What If You Own a Plummeting Stock (JCP) $%^&*!

In The Intelligent Investor, Benjamin Graham sums up his investment philosophy by saying that an intelligent investor must be “businesslike” in approach. Investing in shares in a company is just like owning a share in a business enterprise and the investment must be approached as if one were buying a business, or a partnership in one.

There are four guiding principles for Graham:

1. Know the business

The investor needs to become knowledgeable about the business or businesses carried on by the company in which they propose to invest – what it sells, how it operates, what is the competitive environment, what are the threats and opportunities, the strengths and weaknesses.

An investor who bought a fruit shop, or a shoe factory, without investigating these things, and knowing them, would be foolish. The same applies to share investment. An investor who does not understand the business should not be investing in it.

2. Know who runs the business

An investor who cannot operate the business for himself or herself, needs a manager. This is the position of the average share investor, who owns a share of an enterprise that is run by others.

The owner of a business in this position would want a manager who will manage the business competently, efficiently and honestly. The share investor should not be satisfied with less. Unless the investor believes, through sound research, that the company is managed efficiently, competently and honestly, in the best interests of the shareholders, the investment should not be made.

3. Invest for profits

An investor would not normally buy a business that did not, on proper research, appear to have reasonable expectations of producing good profits over time. Share investors should take the same approach and buy, as Graham says, “not on optimism, but on arithmetic”.

4. Have confidence

Graham encourages investors to properly research their investments and, if they believe their investment judgment to be sound, to act on it. He cautions investors in this position against listening to others.

“You are neither right nor wrong because the crowd disagrees with you. You are right [or wrong] because your data and reasoning are right [or wrong].”

A Plummeting Stock

You bought JCP at a higher price and now the price is dropping as sales declined more than expected, so, of course, many analysts are dropping their price targets to $15 or lower.  NOW, they tell me! Then the New York Times comes out with: http://dealbook.nytimes.com/2012/11/12/a-dose-of-realism-for-the-chief-of-j-c-penney/?ref=penneyjccompany.

You can feel the fear, anger, and despair (visit the Yahoo Finance Board for JCP to get a feel for what small investors think), because you own the company. Whom do you blame, what can you do? The only way to stop the price from going down is to turn off your screen. 🙂 


A Dose of Realism for the Chief of J.C. Penney  By ANDREW ROSS SORKIN

To gain a more realistic view of J.C. Penney’s prospects, however, here is the Deutsche Bank analyst Charles Grom: “Trends at J.C. Penney are obviously getting worse, not better, and we are becoming more and more convinced that sales in 2013 will also decline, which could lead to a going-concern problem next year.”  (CS Editor: OK, if that were the case would the management and Board of Directors take a different course? Slow spending, sell off assets, etc. OR is the analyst just linearly extrapolating to come up with his thesis?)

The company’s stock has fallen nearly 50 percent since the beginning of the year. Even its online sales, through jcp.com, fell 37.3 percent last quarter from a year ago.  Yet Mr. Johnson, a well-regarded and charismatic retailer who worked at Target before his meteoric rise at Apple, appears to be trying to mimic Steve Jobs and create what Mr. Jobs’s biographer, Walter Isaacson, called a “reality distortion field.”   An opinion not a fact.

Andrew Burton/ReutersRon Johnson, chief executive of J.C. Penney, says the store renovation plan is a success. Mr. Johnson has spent the last several months trying to persuade investors that his transformation of J.C. Penney was the equivalent of Mr. Jobs’s efforts to turn around Apple a decade ago.

“You know, I watched this movie before. When I joined Apple in 2000, Apple was a company dwindling. Everyone said to me, ‘What are you doing there?’ ” Mr. Johnson told investors in September. “Apple wept through 2002 and I think sales were down 38 percent as we dreamed about becoming a digital device company. But Apple invested during that downturn. That’s when Apple built, started to build its chain of stores. That’s when Apple transitioned to Intel. That’s when Apple started its app division. That’s when Apple imagined and built the first iPod.”

O.K., Mr. Johnson, but that was Apple. And J.C. Penney is not Apple — and let’s be honest, it can never be Apple. The company doesn’t make its own magical, revolutionary products that bring tears of joy to its customers. It is a low-end department store that Mr. Johnson is hoping to turn into a slightly higher-end department store that sells clothing made mostly by other manufacturers.
Still, Mr. Johnson has sought to remake the company quickly, perhaps too quickly, by eliminating promotions and discounts, moving the stores more upscale, rebranding the company as JCP and putting in place a “fair and square” pricing model. (J.C. Penney is, however, putting on a special sale for the holidays.)  Granted, JCP is no Apple, but what did Ron Johnson accomplish at Target–probably a better comparison.

Yet the renovations are hardly finished — or in some cases even started. Only 11 percent of its stores’ floor space has been remodeled with his successful specialty-store-within-a-store concept, in which he has opened up outposts for brands like Levi’s, Izod, Liz Claiborne and the Original Arizona Jean Company.
J.C. Penney may have been dying a slow death before Mr. Johnson’s arrival — some rivals used call it “death by coupon,” given the retailer’s penchant for discounts — but the company’s decline has only accelerated.

But the lessons, and successes, of the rollout of Apple stores are proving that they do not apply to Penney. While the customer experience at Apple is in a class by itself, and Mr. Johnson should rightly receive credit for that, the success of the stores was in large part a function of stunning products with a fan base that would stand outside stores for days in the rain to get their hands on them without any chance of a discount. Do you think there are customers who will ever stand outside J.C. Penney overnight for the next Liz Claiborne sweater? (J.C. Penney bought the Liz Claiborne brand last year.)

“Ron Johnson’s remake of JCP has assumed the consumer — the only one who matters — is the one who shops at Target or Macy’s or Nordstrom’s. Instead of pivoting on and strengthening the historic JCP brand (What brand?), Johnson’s decided to recreate the Target and Apple wheel, a move akin to Toyota suddenly deciding it’s Porsche. In short, a ridiculous and condescending move,” Margaret Bogenrief, a partner at ACM Partners, a boutique crisis management and distressed investing firm, recently wrote.

There is something romantic about watching Mr. Johnson try to remake a dying classic icon (So why did Sorkin call JCP a brand in the prior paragraph). At some gut level, you have to root for him. He’s making a bold bet. Transitions are inherently painful. And everyone loves a great comeback story.

Here’s the good news: In the stores that have been transformed, J.C. Penney is making $269 in sales a square foot, versus $134 in sales a square foot in the older stores. So the model itself is working. And Mr. Johnson has the support of the company’s largest shareholder, Pershing Square’s Bill Ackman, who personally recruited Mr. Johnson. If Mr. Johnson were starting with a blank slate, it might be a great business.

Mr. Ackman declined to comment. J.C. Penney did not make Mr. Johnson available.

Now here’s the bad news. Mr. Johnson still has to convert nearly 90 percent of his square feet of shopping space. That will very likely take $1 billion and as long as three years. If the sales decline that occurred last quarter accelerates, the company could run out of money. It now has about a half-billion in cash and access to a credit line for as much as $1.5 billion.

Of course, it remains possible that Mr. Johnson, who people close to him say is a realist, could always decide that the transformation is not working and change course to return to the old model of J.C. Penney and save all that money remodeling. But that would be a huge setback.

The question Mr. Johnson may be asking himself now is: What would Steve do?
A version of this article appeared in print on 11/13/2012, on page B1 of the NewYork edition with the headline: A Dose Of Realism For the Chief Of J.C. Penney.

Let’s pile on: JC Penny Down in the Rubble http://seekingalpha.com/article/1000571-down-in-its-own-rubble-the-sorry-state-of-j-c-penney

Rebuttal and Commentary from JCP’s Largest Investor

You hear and read the good, bad and the ugly, but what do YOU do?

My suggestion: I turn off the CNBC, set aside the NY Times, ignore the Wall Street Research Reports and do this:


But ASK yourself if the people who are commenting have ACTUALLY SHOPPED at JC Penny RECENTLY.


So What is JCP worth? Forget the price today, what is the value of JCP? Since this is NOT a franchise, then this would be an asset type of investment. What is the real estate worth for JCP? I would start there and review with a critical mind  my valuation of the company.  Oh, and forget blaming anyone for the price being below your purchase price, perhaps or perhaps not, today is your luckiest day.

20 responses to “What If You Own a Plummeting Stock (JCP) $%^&*!

  1. The Danny Devito Video is THE BEST clip ever found on value investing from Hollywood. EXCELLENT.

  2. I’m going to shoot from the hip, because I’m lazy.

    First off, I would never bet against Bill Ackman. That’s step one!

    I think a turnaround depends critically on management. Handled wrongly, it ends in bankruptcy. Handled correctly, you get a multi-bagger. JCP has new management, which I view as a positive, especially as it has been hand-picked by Ackman.

    The key here is that under new management, JCP has turned $134 ssft (sales per square foot) into $269. About double! The key statistic to watch is like-for-like sales. I’m assuming that they have to be making some good margins on that. Crucially, the turnaround plan seems to be working, so we’re not looking at some pie-in-the-sky turnaround situation.

    The analyst is also missing a trick: JCP can dispose of real estate if it sees no long-term benefit, or, in a pinch, needs it to stem losses and generate cash. I think he’s also missing the fact that as the new concept grows, cash flow should improve and help fuel further transitions. Revenue may be declining, but the question is “how?”. It’s not so much revenues that are important, and whether they’re growing or declining, but how much margin you can generate on those revenues, and the return on capital.

    It looks like an interesting structuring opportunity, and probably a classic restructuring opportunity of a “good business hiding inside a bad business”, which Greenblatt talks about in his “Genius” book. Basically, Ackman has spelt out the entire investment case in his interview, so all the hard thinking has been done for us. Despite being 50% down on his investment, I reckon there will be a turning point where JCP starts to deliver on its plan, and the market will realise its mistake and the make a quick correction.

    There’s also another trick to consider. As weak retailers fail, the strong one will win their customers.

    Methinks Ackman is about to deliver a masterclass in special situations investing. The investment isn’t risk-free, because you do have a possible secular decline in bricks-and-mortar retailing to contend with. It’s a little disappointing that the CNBC reporters keep talking over Ackman as he tries to explain exactly how he sees the turnaround working.

    I would love to hear other people’s opinions. And BTW, John, I think you are providing some excellent learning material. The Yahoo versus GM was extremely instructive, too. Truly first rate.

  3. I just took a look at the Seeking Alpha article. I prefer to shoot my mouth off first 😉

    I see the article as making two key mistakes: they’re overlooking the “new business wrapped in a bad business” restructuring case, and ignoring the fact that the new business has double the revenues of the old business.

    Looking at past graphs wont help – it’s what will happen, not what has happened, that’s important. One commenter said that Ron should be shown the door. WRONG! Ron is delivering on plan. He seems to know exactly what he’s doing.

    Also, the whole discussion about pins is kinda focusing on minutiae. I think you see a lot of that in turnaround investing, whereas the real trick is to make sure you have the right man with the right plan, and not keep second-guessing him on operational issues.

    I take their point about declining gross margins, so it looks like time is of the essence. From what I gather, the turnaround plan is fairly new, and we may need to wait until next quarter to see things turning around.

    Just my 2c, of course.

    • Well, my main goal in choosing JCP is it is in the news with a lot of noise surrounding it. No matter what Ackman or Sorkin says, it will ultimatey be priced on its real estate values and what the consumer decides. Also, management and the Board are not stupid, they won’t go on spending and seeing sales plummet until the bank takes the company over. This company has the cash to ride for a while. Business does not move up or down in a linear fashion though spread sheets would be easier to work with in estimating values.

      I have shopped at JCP and was impressed with the bargain. I don’t think JCP will have a problem once people go into the stores–the issue is getting them in the doors. JCP needs foot traffic. Ron Johnson’s options are at $29 and Ackman has stock at $25 and I wait for my chance for the price to go near my analysis of replacement value. I would like to buy the business when the market imputes a $0 value to it.

  4. Pingback: Graham And Doddsville | Danny DeVito Explains Value Investing in 3 Minutes

  5. John, I thought I’d like to respond to your comment about it not being a franchise, and therefore making it an asset situation.

    According to Google, total equity of JCP is $3502m, and it has a market cap of $3879m. So market cap is above book, which is not ideal from a safety perspective. It’s close, so maybe not so bad. It seems likely that the assets are likely to be worth less than book in a liquidation, so I don’t think you can make a case for liquidation. Maybe JCP could sell some stores at a pinch, but I see that as a tactic rather than a strategy.

    JCP is not a franchise – that much is true – but I’m not looking at it that way. It’s a restructuring opportunity, so I think it should be examined from that angle. None of the examples in Greenblatt’s “Genius” books are franchises, but that doesn’t mean they shouldn’t be invested in.

  6. Sooo I’ll shoot back from the hip (I hope I understand that expression correctly:) and ask some questions …

    (1) “First off, I would never bet against Bill Ackman. That’s step one!” –> so if you buy today and Ackman sells tomorrow because of discussions with management –> what will you do then?

    (2) “Despite being 50% down on his investment, I reckon there will be a turning point where JCP starts to deliver on its plan, and the market will realise its mistake and the make a quick correction.” –> I often read that and it is easily said there will be a turnaround but how do you know that with a high enough probability?

    (3) “JCP has new management, which I view as a positive, especially as it has been hand-picked by Ackman” –> how do you judge outside management as an outsider? I find it nearly impossible to judge management as an outside passive investor…I’m able to for example judge some companies management by looking at histrical capital allocation etc. but how do you do it here?

    (4) How do you value real estate? You look into the AR? (I did it for another European retailer Tesco which trades now nearly at the marketvalue of the real estate)? However do you come up with a quit specific number or do you more or less take a rough estimate?

    (5) Do you think your brain already has an Ackman sticker attached to this investment? In other words, if you find elements that don’t fit your first thoughts, would you reconsider it or do you think you will eventually compromise anyway because an investor like Ackman is invested?

    For the record..I’m not accusing you of just stating things without arguments but I’m just trying to learn here 🙂

    thanks a lot (I’ll check later today for some interaction!)

    • “so if you buy today and Ackman sells tomorrow because of discussions with management –> what will you do then?”

      Honestly, I’d have second thoughts, and probably consider that I had been wrong.

      “I often read that and it is easily said there will be a turnaround but how do you know that with a high enough probability?”

      Sales per square foot in the new stores are double what they were as old stores. Ultimately, you don’t know for sure.

      “how do you judge outside management as an outsider?”

      I’d rather have new management than old management who got the company into the situation in the first place. Also, the improvement for sales in the new stores is evidence that management is effective.

      “Do you think your brain already has an Ackman sticker attached to this investment?”

      I know I’m not supposed to say this, but honestly, probably yes.

      ” In other words, if you find elements that don’t fit your first thoughts, would you reconsider it or do you think you will eventually compromise anyway because an investor like Ackman is invested?”

      I would reconsider, yes. Having said that, I always think that there will always be elements that contradict one’s thesis.

      Another situation that I have actually invested in is Supergroup, which is a fast-growing retailer. It hit many road bumps, including stock system orderings. Management lost credibility, it was just another fad fashion retailer like “French Connection”, analysts slapped a “sell” note on it, and even I considered it uninvestible. Management really did fall apart. There’s always a myriad reasons why you should or should not invest.

      Then, one day, I changed my mind. Management was changed to those who could bring a lot more “depth” to the organisation, and the double-digit sales growth still looked on track despite all the setbacks. More recently, it opened a shop in London Regent Street, and it is doing great, and it started some franchises in new foreign territories. Also, it is starting its own online retailing operation instead of retailing through third parties. Profit margins will improve.

      Nothing is ever going to be a no-brainer, – well, hardly ever. As Howard Marks says, “a hugely profitable investment that doesn’t begin with discomfort is usually an oxymoron”. It’s all a question of judgement.

      Also, I notice that JCP has many similarities, although not identical, to the Greenman Brothers restructuring case presented in Greenblatt’s “Genius” book (You can be a stock market genius). There we had a good small business inside a large business. The good business gets “disguised”.

      Look at the Seeking Alpha writeup. They were talking about the declining gross margins. Are declining gross margins a worrying thing? Yes, you bet they are! But listen to what Ackman says. The new store concept has yet to kick in properly during a quarter statement.

      During the next return, one set of people are going to be disappointed by the lowering of revenues. Some are going to pick up what I hope are improving margins. The stock has also fallen 50% during the year. If the improving gross margins really do come through, and enough people work out the implications of that, then the stock should rise quickly.

      How do I know that margins will rise? Well, I can’t be sure, but the new concept shops are 10% of the business and growing, and they’ll have higher margins – we know this because Ackman told us that they’ve doubled the sales per square foot.

      Intelligent management will also eliminate any stores that can’t be converted.

      As John said, there’s a lot of noise surrounding JCP. Lots, and lots, and lots of noise. The money will be earnt (or conversely losses avoided) by working out correctly what is noise and what is signal.

      When all is said and done, how do we proceed? We proceed by looking at the facts! It’s the established success of the new concept that will be the key here. It’s then a case of replicating that formula to the other stores.

      Unless I’ve got it completely wrong, of course, and I’m just being blinded by the light of Ackman. We shall see.

      I really must do a write-up of some of Greenblatt’s chapters!

    • Do you mind sharing how you estimated value of real estate for Tesco? Was it in their AR? Also, how did you adjust for increases/decreases in historic BV for their real estate?

      I suppose I should try to do it on my own then compare my numbers with yours at some point this week to learn/improve.

      • Scott, at the moment I’m basically considering the numbers (book and market value) that are in the AR (there is a section somewhere – I’ll look it up tomorrow) and compare that to the value of the company (EV/marketcap). So that’s probably as simple as it gets but I’m willing to learn here and get to know a more elaborate way to look at it..or compare how other people look at it.

    • Just a little followup on my Supergroup … following analysts: that’s exactly how you don’t make money! Supergroup was a “sell” when it was at bottom, then was upgraded to “hold” after it doubled. No doubt, as the company’s past misdeeds fade into memory, new management has proven themselves – a fact that analysts will suddenly “realise” – and double-digit sales continue, the stock will be rated a buy.

      Analysts have a hard job, that’s true, and I don’t want to criticise them because many have excellent deep insights into the company’s they cover. But analysts have to be cautious, and there is a certain amount of groupthink that goes around, and they are not impervious to psychological biases. They also cover too much. Whilst some analyst recommendations will be extraordinarily prescient, for anyone who looks at analyst reports, many of the excellent calls will be lost in a sea of noise.

  7. Thanks for your quick reply mctura2000!
    I believe sell-side analyst are often good ‘business analysts’ of a company but they are not so good in:
    – managing a portfolio
    – independent thinking (given they have to generate commission on the brokerage front and remain friendly with potential investment banking clients)
    – considering also the balance sheet and capital allocation decisions from management / the company
    – looking at historical quality measures like consistent and high ROIC, margins, market share, ….
    – looking a few quarters further than their colleagues
    – …

    I should correct myself by stating some sell-side analyst are good at the things above but just cannot apply them in the traditional sell-side research format.

    (Does this have a future btw?)

    Will come back on JCP investment tomorrow!

  8. I don’t have a position here, but would like to chime in. I’ll shoot from the hip (as is the style in this thread), and agree with John that this is an asset play with a call option on a successful turnaround. Couple of thoughts on this situation:

    That said, I don’t know how likely that turnaround is. Retail is a business with winners and losers. Alienating and confusing your old customers without attracting new customers is a recipe for disaster (which is what we’re seeing). A good example of this is Talbots (which worked out quite poorly until it was sold to private equity). I also have to think that the course is irreversible at this point, as management and Ackman have gone “All-In” or at the very least “Pot-Committed”. I haven’t looked at JCP’s covenants, but I’d think the longer this goes on the greater the likelihood of some sort of credit event. This is a business with little terminal value, so I’d need a significant discount to the asset values to make it appealing.

    I also don’t understand the jockey argument here. Don’t iPad’s, iPhone’s, and iPods sell themselves? I am kind of reminded about that thing WEB said about a management team with a reputation for brilliance meeting a business with a bad reputation.

    I will also say that investors need to do their own thinking, all great investors have blind spots and make mistakes. Jim Chanos said that all terminal shorts/value traps have prominent shareholders involved, this could be a situation like that. I look at what’s going on here, consider the “Return on Invested Brain Damage” that Ackman mentioned (regarding HPQ, another value trap), and wonder if Eddie Lampert’s approach with SHLD is a better way to handle this type of situation. Just milk the cash flows, sell off the real estate, etc. That’s not Ackman’s bag, so I don’t expect that.

    I sincerely wish everyone here long the stock best of luck with the position, I love a good turnaround story.

  9. I’ve had my fair share of losses in retail so I wont be buying JCP anytime soon. I particulary don’t like holding retailers as real estate plays because management usually take the step to do whatever they can to revive the business instead of selling of real estate or extracting value from it. SHLD would be the only retailer/asset play I consider buying, only because their real estate portfolio is so much better and bigger than JCP.

    But the point I want to bring up is the core market. Who is the target market? Certainly not men like us.
    I’ve been to JCP and walked around. Wasn’t particularly impressed. I’d rather shop at Macy’s.

    Analysts obviously have never set foot in a store. But the important thing is what the target market thinks. The target market is probably women aged 30+ with household income in the 40k-80k range. From what I’ve read so far on forums, reviews and complaints, JCP is ignoring its main customer base.

    That’s my main reason why I believe there isn’t much value and the turnaround won’t be happening anytime soon and

  10. contactomega@ymail.com

    I have yet to visit a “new” JCP store, but if the numbers presented by Ackman are true (about $270 per sq/ft in updated stores), the strategy seems to be working. One thing I need to know is, how much is it costing to update the stores per sq/ft? If they are spending $1000 per sq/ft (I’m just making up numbers for illustration purpose), I may say spending $1000 to increase sales by $130 per sq/ft ($270 in new stores minus $139 in old stores) make senese, but how about if they had to spend $10,000 per sq/ft to update the stores?


  11. I wasn’t done before. Continuing from above…I agree that real estate situations are a bit tricky, but JCP is different than RadioShack, Best Buy, or Game Stop. JCP is closer to Tesco situation in my opinion. The reason is that electronics and games are either standardized or moving on to digital format where you can download from the internet. I’m not sure those 3 stores have a purpose left anymore, but clothing still need to be tried on at the store and I don’t see that changing soon.

    I like going to Nordstroms, but I don’t think Nordy has monopoly on making people feel good about being inside their stores. Obviously swapping out customer base and changing brand image is going to take time and pains along the way, but there’s no way JCP can compete against the likes of Target, Walmart, Costco, and TJ Max. If Hyundai can make Excel and now sell millions of Sonatas, people’s perceptions can change and they do even though it seems impossible. I don’t think it has to take that long either, but maybe at least 2 to 4 years? Ackman thought by next year and 4 years was given by JCP.

    Ackman mentioned some hedge fund or PE approached him about buying JCP (maybe it happened before this stock crash). The point is that most PE (if you study CFA text books) require 8 to 10 years of investment horizon. In other words, those fancy returns from Romney required investment lock-in period of multiple years while the businesses were turned around. I doubt RadioShack and GameStop will easily find big financiers interested, but JCP is more probable. Ackman isn’t fallible – look at Borders, for which he apologized to his investors. But it’s insulting to think him and Ron Johnson won’t respond to current crisis with some combination of solutions. In the meanwhile, we’re in the 4th quarter and though I’m not that familiar with retail industry, it’s impossible to lose money for retailers to lose money in the 4th quarter, which will give JCP some breathing room.

    I remember reading in the Buffett biography that he owned a retail store like JCP or Macy’s that constantly disappointed him. This is the negative. I don’t think retail business is an easy one. But Ackman’s thesis makes sense to me. Ackman’s thesis makes more sense to me than Eddie Lamperts’, though I hope Lampert succeeds too.

    I don’t understand why people are stuck on JCP not selling apple products. JCP doesn’t have to sell apple products. JCP just has to compete more effectively against Nordy, which I assume makes more than Macy’s ($170 per sq/ft).

  12. From an avid reader of this blog and a recent LEAPS investor in JCP, just a quick unorganized note from a designer’s perspective. I haven’t seen numbers on the costs of the renovation but they are very much under $100 per SF total, hard and soft costs. A new high tech star architect higher ed facility costs $300 something a SF for reference, only Bill Gate’s house costs $1,000 a Sf to build.. The extreme negative bias in news and media is what I find intriguing. in my view, the dramatic market value drop reveals the short term bias of analysts and investors. The profitability of the new shops idea has always been the biggest risk. This risk has decreased recently with the new numbers and the market has devalued the company. I’m impressed by the transformation of the framework of the interior design. It lends itself itself to a permanently transforming store where new shops can constantly replace previous shops. Newness and diversity is what can bring a JCP back to the store more than the current 5? times a year (previously mostly during promotions, I can’t remember the exact number) This changing & newness quality is what makes Zara so successful. For anyone who hasn’t read about or visited a Zara store, I highly recommend it, the store is changing the business of retail. By changing product base every few weeks the exceed average shopper return rates by many multiples with a 15 to 20 average. The biggest challenge I see is…if JCP was a value at $25, and is a now a bigger value at $17, will it be a much bigger value at $15. What about at $12? I do not underestimate the power of the majority.

    • Daniel, I saw an interesting Youtube video by a lady who wrote a book on marketing: http://www.youtube.com/watch?v=KylCULS73Ok

      The woman said that JCP didn’t actually have a bad strategy – she thought the concept was actually quite clever and sensible – what she thought went wrong is the marketing message. JCP customers liked the coupons and their sales. What JCP should have done, in her opinion, is not go with the slogan “Fair and Square”, but used the word “sale”, as in a “sale every day”.

      Johnson fouled that one up, but it looks fixable to me, as long as he realises his mistake in time.

      The lady also said – and I’ve heard this from other commentators too – is that they should have done more testing of the concepts on a small scale before rolling them out. Given Johnson’s track record, he seems like a smart guy, and will hopefully realise his mistake in enough time.

      This is all a very interesting case study.

  13. Dear Daniel and McTurra: Great contributions:

    I have visited several JCP stores. My assessment is that the new stores are working, but the transition will be longer and tougher than most expect. I just hope management ignores the stock price and focuses on the business.

    Real life doesn’t always conform to analyst’s expectations so I hope they are all getting negative to reduce my risk of buying.

    • I see that JCP share price is getting a substantial bounce today – perhaps not surprising given the huge downswing it has experienced recently. Utlimately, though, I think there’s very very little that can be discerned by the share price fluctuations. You’re either right, or you’re wrong, about the turnaround, and that’s what will matter at the end of the day.

      I think some of their ideas seem daft – like free haircuts. I presume that that particular idea will be jettisoned soon enough.

      I’m getting the feeling that, so far, the main failure in the JCP turnaround has been bad marketing. It seems that Ron Johnson has recognised that particular problem when he threw out the marketing guy recently.

      It’s also possible to notice other little positive twists – like the whole pin idea. For those who don’t know what I’m talking about: every time you shop at JCP, you get a pin with a serial number. You then go into the JCP website, type in the number, and see if you win a prize. It’s a neat little way of getting people to look at their website.

      I also came across a very interesting YT video yesterday: “12 Lessons Steve Jobs Taught Guy Kawasaki” http://is.gd/nl1piZ Check it out. It’s interesting to see what Kawasaki learned, and I can see many of his insights reflected in the way Ron Johnson approaches things – particularly the way he wants to “jump the curve” rather than make a “better, cheaper, faster version of the status quo”.

      This will be very very interesting, whatever the outcome. Death, or Glory. We shall see.

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