of difficulty when they took away all their brands and just sold their exclusive brand. They had a hard time turning around but ultimately did.
The game is still not over.
No, thinking JCP is automatically going down the crapper is LONG sighted. The company was founded 110 years ago. Times have changed and the big box retail landscape is shifting. The company doesn't need to exist any more, and over time, it won't. There is literally nothing that JCP can do long-term to prevent the inevitable, it is only a question of timing (which they have now dramatically accelerated).
Gap is small box. Not the same.
Best Buy is also a bankruptcy, as has been every major electronics big box retailer since 1950 (I assume you know that since you obviously have studied the industry so extensively). There is no room in the world for a company that sells ethernet cables at $25.00 a piece when you can buy them for $0.01 on Amazon (you get gouged on shipping, but it still comes out to $8.00 a cable). The company just doesn't need to exist, period. Store within a store won't change that.
In both cases, you have very high fixed costs and fixed leases for aging concepts that are capital intensive, where the method of distribution has changed and is no longer in their control. Retail is a distributor for the masses, that's the model. It doesn't need to exist when you can buy the same stuff somewhere else more efficiently, and the operating deleverage is brutal as the revenue base shrinks.
Disclosure: Ravenous is long Circuit City
I disagree. 'Big box retail landscape' is shifting how? What factual evidence can you provide? You don't think department store retailers haven't captured a portion of the internet market? Child please. What exact sign of distress do you see Nordstrom's in? You're argument doesn't hold water and here's why:
Granted, operating costs are high for retail. But it's not impossible to continue to be profitable and cut costs. Macy's over the past 5 years, cut their total annual operating expenses by 15% while it has grown 12% to present day.
Going forward, I think some of your premise is right that the internet (e.g. Amazon, EBay) will take some the market share of these department stores. But you're under rating the simple intangible fact that people do want to visit stores to try on clothing. A fact to back this up:
"Shopper activity will continue to improve intermittently through the first half of 2013, according to ShopperTrak, the world’s largest counter of retail foot traffic.
ShopperTrak estimates that during the first quarter of 2013, national retail sales will increase 3.2 percent and retail foot traffic will increase 3.5 percent, when compared to the same period last year. The company estimates that during the second quarter of 2013, national retail sales will increase 2.9 percent, though foot traffic will remain flat with a zero percent change, when compared to the same period in 2012.
“This year is starting strong,” said ShopperTrak Founder Bill Martin. “Indeed, the first quarter will not only include the usual sales events for Valentine's Day and Presidents Day, but also grab Easter sales as the holiday falls earlier in the calendar this year. This activity will cause a spike in the first quarter and a lull in the second, for which retailers need to prepare.”" (http://www.shoppertrak.com/news-resources/press-releases/2013-02/retail…)
I think the risks to JCPenney are the obvious two: the economy and competitors.
Chart Source: YCharts
What is stopping JCP from copying Macy's, Kohl's or Gap? They seem to be doing fine so why would JCP die considering they have a lot of infrastructure in place to copy the other guys. Don't they also have tons assets to sell to raise cash needed to improve their business?
The trick is leveraging stores presence to while also integrating an ever-greater online component. Especially with clothes, people do like to try them on in the store before making a purchase, or window-shop. But what you don't want is for people to try on Levi's in your dressing rooms and then order them off Amazon with their smartphone. Macy's has been doing a pretty good job of building out their online component. Read somewhere that online sales are up 43% since last year?
Another one bites the dust.
Next to go: Marissa Meyer, a.k.a the Empress of Yahoo!
Not as familiar with Yahoo!, but I'm looking forward to this if it happens. She seems very overrated and overpaid for what she brings to the table.
Please nobody use Kohl's as a model for successful big box. It's Macy's and only Macy's. Nordstrom can come too, but they have to sit in the back and be quiet.
Do you mind elaborating a bit? Equities really aren't my thing.
I stopped reading your long and nonsensical post when you compared JCP to JWN. JWN is at the top with a very specialized offering -- it's not even comparable to JCP except that they're both in the mall. M and KSS are in the mid-lower and lower tiers. TGT and WMT have also taken out some of the market with their expanded soft line offerings.
Further, it's a shrinking pie for big box department store retailers. You have increased segmentation going on as they now have to compete more heavily against small box specialty stores and the internet. Amazon is only going to get stronger over time and more and more people are ordering clothes online -- especially as the mix shifts toward younger demographics (inevitable).
JCP is stuck awkwardly in the middle and is beseiged on all sides. The company's value proposition has been eroding for the last couple of decades, and has now eroded even more at an alarming pace based on Johnson's efforts. It's like he pulled the pin on a grenade and then ran out of the room. The ONLY "value proposition" JCP had was offering coupons to drive traffic, and he systematically eliminated that. So much fail, so little time.
JCP doesn't need to lose that much share or see that much margin compression for the economics to stop working over time. The fact that retail sales data is up in the immediate short run is irrelevant.
These are facts. Feel free to talk to any number of people in the apparel industry and then report back. My contacts? Direct sourcers from Asia, publicly traded apparel companies that source to JCP, M and KSS, and real estate experts.
So if I replaced Nordstrom with Kohl's, would that negate the narrative I was setting? -- Of it being complete bs, that the 'big box retailers landscape' completely shifting for the worse? If you look over Kohl's revenue growth, you would know my argument is still intact.
E-Commerce sales have clearly outpaced plain retail sales. But does this exclude big box retailers? Let's look over Macy's 10-K, shall we? "Sales from the Company's Internet businesses in 2012 increased 41.0% on a comparable basis to 2011." They sure missed the mark on gathering the growing internet shopping consumer.
In prospective, U.S. Retail Sales is ~375B (monthly) and E-Commerce Sales is ~15B (monthly). E-Commerce long term annual average growth rate is 20.62%. Retail Sales 4.62%. All things constant, it would take ECommerce 20.333 years to capture all of Retail. Neither you nor I definitively know anything that will happen tomorrow much less in 20 years. So it's quite a stretch and naive to say a complete downfall is inevitable.
Like I said before, JCP is high risk, high reward (if it does happen to turn around).
And not to be an asshole but your sources don't mean crap. They don't provide you with material information, at best they give you informed opinions. Real data drives investment conclusions.
Bloomberg BWeek did a writeup about Johnson and JCP recently (Sears decline too). The obvious takeaway is Johnson alienated existing customers before securing new ones.
JCP tried to become a kind of affordable Nordstrom (overnight). Of course it didn't catch-- If I told my girlfriend to buy clothes at JCP she'd laugh in my face.
And we all saw this coming over the past year. And we all wish we'd shorted it.
I don't do much with big box retailing, but I think one of the big, big factors with Penney that goes overlooked is simply the fact that they were horrible brand managers. There's no genius pricing scheme and cost structure which they could implement that would amazingly have people coming through the doors and shopping there again. Like the poster above said, you get laughed at for shopping at JCP if you're on the high end or above their target demographic, and there's too much price competition and lack of consumer loyalty on the low end. RJ didn't do the company any favors with the EDLP scheme, essentially making a conscious decision to nestle his company's image up squarely alongside Wal-Mart. There's a reason why nobody else does this.
But I digress. Anyone on the high end of JCP's range is going to be too ashamed to brag about shopping there and is much better off at Macy's or Target. People above the range entirely wouldn't be caught dead there and are obviously your JWNs and Nieman Marcus shoppers. On the low end there is no tangible difference between shopping at Kohl's and Penney, or even at Wal-Mart for that matter. Those people just want cheap clothes and good deals... and chances are they don't talk about where they shop that often. When JCP dumped Mike Francis and went with all this new revamping, they didn't really consider where this would take their image and even though it's an immature thought, there's definitely a major blow to the business model when people know you're in trouble, think you're no different than anyone else, and don't give you any room to stretch on either side in terms of new customer demographic.
That's a fair assessment. What about the consumer do you think has changed since JCPenney posted good numbers in the mid-late 90's and up to 2007?
I agree with this - I am not a retail guy, but there seems to be a bifurcation of the American consumer. They are either buying luxury or near luxury like Prada/Louis Vuiton/Coach/Kors, or scrimping.
On the low end, you have the discounters (ROST/TJX), big box stores (WMT/TGT), and targeted retailers (e.g. Forever 21 / GAP). A few other lines have managed to survive through cultivating a specific brand image, warranting premium pricing (ANF).
These might even be the same customers that shop at the luxury stores - they might be wearing that LVMH bag with a dress from TGT. The customer has definitely become more cost conscious, and will only pay for luxury when the brand is visible (the red Prada stamp is brilliant branding) or there is a clear quality difference.
JCP's customer base just doesn't really exist anymore. Who shops at JCP? My grandmother. She gets the card in the mail and goes to see the "sale". These are the shoppers that JCP must appeal to: those who are not aware of alternatives. The same people who drop $100 for HDMI cables at Best Buy. That's my Peter Lynch take on it.
And like BH said, they have done a terrible job with image/brand management. There is no good reason to go to JCP. Their prices, even "on sale" are not particularly competitive. The massive footprint of their stores constrains their ability to reduce expenses.
MCY will probably suffer the same fate, in time, but has been better managed. B&M retail is on its way out. Apparel has been resistant, because people want to try things on. I read about a few stores trying out a fitting room model: they keep 1 item in each size available. The customer tries it on, and can then order it online right in the store. With 1-day shipping, this structure could gain ground.
(And) Johnson was spending 1/2 weeks at the Plano TX corporate office, the other half flying the company plane around vacationing etc.
So besides destroying the rebranding effort, he alienated the troops. Good riddance.
Honestly, even if the "turnaround" ends up working, so much damage was done to shareholder value, that you'd be lucky to break even. Also, the "turnaround" strategy is a problem because it's also extremely expensive. It takes time and capital to completely revamp the look of your stores and install "store within a store" shops.
Even if there were some good ideas to his plan, the execution was just terrible and he tried way too hard to cater to an audience that doesn't shop at JCP (and likely never will) as opposed to the actual target audience of JCP.
Also Ron and other members of the executive team commuted via charter jet to the company's headquarters every week from California. How ridiculous is that? If you're embarking on a bold plan to "turnaround" the company and cutting plenty of people along the way, you'd sure as shit better be in the trenches with the rest of the team.
I think WCR makes a very valid point here. If you look at the target income groups (50k-80k hhi) it's been declining as a share of the total population. There is in my opinion basically no differentiation with a TGT which is also a one stop shop for all other items and therefore caters to the lazy crowd (all of US, including me). In time, the US might end up like how Korea is now with dept. stores (WMT/TGT) being a mall by themselves pretty much (from what I've heard).
That being said, shorting any of these names is still awful imo unless you can clearly show why the trend will accelerate for that specific company. It's a long term theme which is obvious and will take time to play out, and definitely not in the next 3-5 yrs for most of the companies listed. Most of them still generate cash.
Today, I consider myself humbled. I lost a substantial amount of money today and overall down about 25%. I sold the majority of my shares today. After getting through my hard headedness, I realized critics were right. They fired Johnson early because the upcoming quarter is going to be a diaster. The trend is clearly going down the drain and there is no hope for JCP. I got caught in a value trap. FML.
Major kudos to you.
Ravenous my question is why Bill Ackman would bother with an impossible turnaround if it were so obvious that the company is a zero. Clearly if KSS and M are still in existence and doing decently (to a lesser extent, pre-Ackman JCP), there is space for this kind of business in the medium term.
I agree there is space for some of these companies, I'm not arguing that all department stores are going away. There will probably always be some brick and mortar department stores even if you fast forward 50 or 100 years from now.
==
From the WSJ today:
http://online.wsj.com/article/SB100014241278873245047045784124402938906…
Mr. Ackman publicly trumpeted the new team and its strategy while disparaging the old Penney, calling it bloated and mismanaged. In the long slide presentation to investors last May, he criticized the headquarters for having been overstaffed with assistants, merchandising staff and managers with few reports. He also questioned whether employees spent enough time working. "Netflix consumed 20% of corporate internet bandwidth during work hours," he said in one slide.
The hedge-fund manager criticized Mr. Ullman for failing to cut costs. He also presented a slide with a chart showing the decline in Penney's stock price under the former CEO.
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Ackman had a pretty standard plan except for the Johnson redesign. I think he could have just done some blocking and tackling stuff and the stock would have gone up and he could have exited with a profit, maybe even a big profit. They got too fancy too fast with an unproven concept.
Ackman is, without a doubt, far smarter than I am. And he has researched JCP way more than me. But I think this is also why he has held the position for so long.
Pershing Square does thorough research. Look at that Herbalife deck. But if you invest so much time in one company, you become convinced your view is correct. Who could know the stock better than you? The market just doesn't realize that you're right yet. Then there is the ego investment. Dumping JCP or HLF would mean admitting that you just wasted thousands of hours of work.
The end result is hubris + invested self esteem. If you are going to trade around events (turnaround / legal settlement / divestiture), then I personally think it may be harmful to research the company too deeply. You should focus on whether your catalyst is still intact. Is the turnaround occurring? Will the company still divest that subsidiary? Excessive research will likely just distract you.
The situation is different if you are a long-term investor. Clearly somebody owning IBM for 15 years would know the company forwards backwards, but probably doesn't have that same ego investment. They bought it for fundamental appreciation, and will hold as long as that appears likely.
because ackman is a delusional asshole
Bill Ackman JCP letter (Originally Posted: 08/12/2013)
What'd you guys think of this?
http://www.cnbc.com/id/100952339
I love Ackman, but boy is he taking a beating right now
The board also met late Sunday afternoon by telephone to consider its next steps after Mr. Ackman pressed directors to quickly replace Chief Executive Myron "Mike" Ullman, people familiar with the matter said. The board didn't take any immediate action regarding Mr. Ullman, though the situation remains fluid, the people said.
An unusually public dispute erupted at the top of the company late last week when Mr. Ackman made public a letter calling on the board to move more quickly to replace Mr. Ullman. That opened a rift at the struggling department-store chain that has rattled investors and threatened efforts to stop a deep slide in sales.
Related Back-to-School Sales Offer Tough Test
. Mr. Ackman's actions "crossed the line" and made him a "rogue" director, one of the people said—a term that doesn't have any legal significance but which highlights the level of some directors' concerns.
It is far from clear that Mr. Ackman has violated his duty in any way, however, and his fellow directors appeared to have few options for isolating him.
The dispute over the company's leadership and direction is also a growing concern for suppliers, who need to be able to plan as far as 18 months out. They will be watching closely to see what steps Penney takes early this week, one vendor said Sunday. . Despite the depth of the divide and the risks for Penney, there appear to be few steps directors can take in the near term against Mr. Ackman, whose Pershing Square Capital Management LP owns nearly 18% of the retailer.
The problem: It is nearly impossible for boards to remove a director even amid serious disagreement or outright hostility.
From a legal perspective, "it's questionable that he violated anything,'' said Charles Elson, head of the Weinberg Center for Corporate Governance at University of Delaware's business school and a member of HealthSouth Corp.'s HLS +0.68%board. "They have to learn to live with each other—one way or another."
Penney directors could create a special committee that functions as a de facto board and excludes Mr. Ackman.
But Mr. Ackman might sue Penney, arguing that the board committee "keeps him from carrying out his fiduciary duty,'' Mr. Elson said.
The approach did work for HealthSouth after it fired CEO and founder Richard Scrushy in the spring of 2003 for allegedly participating in a $2.7 billion accounting fraud.
When Mr. Scrushy refused to resign as a director, the board formed a special committee comprising every director except him. The panel could "exercise all of the powers and authority of the board,'' a regulatory filing said.
Directors at HealthSouth couldn't remove the ousted CEO from the board until the company held a shareholder vote. That didn't occur for nearly three years due to delayed financial statements.
Mr. Scrushy quit the board in December 2005, weeks before a HealthSouth annual meeting at which the board decided he wouldn't stand for re-election.
In June 2005, he was acquitted in an accounting-fraud trial but in 2006 was convicted of paying bribes for a spot on a state regulatory panel.
Penney directors also could refuse to renominate Mr. Ackman for the board. But he doesn't come up for re-election until the 2014 annual meeting, likely next spring.
The dispute stems from letters to the Penney board that Mr. Ackman made public last week in which he criticized it for not moving more quickly to replace Mr. Ullman, who returned on an interim basis four months ago after a disastrous year and a half for the company under former Apple Inc. executive Ron Johnson.
Penney showed a $1 billion loss last fiscal year as sales plunged 25%. The slide continues, with suppliers saying sales fell by double digits from a year earlier in the past three months.
Penney won't report its second-quarter results until Aug. 20. But Mr. Ackman said in his letter that performance was suffering and that Mr. Ullman had revised the company's forecasts twice, each time pointing to worse-than-expected results.
He also disclosed that Penney was looking for a replacement for Mr. Ullman.
Directors are concerned about those disclosures and about Mr. Ackman's criticism of the board's members and decision making.
Chairman Thomas Engibous on Friday criticized the Ackman letter as "counterproductive.''
On Friday, Mr. Ackman said he is only trying to save the company and felt drastic action was needed.
A similar flap over a director publicly airing a board's private discussions occurred at Hewlett-Packard Co. HPQ -0.37%In 2006, an extensive investigation into press leaks fingered George Keyworth, a longtime director and former science adviser to President Ronald Reagan, as the source of many leaks about board deliberations.
The H-P board voted to ask Mr. Keyworth to resign. He refused, saying he was elected by the shareholders. The board decided that September not to renominate him for re-election at H-P's 2007 annual meeting. Mr. Keyworth quit days later.
At Penney, the board split has worsened at a difficult time, as the struggling retailer scrambles to get customers back into its stores ahead of the crucial holiday season.
Mr. Ackman and hedge fund Perry Capital LLC, which disclosed a 7.3% stake in the Penney on Friday, favor bringing back former Chairman and CEO Allen Questrom as chairman.
Perry Capital also has called on the board to hire Foot Locker Inc. FL -3.22%Chief Executive Ken Hicks, another Penney veteran, as CEO.
Mr. Ackman would view that choice favorably, a person familiar with the matter said.
Mr. Hicks declined to comment.
Mr. Questrom didn't return a call seeking comment. Previously he said he would take the job under the right circumstances.
Mr. Questrom, who is now a senior adviser to Lee Equity Partners LLC., served as Penney's chairman and CEO from 2000 to 2004.
Mr. Hicks was Penney's president and chief merchandising officer.
When Mr. Questrom joined Penney, the stores acted like a loose federation, but he and Mr. Hicks worked together to improve centralized planning, particularly for sourcing and shipping.
Mr. Hicks was seen by many as on track to become the retailer's next CEO, but in 2009 he left to run Foot Locker.
Mr. Questrom has turned around a number of chains. As chairman and CEO of Federated Department Stores Inc. from 1990 to 1997, Mr. Questrom helped that company emerge from bankruptcy sooner than expected. He also steered Barneys New York through a tricky bankruptcy while president and chief operating officer of that luxury retailer from 1999 to 2000, before leaving to become president and chief executive of Neiman Marcus Group. "
Just read the letter. I hate how the top of the corporate ladder is filled with camraderie and favortism. While I'm not a huge fan of Ackman himself, I do hope he gets his way. Hopefully he doesn't recommend another marketing executive...
News is just breaking that Ackman resigned from the board
Ron Johnson's J.C.Penney Turnaround Continues to Go Well (Originally Posted: 02/12/2013)
As I've covered before, JCPenney's ongoing "turnaround" is something of a disaster. Ex-Apple Store guru Ron Johnson's vision for JCP's transformation involves a bold new Target-esque advertising campaign, the death (and return) of coupons, and transmogrifying its stores into a collection of specialty shops and "town squares."
To date, the transformation hasn't exactly gone according to plan. While the specialty shops are big winners on a dollar-per-square-foot basis, the rest of the store is suffering. On top of that, the stock price has been hammered, with the company losing 40% of its value since Ron Johnson took the helm in November 2011.
Considering the challenges it faces, one would expect Mr. Johnson to be working tirelessly to make things right. That seems safe enough to assume, right?
Well, judging by a story in Business Insider, Ron Johnson rarely spends a full work week at JCP's Plano, TX headquarters. Apparently, he spends four days a week in Texas, working out of high-end hotels, before taking the corporate jet back to his home in Palo Alto, CA. And, apparently, this rubs a lot of people the wrong way.
Now, I am a huge proponent of working remotely and not being shackled to an office. I hate face time with a passion. But, I'm pretty sure face time might be a little bit important if you're trying to massively transform one of America's oldest retail operations. Right? What level of hubris does it take to think you can radically transform a company from a corporate jet or a hotel room? Even if you think it's doable, the optics of it all are simply brutal. If not to customers, then to your employees. When you're making significant cuts to the workforce, you should probably look more engaged in your role. And if you've destroyed billions of dollars for your shareholders, you might want to consider buying a place near the office.
What do you guys think? Is there a time when face time is essential? Have you ever worked at a firm where an MD or Partner spent most of his/her time out of the office? What do you think?
Didn't the (now former) Sears CEO try to do this, flying between Baltimore and Chicago? It didn't go so well for him.
I happened by a JC Penney this weekend. Inside was a Sephora boutique so prominently displayed right at the entrance that one might actually confuse the JC Penney with a Sephora. Literally two stores down from this anchor was a full sized Sephora store.
Idiotic....
I grew up with JCPenny and my parents still shop there all the time. The changes that have been made go against everything that the average JCPenny shopper is. The store I walked into could have been operating room with shiny white floors, lack of "homely" color and well regulated distance between the various clothes. A JCP is supposed to be cluttered with lots of different cloths, have a more rustic vibe with wood paneling, and constantly have sales on various items. There is a reason my family has started shopping at Macy's more.
Is this about J.C. Penney or facetime?
Also, if you look back at previous turnarounds you will see that the stock price generally drops drastically before a comeback.
Or when the turnaround fails, the stock reaches a bottom at 0.
I am a true "apple lover" but Ron Johnson has always been an arrogant prick. Well his idea of everyday low prices was a good idea those aren't the consumers that shop at Macys. What he really needs to do is make the JC Penney store seem "cool". Theres a reason that Macys has been on a tear and its because consumers now want to be seen as purchasing high quality products. If JC Penney could figure out a way to keep prices low while raising the value of their brand, they could have a winner.
What's this guy a consultant CEO for hire?
And excuse me for my ignorance, but I don't see what the hell running Apple stores has anything to do with running JCP... These are the things that stick out to me as making Apple stores great for what they are:
I don't see any of those 3 things applying to JCP.
I don't see JCP being able to turn around under Johnson as he does not seem to understand middle class shopping behavior. His so called success as Apple aren't exactly because of his management skills or a novel idea.
Apple products sells itself to begin with(not sure about now), doesn't matter if the stores look modern or there's a pile of shit next to an iphone display. Employing highly paid retail sales reps that are knowledgeable about the products they sell. Well, doesn't every high margin retail store does that? Best Buy used to employ highly paid retail sales reps that are knowledgeable before people decides to buy from Amazon instead of Best Buy stores.
Johnson might be the right guy to sell Teslas, but quite frankly they need to find an operator with retail experiences.
This. You could sell iPhones out of a cardboard box under a freeway overpass, and you would still have a line a quarter mile long on release day. JCP can grow profits through margins or volume.
Its products are already fairly expensive (hence the constant sales). The in-house brands are terrible. Their best shot is going into partnerships with upmarket stores and designers, like Target did with Neiman Marcus. They can start improving their own brand through association.
Or they can grow volume. This entails selling more to existing customers and/or expanding their customer base. JCP is a firmly middle class store, targeting the 40+ female. This customer has become increasingly price conscious, shifting dollars to discount stores like TJ Maxx, Marshalls and Ross. JCP has too many stores as it is; they could certainly create a new, in-house discount store. Although this conflicts with their sales-driven customer base, but they could at least decrease the frequency/scope of sales in their main stores.
Expanding their target demographic is more difficult. Some customer base growth could be achieved through the above partnerships. I personally think there is an opportunity in menswear. Something like a Trader Joe's model for clothing. I go into any clothing store, and I see a ton of stupid shit that no man will ever buy. Limited selection, moderate-to-high quality, lower prices, clean cut. Basically J. Crew minus the brand premium. Simplify the user experience.
The mini-store model is asinine. You are building a mall inside a mall. The underlying assumption seems flawed. It dilutes JCP's brand, which Johnson is supposedly trying to fix.
They introduced a few ministores and noted higher sales, then concluded this was scalable. This is like getting higher sales from an end-of-aisle display in a grocery store, then deciding to get rid of the aisles altogether and to start displaying merchandise in piles.
It's almost impossible to take a negative brand value and make it cool. Imagine if Oldsmobile had actually started making the coolest cars on the planet, it still would have been a hard sell against BMW and Audi.
I don't know if JC Penney actually qualifies as a negative brand value or not, but it certainly does not have the same image quality as Target or Macy's.
Aaaand they just missed earnings today.
WTF...? What the hell kind of asinine leadership is this?
FuckedCompany
over/under on Ron's longevity?
CFO looked like there was a gun being pointed at him the entire time.
conference call from the cafeteria h011@
I guess when you're at risk of generating negative ebitda, it might be wise to cut out lavish, unnecessary expenses. Private jet for Ron every week, though? A necessity.
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