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JC Penny...It's As Bad as You've Heard: A First Hand Report on the Stores

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December 30, 2012 – Comments (6) | RELATED TICKERS: JCP

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The "Dogs of the Dow," the "Suck Dogs of the S&P," "reversion to the mean", call it whatever you want but it's a reasonably well-known concept in investing that this year's losers are often next year's big winners.  I have been researching 2012's worst performers hoping to find a potential rebound candidate to add to my CAPS portfolio and perhaps even in real life.

One of the stocks that showed up amongst the bottom performers of 2012 was JC Penny (JCP).  After hitting a high of $43.18 last spring when news of the involvement of the famous activist investor Bill Ackmann's broke it has been all down hill for the stock since.  It currently sits at $18.97.  Investors and customers have been running away from the stock like rats fleeing from a sinking ship. Everyone knows that 2012 was an absolute train wreck for JCP, but after reading a couple of bullish articles on the company lately I couldn't help but ask myself...are things really that bad there?  

Today I set out with the family to find out for myself.  We hit the road and visited the JC Penny store at the Willowbrook Mall in Northern New Jersey.  I always chuckle when I read "channel checks" from fancy Wall Street analysts that involved visiting a couple of local stores in their area and writing about their experience given the small scope of the research.  So I realize that one single store is not necessarily indicative of what all of Penny's is about right now, but I still think that first-hand research on situations like this is very valuable, particularly when it seems like some of the bullish articles about the company have been written by people who have never actually set foot in one of the stores. 

So what did I find out? As the old adage goes, a picture is worth a thousand words.  Take a look at these shots that I took at my local store and tell me the first word that comes to mind:

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vs.

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vs.

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vs. 

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My answer...Confusion.  To me JC Penny seems like a store that doesn't know what it wants to be.   The company's relatively new CEO, former Apple superstar, Ron Johnson, tried to eliminate all of the sales and promotions that JCP has been known for over the past several years when he took over.  That sort of "No Sales" retail model might work when you have a product that basically sells itself like Apple's, but it's not going to fly in a commoditized industry with fickle consumers like the retail sales of clothing and furniture.  

Johnson found that out the hard way as he watched the store's traffic and sales fall off of a cliff.  It certainly appears as though JCP is reintroducing sales in its stores, at least to some degree.  It's not at the level of Kohl's over-price everything and then mark it 75% off so that people feel like they're getting a steal, but there was a lot of items on sale when I went to Penny's today.

The store that I went to today might not be indicatave of every JC Penny retail store because while it is part of a large mall complex, it is not physically connected to the main part of the mall.  If someone wants to go to JCP at this mall they have to go out of their to do so, parking in a seperate parking lot rather than just wandering in while perusing other stores.  

Upon entering Penny's I was optimistic about what I would find, hopped up on a series of bullish articles that I had just read over the past several days.  Even better, the first store within a store that I came scross when I entered was Sephora.  The traffic in that section was pretty solid.  It was reasonably crowded with young, fairly affluent looking people.  The experience there was less than optimal though. My wife could not find any employees to answer questions for her and they did not have the lip gloss colors that she wanted in stock (gasp).

Unfortunately, the store went down hill from there.  The rest of the JC Penny location had very little traffic.  The patrons there seemed much older and less affluent than the ones in the Sephora mini store.  And this was just the downstairs section of the location, the part with the clothing.  Things got worse when I went upstairs to the homegoods and furniture section.  It was almost like a ghost town.  In addition to these items, the upstairs contained a hidden nook that held an portrait studio and a closed optical store.  

Either way, the traffic at this location was absolutely terrible, even more so when compared to the rest of the mall.  The rest of the mall was absolutely mobbed.  There was people everywhere.  It took me 20 minutes to just get out of the parking lot when we decided to leave.  Even lowly stores like Sears and Radio Shack had better traffic per square foot than JC Penny did.  Even worse, the traffic at JCP was atrocious when compared to the traffic at another stand-alone competitor that isn't attached to a major mall either.  I drove past a Kohl's store in a strip mall on the way back from my excursion to Penny's and the place was absolutely jammed packed.  There literally wasn't a parking spot to be had in its large lot.  I certainly didn't have any trouble parking at the Penny's.

While I don't know for certain, the Penny's location that I visited couldn't possibly be one of the redesigned locations.  It was medeocre at best.  It did absolutely nothing to differentiate itself from any of the other ton of department stores that are in this mall such as Bloomingdales or Lord and Taylor.  Yes, there seemed to be sections that held different brands of clothing like...

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and

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and

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but it was nothing like the store within a store mega location that I have seen written about so many times when they talk about revamping JCP.  Perhaps that's a good thing because it means there's hope that they can improve this location with some investment.  

Also, the store seemed fairly understaffed.  No there wasn't any long lines at the registers, but I attribute that to the lack of customers more than the abundance of help.   It just seemed to me as though there was a friendly employee interested in helping me find something around every corner at the Sears store that I visited to purchase a new vaccuum later on that day, yet there was no one to help at JCP.  that may be a direct result of the $900 million in costs that Ron Johnson has wrung out of the company since he started.  You can only cut so deep before you cut into bone.

The shopping experience at the new JCP is supposed to be fun for the whole family, with lego and iPad tables for kids or the couches and coffee bars for impatient husbands.  I can assure you that there was none of that here. My kids were as restless as you would expect on a shopping trip to a store filled with clothes, beds and chairs.

So the experience wasn't great.  How were the prices?  In my experience, not great either.  I don't know a thing about the price of women's clothing or perfume, but having recently redone my house I know a decent amount about the prices of furniture.  There was a sofa at JCP that was litterally almost identical to one that I recently purchased a Bob's Discount Furniture (an east coast chain).  The quality looked exactly the same to me, but the price at Bob's was hundreds of dollars less.  And Bob's has free ice cream and candy for the kids.  My kids would rather go there any day of the week.

Even the smaller items like lamps seemed over-priced at JCP.  They weren't outrageously expensive, but I bought nearly identical lamps to the ones that I saw there recently at Home Goods again for significantly less.

At the end of the day I came away thoroughly unimpressed with JCP.  Combine a boring shopping experience with medeocre prices and a confusing, mixed advertising message and no wonder there wasn't any traffic there.

I will have to see if I can figure out if there is a newly redesigned, fancy JC Penny's around here that I can check out for the sake of comparison.  For now I am staying far away from JCP as an investment.

Thanks for reading everyone.  I'd love to hear your thoughts on the company if you have recently shopped at any of its stores or have looked into it as an investment.

Deej 

6 Comments – Post Your Own

#1) On December 30, 2012 at 9:52 PM, TMFDeej (99.45) wrote:

Hmmmm perhaps I should learn how to spell the name of the store before I hit submit on my post.  It's JC PennEy.  Penney!  Ha.  Either way, my findings are the same.

Deej 

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#2) On December 30, 2012 at 11:57 PM, DeDogy (< 20) wrote:

Well Deej , in short I did the same thing in the San Francisco

area, looking for something good to report. We had to yell help! to get some attention. In all it was bad  - Real bad.

It was real Sad too, they have been around for a long time and it's time for then to move on. 

PD 

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#3) On December 31, 2012 at 11:37 AM, MKArch (99.70) wrote:

Deej,

I played JCP's last cc after I posted about JCP on your blog yesterday and I highly recommend it. They aren't rolling out the store within a store tranformation on a store by store basis it's every store over the course of 36 months. What you saw in Sephora is what the entire store will be in a couple of years. If you are like me you will think the CEO is nuts in the first segment of the presentation but I think you might have a different take by the end.

Mike

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#4) On December 31, 2012 at 12:18 PM, TMFDeej (99.45) wrote:

Thanks MKArch.  Our discussion of PennEys is what inspired me to take a look at the location.  I see your point about the rest of JCP's retail locations being like the apparently successful Sephora store within a store area.  However, one has to wonder whether the slightly higher traffic in Sephora is as a result of the fact that people like its products rather than the store layout.  In speaking with my wife I suspect that it's product-related, not concept-related.  I'm not sure that the success in Sephora will translate to equivalent success in clothing or home goods.  

I'll definitely listen to the conference call if I get a chance.  I love this stuff...there isn't enough hours in the day :).

Deej

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#5) On December 31, 2012 at 12:20 PM, TMFDeej (99.45) wrote:

Thanks for the info on your experience Doggy.  It is sad that JCP has fallen to this level.  It's interesting to see that you had a similar experience with the lean stores without much assistance on the opposite coast.  This leads me to believe as I mentioned that the cuts implemented by Johnson may have gone too far.

Deej 

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#6) On December 31, 2012 at 12:46 PM, MKArch (99.70) wrote:

Deej,

I love this stuff as well and the cc will answer your questions about Sephora vs. the rest of the store. In a nut shell it's Old JC PennEy in run off but ~90% of the store right now vs. The new JCP ~10% of the store but comps are looking very good. While the old JC Penney is in run off management does recognize they haven't handled the wind down well so far and are working on improving this going forward. IMO this is a great special situation where there's enough actual data from the 10% new JCP to start to feel comfortable that it's going to work but it's being masked by the 90% that's going away. I'll be curious to see what you think after you have had a chance to watch and listen to the recent presentation.

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