JCP - JC Penney

[PlanMaestro]

James Dinan shorting JCP's debt.

http://www.reuters.com/article/2013/03/09/us-hedgefunds-york-ackman-idUSBRE92801E20130309

[valuecfa]

I would like to take a look at one of the remodeled stores in person. I travel a lot so will likely end up in a city with a remodel. Can someone direct me to where to find a list of locations of remodeled stores?

[Kiltacular]

As a very general rule, I try to avoid turnarounds that require gifted CEOs. Turnarounds that require competent CFOs, on the other hand, have been very fruitful.

 

Rabbit,

 

A useful and succinct differentiation.  Thanks

[texual]

There is no remodel. These stores have been updated in such a way that every time you go there, a section has been walled off or put behind a curtain for a month - after which that area just has an updated look and feel. They sell the same stuff as before. Instead of a 200 square foot area with racks of Levis jeans and a wall with cubbies holding the stock, its now a 'denim bar' - retrofitted with a concrete floor look, wooden benches and tables with a more showroom look. The jean bar has some ipads showing off the catalog, and usually has a jcp rep there who only does the levis jeans. They've done this with between 2, or 5 areas in most of the JCP stores I have been to. The long term goal is to have each store by 2015 contain about 100 of these concepts.

 

So far in most of the popular JCP stores you'll find a updated Levis, Arizona and Izod section. They stick out from the rest of the stores which are completely the same as before. So its a bit jarring to be standing near a fresh looking updated area and then racks from other stuff. All in all, its a pretty bad strategy in real life. When he spoke about it, or on paper it seemed awesome. Then I started visiting stores to see this stuff. It was just plain bad - for most stores they've got to kill off areas to be renovated one at a time, so the stores always under construction or looks like they are hiding some rain damage, you know? Then the new stuff is there, its the same thing, just fancier displays. Thats cool, I get it. But having 10% of the stores square footage changed isnt really going to appeal to regular customers. I imagine if they renovated a whole store at a time this could be a lot better. Its too bad, because by the time they actually wind up with 100 stores within a store, the first few will seem dated and in need of some change. I don't believe they can hit that target by 2015. They already cant seem to open a single Martha Stewart section until the trial is resolved. They spent a lot of time and money on that particular investment which isn't productive - they could have delivered a few other stores within stores and held off on Martha Stewart until it was prudent to do so. Instead JCP breaks a major contract and gets in a dispute with Macy's.

 

It seemed a lot better on paper, as I said..

[MYDemaray]

You bring up a good point...probably would have been better off remodeling single, high-impact stores to showcase the new concept in its entirety then work down the list from most to least important.  McDonalds earned high marks for updating its stores a few years back though not all at once.  Can you imagine if some had received updated ordering areas while the sitting area and bathroom remained dilapidated, or vice versa?  In hindsight this approach seems ill-conceived.

[BG2008]

ValueCFA,

 

Try Roosevelt Field Mall on Long Island, NY or Queens Center Mall in Elmhurst, NY

 

May want to wait till Friday when they will have Joe Fresh in the stores

 

In April/May, they will have Jonathan Adler, Michael Grave, and maybe Martha (pending litigation)

 

When there, look for Marchesa (success), Nanette Lepore, Duro Oluwo (a dud), Cosabella, and the homes shop in general.  I think they're putting in a coffee shop in the homes section as well. 

[BG2008]

Also,

 

I've noticed that the higher traffic, higher impact stores do get more of the bells and whistles.  If you read the press release, some shops are only in 500 of the 700 locations.  Last weekend, I visited the first stores without any shop transformation.   

[luck]

some anectodal employee questioning  and observations yesterday for those that don't have jc penney stores nearby.  i wouldn't necessarily infer anything from it yet though and some of it is obvious:

 

i asked employees how business goes?  both said slow

i asked one employee whether she thought the new jcp/new displays were having an effect on traffic or sales in the last few weeks?  she said no.

 

i have noticed a dramatic turnaround in customer service.  surly employees have been replaced by or turned into incredibly helpful and nice folks behind the counter.  on a small note, the music at jcp is always rocking compared to the muzak at shld.

 

men's department is still filled with uninspiring brands like jf, claiborne, stafford (private label).  many of the brands seem to be oriented around slimmer fits or preppy/ronjohnson sort of folk.  i have doubts that this will translate into the male demographic or shoppers for the current male demographic.  beyond this, i haven't seen a single customer in this large part of the men's store across maybe twenty visits.  that said, jcp seems to be getting some of the women's brands right and there is a little traffic in the women's section.

 

i have noticed a small increase in intraday traffic per square foot it seems, but that just might be due to time of day effects or other variables.

 

this particular jcp has pretty bad lighting, so the beauty and clean concept behind the displays is somewhat offset.  another example of a neglected piece of the puzzle in this particular jcp.

 

as they are putting in the joe fresh near the front, the store appears to be a bit of a mess as the construction interferes with the jewelry department.  i think i agree with the previous poster, if there was a way to do it, a better approach might be to do it all at once one by one - not sure if that's feasible.

 

nothing i saw made me think that i need to go out and buy jc penney anytime soon.  we'll see if anything changes on friday with joe fresh.  i keep rooting for the new jcp, but would still need to see it work first hand to believe it.

 

[PlanMaestro]

Rule #1 of retailing: retailers go bankrupt when vendors lose confidence. That is all.

 

[ragnarisapirate]

Rule #1 of retailing: retailers go bankrupt when vendors lose confidence. That is all.

 

 

It's the leverage that no one ever sees. When it matters, well, boy does it matter!

 

This said, if it goes under, surely there is value at some price in the company.

[tooskinneejs]

The more people become negative on JCP (and the more the stock price declines), the more interesting this looks to me.  Before Johnson's turnaround efforts began, I would have assessed JCP as a company whose stores were dying on the vine.  The stores and the goods were outdated and not stylish.  As a result, their customer base consisted of older-leaning shoppers and discount hunters.  In short, their stores were heading down the path of Sears stores - eeking out an existence but not thriving.

 

Johnson realized, correctly I believe, that the long term future success of JCP depended on attracting a new, younger customer base.  Obviously, this hinges on revamping the stores and merchanise.  But equally important, it hinges on getting rid of your old customers and the image they bring to the younger customers' minds.  To be straight, younger, hipper shoppers don't want to shop in the same place as their parents or grandparents.

 

Over the last few months, I've read countless articles in business and non-business publications talking about JCP and their overhaul attempt.  What I found most interesting was not the articles themselves, but the comments that readers posted about the articles.  For example, I remember reading one article with hundreds and hundreds of comments, most of which appeared to be from (1) older-leaning shoppers who were mad that (a) the merchandise was becoming too young and/or (b) their coupons were taken away and (2) religious right shoppers who were mad as hell (pun intended) that JCP hired a lesbian as their spokesperson.

 

Stock analysts saw these comments too and concluded, "We've got big problems here - JCP is turning off their customer base by removing the coupons and hiring a lesbian."  What I think these analysts are missing is more important, however.  They don't realize that turning off the oldies and the religious right is key to gaining acceptance from the younger, hipper shoppers.  It is almost a necessity, in fact.  The more the oldies/religous folks gripe, the more likely the young will be willing to give JCP stores a look.  The less likely JCP stores are to have oldies in there shopping, the more likely the young will be willing to go in.

 

This upheaveal in the customer base is necessary if JCP wants to actually have a chance at attracting a whole new genration of customers.

 

I'm not saying the stock is a bargain right now, by any means.  And I'm not saying that the turnaround will be a success.  But I do find it amazing that people still believe in Sears, a chain that is doing literally nothing to help itself survive, while they don't see any hope for JCP, a chain that is putting forth maximum effort to transform and invest in its stores and merchandise to help it have a better shot at a profitable future.  And I think it's funny as hell to hear Burt Flickenger say that JCP should hire the same outside consultants that Sears uses.

[oddballstocks]

I think the issue is they aren't attracting the younger crowd.  I know about the turnaround and yet I still have this dowdy impression of Pennies in my mind.  I asked my wife why she doesn't shop there since they're targeting a younger crowd, and she said "No thanks I won't shop there."

 

It's not like we're special or anything our friends are the same.  Ask they why they don't shop at JC Penny and they get a weird look like why would anyone shop there who doesn't have grandkids?

 

Maybe we're too old, I'm 31 and my wife is 30, our friends are all in their late 20s to mid 30s.  I know my brothers who are in their 20s would die before they ever stepped foot in there.

 

So the question is really how do you get a young crowd in the door?  Here's my theory, change the name.

 

As to Sears? I think the same thing, every time we're at the mall we wonder aloud how they stay in business because the store is completely empty.  Same thing with Kmart, we go there once a year to buy oversized clothes for a relative who's rather large.  Kmart is the only place that sells XXXL.  The closest we get to Sears is the coin-operated helicopters that my son loves right next to the door. 

 

The mall we go to has been upscaling itself, yet there are two remnants of the 80s left, the JC Penny and the Sears.  Both places haven't changed their facades since the 80s at least.

 

I have no idea what this means for an investment, just some random stories to add to the pile.

 

[tooskinneejs]

"Ask they why they don't shop at JC Penny and they get a weird look like why would anyone shop there who doesn't have grandkids?"

 

"I know my brothers who are in their 20s would die before they ever stepped foot in there."

 

I think it just takes time.  Time for a few people to see the changes and then slowly tell their friends, who tell their friends.  And this obviously depends on the quality of the merchandise continuing to change (and by quality I mean quality of design).  People think of Hyundai as a great car now, on par with Honda and Toyota, whereas as if you asked anyone about the brand back in the 80's and early 90's they would have told you, "why would anyone buy that crappy car?"

 

Similar thing with Banana Republic.  Back in the 80's, they sold safari-style clothing.  Today's Banana Republic shoppers would have never thought the chain could transform itself into its current being if they had been around to see it back in the day.  And one last example, Abercrombie & Fitch.  It was formerly owned by Oshman's Sporting Goods and sold sporting/outdoor goods.

 

All JCP is doing is improving their assortments and modernizing their stores.  This should be applauded, yet paradoxically most everyone views this as bad or dangerous.  I feel like I'm living in a bizarro world when I hear people complain about it.  Don't people want nicer places to shop?

 

"Here's my theory, change the name."

 

I agree.  But rather than a wholesale change or just using the JCP initials, I thought James Cash (properly stylized) might be interesting and not too different but not so similar to JC Penney.

 

Who knows if the turnaround will be successful, but I've seen so many times where death is predicted en masse by the media and analysts only to hear them all completely change their tune just a short time later (the numerous recent upgrades of Best Buy after the run-up is a good example).  This will be interesting to watch and could get more interesting as a potential investment if the price were to take a substantial haircut from today's levels.

[ItsAValueTrap]

I've seen so many times where death is predicted en masse by the media and analysts only to hear them all completely change their tune just a short time later

If you predict death, most of the time you will be right.

 

In most industries (retail definitely isn't an exception), a small handful of companies will make money and most companies will be losers.  Buffett and Munger learned this the hard way.

 

Of course the media is wrong most of the time and you should ignore it.  And there are some academic studies that backtest and found that you should do the exact opposite of what analysts recommend.

[texual]

"The mall we go to has been upscaling itself, yet there are two remnants of the 80s left, the JC Penny and the Sears.  Both places haven't changed their facades since the 80s at least."

 

 

I defer back to Ron Johnson who said that the number one opportunity in retail is the department store. It simply meets all the criteria for a industry and business in need of disruption. Both Sears and JCP will be around for a while and I believe they will be radically different. Right now JCP is moving in a way that optically looks like its moving full speed. It didn't quite make the results people had imagined but think of Sears and JCP as both basically fighting two battles. One is themselves for being poor retailers and the second is the shift in consumer mindset, and buying habits. They fight both by doing one of two things: sticking to their original plan and lose customers through attrition or shift substantially in which case you lose both your older customers and make it harder for new ones to really catch on. JCP is that second scenario while Sears is slowly bleeding by doing nothing.

 

You can argue with me all day about how I would pick Sears over JCP and thats fine. But don't believe the hype about how JCP is doing all this brilliant work and trying and Sears does nothing. I'd argue both are in the same gutter. Pick your poison!

[ericd1]

While there may be a success story or two with major large chain department store turn-arounds...I can't recall one.  If some one can refresh my memory that's fine...

 

The list of failures is very long compared to those that make it...

 

http://en.wikipedia.org/wiki/List_of_defunct_department_stores_of_the_United_States

 

There's probably some case studies and books on why they fail...probably lots of reasons, but turning an ocean tanker around is difficult at best.  Definitely out of my circle of competence.

 

 

 

 

[fareastwarriors]

http://blogs.wsj.com/corporate-intelligence/2013/03/14/j-c-penneys-real-money-maker-retail-or-real-estate/?mod=WSJBlog&mod=WSJ_corp_intel

 

 

J.C. Penney’s Real Money Maker: Retail, or Real Estate?.

 

 

 

[PlanMaestro]

While there may be a success story or two with major large chain department store turn-arounds...I can't recall one.  If some one can refresh my memory that's fine...

 

* JC Penney in the 80s.

* Sears in the early 90s.

* Dillard's 2009

 

But that also tells you something about the industry attractiveness long term.

[hyten1]

just an observation

 

i went to check out the new joe fresh (woman only) today that was launch by jcp today to 681 jcp stores. i went to the store in manhattan on 33rd st

 

some overall impression

- store had more people in it than when i last check it out which was during the holidays, this was strange to me

- i saw a large part of the home section in jcp, block off that is being build for future martha stewart stores etc.

- joe fresh was decent, look nice, but was not more busy than other area of jcp, just about the same

- comparing the the overall mall jcp had about the same number of customers

 

 

hy

[BG2008]

hyten,

 

JCP has been running a $10 off for $50+ purchase lately.  I too have seen more traffic at the stores.  This is since Mar 10th and covers, locations in Johnson City, NY, Stroudsburg, PA, Roosevelt Field, Long Island, Manhattan Mall.  I am sure that gross margin will be impacted with discounts like that.  I thought that the Joe Fresh line was "okay".  Their offerings were simply "meh" to me.  I was really hoping that Joe Fresh can generate some excitement and drive traffic to the stores.  In most locations, they are located right at the entrance with at least 2,000-3,000 sqft of floor space. 

 

This Martha Stewart/Macy's/JCP suspense is quite annoying. The renovation square for the homes area is at least 15-20% of the total store space.  This quarter will likely be tough again, simply because of the square footage that was taken out.  Q2 will offer a true run-rate revenue/profit stats. 

 

 

[hyten1]

BG2008

 

i hear ya, i guess we will wait and see

 

but just an observation, i guess people think gross margin will take a hit either way, what do people want :)

 

- when they got rid off coupons

- now they reinstate some coupons

 

:)

 

 

we will see, i have no idea what is going to happen

 

 

[fareastwarriors]

http://www.bloomberg.com/news/2013-03-19/ackman-s-j-c-penney-losses-signal-buyout-need-real-m-a.html

 

 

Ackman’s J.C. Penney Losses Signal Buyout Need

[hyten1]

interesting blog post

 

http://jcponderings.weebly.com/1/post/2013/03/my-wifes-jcp-joe-fresh-haul.html

[Shawn]

You guys might want to check out Warren Buffett's view on JC Penny

 

http://blogs.barrons.com/stockstowatchtoday/2013/03/04/buffett-talks-stocks-j-c-penney-and-high-frequency-traders/

 

^^^^

I don't advise letting him sway you but it is an interesting perspective, you gotta see the CNBC interview tho, I can't remember all of what he said.

 

Personally I think JCP is really mediocre. There's far superior, better managed and better priced businesses to buy.

 

 

[fareastwarriors]

http://www.bloomberg.com/news/2013-03-20/j-c-penney-plane-commute-executives-seen-hurting-revamp.html

 

J.C. Penney High-Flying Executives Seen Hampering Revamp