JCP - JC Penney

[PlanMaestro]

Are REITs right for department stores?

http://www.jeffgreenpartners.com/are-reits-right-for-department-stores/

 

[returnonmycapital]

So I am, as a department store, losing money now. What I'll do is sell my properties into a REIT which will then charge me 3X what I am now paying on real estate-related matters. So all the money I raise today through the sale will, in turn, be owed to the REIT - most of it falling due within 7 years. My fate is now assured.

 

This kind of financial shenanigan only makes the short-term opportunist (hedge fund operator) who proposes the idea well off. Like every cigar butt, the immediate increase in cash on the balance sheet will cause a momentary increase in the perceived value of the company whereupon the opportunist vacates his roles as owner. Eventually, both department store and REIT likely fail.

[PlanMaestro]

2011 Interview with the Harvard Business Review.

http://dharm0us.blogspot.mx/2011/12/retails-isnt-broken-stores-are.html

 

[texual]

Why will JCP ultimately fail as a retail enterprise? I don't particularly view that as a fact in spite of years of decline. It is likely Best Buy will go out of business before JCP, especially with the quality management running the 'new JCP' and having a huge hedge fund backer that is aligned with management is a positive. Note that Ackman generally takes the opposite view with an investment where he is fighting management to replace or get the company on a different path. In JCP's case this has been nothing like his fight with TGT. In that battle he was really going for the real estate play and in JCP I do believe he is going for a retail turnaround with a potential backup being the real estate value. He attempted this before even at SHLD but could not really fight an even larger owner.

[PlanMaestro]

Ackman on Borders:

 

http://www.theglobeandmail.com/report-on-business/rob-magazine/rob-magazines-ceo-of-the-year-bill-ackman/article5795408/?page=4

 

The bet that stings the most, however, was his ill-fated run at the now-defunct U.S. book chain Borders, which didn’t result in a proxy contest, but cost Pershing an estimated $200-million after a failed merger attempt forced the chain to declare bankruptcy.  “We went down with the ship,” Ackman says. Although the loss was the worst in Pershing’s history, Ackman prizes the lesson he learned: “If you are in a tough business with a weak management,” he says, “you’re finished.”

 

I guess management is better this time and he is not getting killed by Amazon in apparel but… did he take into account the size and complexity of JC Penney plus the difficulties of adding a new type of customer?

 

 

 

[ItsAValueTrap]

Writeup (bullish) on Sumzero:

http://sumzero.com/headlines/consumers_and_retailing/JCP/142-this-is-what-bill-ackman-sees-when-he-looks-at-jcp

 

*Disclosure: I made my profit, covered on Nov. 14 '02, and am going to watch this from the sidelines.  I think that JCP's current management is the worst in the business based on their SSS so far.

[ShahKhezri]

That's a little to early to say right?

 

I think with retail, you're either hot or not.  The way JCP was going, they were in route to being Montgomery Wards.  You either try to recreate/rebrand yourself or you're in runoff.  So Ackman gets involved because of the wiz CEO and they actually have plan.  There is definitely execution risk and will have to tap their LOC if they do not generate any asset sales.  BUT they have a plan. 

 

With that said, if you are a potential buyer, you will have plently of time to buy.  First it's the guillotine, then the stock is in battle ground with those who believe in it and those that don't and they go back and forth, then if the business makes sense and results are improving (which after Year 1 of -20% comps, and Year 2 of -5-10% comps the base is real low), the believers start to bid the stock.  The balance sheet is going to look ugly though.

[txlaw]

I think that JCP's current management is the worst in the business based on their SSS so far.

 

Don't think it really makes sense to call them the worst in the business based on SSS, given what they're trying to do, which is fairly radical.

[ItsAValueTrap]

A saner approach would've been to leave JCP alone, especially the old stores which won't see the benefit of the new concept.

 

Take a small number of stores and try new retail concepts on them.

[thomcapital]

A saner approach would've been to leave JCP alone, especially the old stores which won't see the benefit of the new concept.

 

Take a small number of stores and try new retail concepts on them.

 

What "old stores" are you talking about? The small market stores that management has repeatedly said that they have no plans to renovate?

 

For your second comment, see: http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/jcp-jc-penny/msg81439/#msg81439

 

[ItsAValueTrap]

Sorry that wasn't clear.  I meant the smaller stores that won't be renovated.

[txlaw]

2011 Interview with the Harvard Business Review.

http://dharm0us.blogspot.mx/2011/12/retails-isnt-broken-stores-are.html

 

Very interesting interview, Plan.  Thanks for posting.

 

These were pretty interesting comments.

 

Every decade there are one or two retailers that change the game and profoundly influence the entire industry. The 1980s were the Walmart decade, with its new use of IT, supply chain innovation, and pricing. And the Gap reinvented the specialty store in the 1990s with a narrow assortment of private-label goods and a novel presentation and store experience. It’s the model that every specialty store has followed since. You could argue that Amazon on the e-commerce front and the Apple Store with the customer experience are the major influences in the industry from 2000 to the present. It remains to be seen what’s going to happen in the next decade. I think there will be one leader in the retail space. The question is who. There are good reasons to think it could be a department store.

 

So there we have it -- the radical goal that Ron Johnson is aspiring to.  I like this guy.

 

It seems like this is an all or nothing decision with respect to transformation.  They can't do this half-assed and start with only a few stores, as that will not work.

 

In retailing you’ve got to trust your intuition much more than you trust the data. There’s a tension there, but ultimately if everyone just followed the data, they’d all end up in the same place. And that’s part of the problem in retail today. The department stores are redundant. They import the same products, they price the same way, they carry the same percentage of their private label to national brands. They’re also redundant because they’re driven by people whose primary strength is data analytics. But to break through the clutter and do things that haven’t been done before, you need to trust your intuition.

To go back to the Genius Bar, the intuition there wasn’t simply “How do we best help people fix their computers?” It was “How do we restore and enhance customer relationships that may have been damaged by problems with the iPod?” It’s not just the product that’s broken but also customers’ trust in Apple. Apple is in the relationship business as much as the computer business. And the only way to really build a relationship is face-to-face. That’s human nature. That gets at the essence of what retail stores have to be about: deepening connections with people.

 

Quantitative analysis completely trumping qualitative analysis among the analysts?

[PlanMaestro]

The JCP Dallas prototype and Nordstrom.

http://www.cbsnews.com/video/watch/?id=50135793n

[DCG]

The JCP Dallas prototype and Nordstrom.

http://www.cbsnews.com/video/watch/?id=50135793n

 

cool video - although it leaves me with a better impression of Nordstrom than JCP.

[ItsAValueTrap]

In retailing you’ve got to trust your intuition much more than you trust the data. There’s a tension there, but ultimately if everyone just followed the data, they’d all end up in the same place.

Sam Walton and Allen Questrom operate differently.  Both have successful track records.

 

Questrom has publicly questioned Ron Johnson in an interview that was posted in this thread.

 

If you look at Sam Walton, he admits that he has tried things that flopped terribly.  He rolled out Moon Pies across all Walmarts, but it turns out that Moon Pies are a regional thing.  He recognized his mistake and moved on.

 

2- If you read books by famous CEOs, a lot of times their intuition is wrong.

 

Starbucks' CEO was wrong about authenticity of the product being important.  He vowed in his first book not to mess with authentic coffee... later on, Starbucks did Pike Place roast which was a wimpy coffee that catered to mainstream tastes.

 

Bill Gates has made a lot of incorrect predictions in his book The Road Ahead.

 

Ray Kroc of McDonald's... very disappointed that the Hula Burger did not take off.  He really thought it would.

 

I think that what's important in real life is being able to admit that you are wrong.  It's so hard for human beings to do.  (For example of bad managers, go watch the UK version of Kitchen Nightmares.  Typically, the restauranteurs are so hung up on bad ideas and are extremely resistant to new ideas and to admitting that they are wrong.)

[txlaw]

In retailing you’ve got to trust your intuition much more than you trust the data. There’s a tension there, but ultimately if everyone just followed the data, they’d all end up in the same place.

Sam Walton and Allen Questrom operate differently.  Both have successful track records.

 

Questrom has publicly questioned Ron Johnson in an interview that was posted in this thread.

 

If you look at Sam Walton, he admits that he has tried things that flopped terribly.  He rolled out Moon Pies across all Walmarts, but it turns out that Moon Pies are a regional thing.  He recognized his mistake and moved on.

 

2- If you read books by famous CEOs, a lot of times their intuition is wrong.

 

Starbucks' CEO was wrong about authenticity of the product being important.  He vowed in his first book not to mess with authentic coffee... later on, Starbucks did Pike Place roast which was a wimpy coffee that catered to mainstream tastes.

 

Bill Gates has made a lot of incorrect predictions in his book The Road Ahead.

 

Ray Kroc of McDonald's... very disappointed that the Hula Burger did not take off.  He really thought it would.

 

I think that what's important in real life is being able to admit that you are wrong.  It's so hard for human beings to do.  (For example of bad managers, go watch the UK version of Kitchen Nightmares.  Typically, the restauranteurs are so hung up on bad ideas and are extremely resistant to new ideas and to admitting that they are wrong.)

 

Fair enough.  Ron Johnson has also gotten advice from a number of other retail luminaries you did not mention, and not all have agreed with his all-in strategy.  See http://management.fortune.cnn.com/2012/03/07/jc-penney-ron-johnson/ .  Presumably, some have agreed with him, though.

 

It's just way too early to admit that he was wrong in the entirety.  We have to give him a chance.  He has already admitted that his original pricing strategy was very confusing and not a good idea, and JCP has backtracked on it, though they continue to believe in everday value. 

 

IMO, you cannot look at SSS and say, it's over for JCP.  It's also all too human to pile on at the beginning when something new is being tried or when something transformative is occurring that is masked by bad developments in the short run. 

 

From that article:

He knows he's risking his reputation by proclaiming "transformation" rather than incremental change. But he won't admit even the possibility that his plan might not succeed. "The only things that haven't worked for me are when I've held back," he says. "There's no reason to sell an idea short. The only risk would be to not fulfill the dream."

 

Not long JCP.  Just watching. 

 

I admire Ron Johnson's entrepreneurial spirit, and I hope he succeeds.  We need these types of people in business.  On principle, I would never short such a business.

[PlanMaestro]

It addresses several of the points we've been discussing: reality distortion field, customer segmentation, speed of the changes, pricing strategy, …. I disagree with the emphasis –his 100% confidence of a failure following this path– and some of the facts –the sales productivity comparison WAS NOT not against the chain average– but good nevertheless.

 

http://stevenpdennis.wordpress.com/2012/11/15/jcpenneys-road-to-recovery-part-1-the-reality-distortion-field/

http://stevenpdennis.wordpress.com/2012/11/19/jc-penney-update-part-2-the-intervention/

http://stevenpdennis.wordpress.com/2012/11/21/jcpenneys-road-to-recovery-part-3-the-10-point-action-plan/

 

 

RR: Reading some of his past posts and the guy is good. Time to add him to the RSS.

 

http://stevenpdennis.wordpress.com/2012/03/21/jc-penney-swings-for-the-fences-part-1/

http://stevenpdennis.wordpress.com/2012/03/23/jc-penney-swings-for-the-fences-part-2-the-vision-thing/

http://stevenpdennis.wordpress.com/2012/03/28/jc-penney-swings-for-the-fences-part-3-when-the-invitation-is-better-than-the-party/

http://stevenpdennis.wordpress.com/2012/05/16/in-gut-we-trust/

[tooskinneejs]

txlaw said: "his original pricing strategy was very confusing"

 

I keep hearing this over and over from various investors and reporters, but I still fail to understand how having everyday low prices is "confusing" to anyone.  Lot's of stores follow this model.  Yet, I don't hear anyone saying the pricing at Walmart, Aldi, or Trader Joe's is confusing.

 

If anything, the decline in sales can be blamed on lack of print advertising (i.e., the weekly ads with coupons) reminding people to come into the store each week.  But to blame the company's sales declines on a "confusing pricing strategy" is to misunderstand why traffic has really dropped, in my opinion.

[txlaw]

txlaw said: "his original pricing strategy was very confusing"

 

I keep hearing this over and over from various investors and reporters, but I still fail to understand how having everyday low prices is "confusing" to anyone.  Lot's of stores follow this model.  Yet, I don't hear anyone saying the pricing at Walmart, Aldi, or Trader Joe's is confusing.

 

If anything, the decline in sales can be blamed on lack of print advertising (i.e., the weekly ads with coupons) reminding people to come into the store each week.  But to blame the company's sales declines on a "confusing pricing strategy" is to misunderstand why traffic has really dropped, in my opinion.

 

Actually, what I said in full was: "He has already admitted that his original pricing strategy was very confusing and not a good idea, and JCP has backtracked on it, though they continue to believe in everday value."

 

When did I say that every day pricing is confusing?  Remember, JCP had three price tiers at one point: "Every Day", "Monthly Value", and "Best Price."  This was confusing, and Ron Johnson admitted as much.

 

Go to the horse's mouth if you don't believe me:

 

As I mentioned, we've made extraordinary progress in so many areas, but in the past six months we've also made some mistakes and I'd like to talk about two of those in particular before I get started. And those relate to our pricing and our marketing efforts.

 

When we started last January here we talked about how in 2011 our Company ran 590 unique promotions and the average item had 20 to 30 prices -- different prices during the year. And so I figured going to three types of prices would be a lot simpler. A great everyday price, some items at a month-long better value and then clearance, which we called best price.

 

But after going through three to four months of trying to communicate that to the customer, it was clear it was confusing. And what we wanted to deliver was great everyday value that the customer trusts and understands and it's very clear that the three types of prices was confusing people.  And so we've got to fix that.

 

The pricing was confusing at the beginning, full stop. 

[PlanMaestro]

Maybe you both have a point.

 

(1) JCP's specific ELP implementation was confusing with the 3 price levels.

(2) but ELP is in general tough to implement when trapped in a promotional vortex.

 

Much easier to do ELP greenfield when not facing client segmentation issues and starting with a differentiated customer proposition.

 

And I guess it's easier for RJ to blame tactics rather than strategy: he's facing a potential shareholder revolt in the middle of a turnaround (that still has chances of working). A bad strategy he has no one to blame but himself, but a bad implementation he still could blame Francis.

[Guest valueInv]

It addresses several of the points we've been discussing: reality distortion field, customer segmentation, speed of the changes, pricing strategy, …. I disagree with the emphasis –his 100% confidence of a failure following this path– and some of the facts –the sales productivity comparison WAS NOT not against the chain average– but good nevertheless.

 

http://stevenpdennis.wordpress.com/2012/11/15/jcpenneys-road-to-recovery-part-1-the-reality-distortion-field/

http://stevenpdennis.wordpress.com/2012/11/19/jc-penney-update-part-2-the-intervention/

http://stevenpdennis.wordpress.com/2012/11/21/jcpenneys-road-to-recovery-part-3-the-10-point-action-plan/

 

 

RR: Reading some of his past posts and the guy is good. Time to add him to the RSS.

 

http://stevenpdennis.wordpress.com/2012/03/21/jc-penney-swings-for-the-fences-part-1/

http://stevenpdennis.wordpress.com/2012/03/23/jc-penney-swings-for-the-fences-part-2-the-vision-thing/

http://stevenpdennis.wordpress.com/2012/03/28/jc-penney-swings-for-the-fences-part-3-when-the-invitation-is-better-than-the-party/

http://stevenpdennis.wordpress.com/2012/05/16/in-gut-we-trust/

What makes him good?

[txlaw]

It addresses several of the points we've been discussing: reality distortion field, customer segmentation, speed of the changes, pricing strategy, …. I disagree with the emphasis –his 100% confidence of a failure following this path– and some of the facts –the sales productivity comparison WAS NOT not against the chain average– but good nevertheless.

 

http://stevenpdennis.wordpress.com/2012/11/15/jcpenneys-road-to-recovery-part-1-the-reality-distortion-field/

http://stevenpdennis.wordpress.com/2012/11/19/jc-penney-update-part-2-the-intervention/

http://stevenpdennis.wordpress.com/2012/11/21/jcpenneys-road-to-recovery-part-3-the-10-point-action-plan/

 

 

RR: Reading some of his past posts and the guy is good. Time to add him to the RSS.

 

http://stevenpdennis.wordpress.com/2012/03/21/jc-penney-swings-for-the-fences-part-1/

http://stevenpdennis.wordpress.com/2012/03/23/jc-penney-swings-for-the-fences-part-2-the-vision-thing/

http://stevenpdennis.wordpress.com/2012/03/28/jc-penney-swings-for-the-fences-part-3-when-the-invitation-is-better-than-the-party/

http://stevenpdennis.wordpress.com/2012/05/16/in-gut-we-trust/

 

This guy's posts are very interesting.  Clearly a smart and experienced fellow.

 

Some thoughts that occurred to me after reading these posts.

 

But the reality is that things are MUCH worse than they thought and most of what they sold the analyst community earlier this year-and in subsequent earnings calls–is simply not proving out.

 

I agree with this.  I think the selling the Street aspect may have been influenced by Ackman.  I think Ackman is an amazing investor, but he is a pretty good salesman as well, and that sometimes gets the best of him.

 

As consummate salesmen, the guys at JCP were too optimistic.  Reminds me of the DELL salesmen who are often too optimistic and create distrust among the more skeptical investor community.

 

The truly sad part, however, is the apparent lack of acceptance of reality being demonstrated by senior management.

 

One does wonder if RJ has completely bought into the RDF mentatlity that he probably was steeped in while he was working with Steve Jobs.

 

I'm not convinced, though, that JCP management really is in denial.  In this case, I think it could easily be the case that the RDF is intended to motivate the new employees and vendors who want the transformation to succeed.  I've never faced such a situation, but it does not always pay to be analytical and "rational."  Sometimes you need to be inspiring, even if that means not acknowledging "reality."  It's just human psychology.  One's attitude toward a venture (positive or negative) can affect the outcome, whether or not based in reality.  Think about Benmosche.  Was it wrong to act like a bull in a china shop and to be as aggressive as he was when he took over?  I don't think so -- the morale boost at AIG appears to have been exactly what was needed to get AIG back on the right track.

 

I once was talking to a friend of a friend who had just graduated from Columbia business school, and who was in SF/Cupertino to interview at Apple (or she may have been interning at Apple).  She was a retail person, and she ended up going to Apple.  I asked her about RJ and what she thought about what he was trying to do at JCP, and she said she really admired and was excited about what he was doing.  I cannot imagine ESL inspiring such admiration among his employees and vendors, and I'm invested in SHLD!

 

In other words, there may be a place for such an RDF, at least when you are trying to save a business from irrelevance by transforming it.  So I think we cannot say that RJ is in denial with certainty.

 

Of course, history shows us that consumers are often not very helpful in reacting to innovative new products or programs. But history also shows us that some of the most successful brands have embraced deep customer insight and competing on analytics not only as a foundational element of their strategy, but as a major source of competitive advantage.

 

You may be able to thrive on gut feel when you have a superior product line, little direct competition and a simple operating model. But in most businesses, customer-centricity means developing deep customer insight, robust analytic capabilities, actionable segmentation schemes and a commitment to treat different customers differently.

 

Interesting, as this sort of invokes the battle of data vs. intuitive design and the Steve Jobs line about focus groups.  Could be that this designer-like approach doesn't work in retail.

 

Having said that, if JCP were a greenfield company, we probably wouldn't be criticizing RJ as much.

 

Consumer research and robust customer data analytics are not the be all, end all.  As the name of this blog suggests: customer-centricity is both an art and a science.

 

Customer-centricity is key for sure, and it does seem likely that in the retail field, it is very much a combination of art and science.  It seems to me that as long as JCP management remains flexible and willing to change when things don't work out, they'll fine the right combo.

[hyten1]

for me, jcp is a play similar to venture capital.

 

i am just saying that is how i position jcp and see the jcp investment for myself, not saying it should be for you.

 

 

what jcp is trying to do is, bold, inspiring,  just down right not settling for "me too"ness (its not a word, but the right word escape me)

 

at the end of the day you can do what everyone has been doing (the typical thing you do, cut cost, streamline, etc etc, which i believe is what shld is more like)

 

or you can try to change the game, which is what jcp is trying to do.

 

now when you shot for the stars, there are bound to be many critics (look at history), and growing pain (otherwise everyone would do it)

 

not saying jcp is an guarantee

 

that is why for me RIGHT NOW, JCP is an VC investment for me, investing in a entire new retail concept, albeit with a lot better odds than a typical VC investment.

 

 

[txlaw]

for me, jcp is a play similar to venture capital.

 

i am just saying that is how i position jcp and see the jcp investment for myself, not saying it should be for you.

 

 

what jcp is trying to do is, bold, inspiring,  just down right not settling for "me too"ness (its not a word, but the right word escape me)

 

at the end of the day you can do what everyone has been doing (the typical thing you do, cut cost, streamline, etc etc, which i believe is what shld is more like)

 

or you can try to change the game, which is what jcp is trying to do.

 

now when you shot for the stars, there are bound to be many critics (look at history), and growing pain (otherwise everyone would do it)

 

not saying jcp is an guarantee

 

that is why for me RIGHT NOW, JCP is an VC investment for me, investing in a entire new retail concept, albeit with a lot better odds than a typical VC investment.

 

I'm not invested in JCP, and the reason is that I can't get comfortable with the downside yet.  I just don't know what the run-off value associated with the RE is, though I may try to figure that out over the next few months.

[infinitee00]

Just adding to the existing noise on JCP

 

http://www.bloomberg.com/news/2012-12-05/j-c-penney-sees-risks-in-morale-efficiency-as-employees-leave.html?cmpid=yhoo