Sears & J.C. Penney: No Longer the Belles of the Ball

Long-term problems haunt these retailers' aisles

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Sears & J.C. Penney: No Longer the Belles of the Ball

Everyone knows why we still go to high school or college reunions: We want to see how everyone else is aging, who lost weight, who got plump and how we look compared to the ladykillers and man-magnets 20 years ago.

The same curiosity extends to investors looking at a reunion of sorts for two American retailing icons: J.C. Penney (NYSE:JCP), and Sears Holdings (NASDAQ:SHLD). We all remember what they looked like back in their heyday: solid earnings, scores of stores around the country, stable dividends, pleasant shopping environments and (perhaps most importantly) bright futures.

It’s sad to say that, at first glance, it appears neither of these two companies have aged well at all. They might not survive the century.

Heck, they might not survive the decade.

There’s so many reasons, but the wider picture is fairly evident: adapt or die. And until very recently, neither Sears nor Penney’s adapted.

Competition from all sides and angles in the past appeared on the landscape. Big-box retailers like Wal-Mart (NYSE:WMT) and Costco (NASDAQ:COST). Clothing retailers like Kohl’s (NYSE:KSS) and TJX (NYSE:TJX). Home-improvement warehouses like Home Depot (NYSE:HD). Electronics and appliance sellers like Best Buy (NYSE:BBY). All these companies (and more) devoured revenues and profits across every segment of Sears’ and Penney’s business models.

The future? Forget it: E-tailers like Amazon (NASDAQ:AMZN) and eBay (NASDAQ:EBAY) are having a field day on Sears’ and Penney’s dime, too.

So where does that leave these venerable names? Well, let’s take a look at where they stand, and come to some conclusion about where they’ll go:

New Management

In February 2011, Sears introduced Louis D’Ambrosio, an Avaya alumni, as CEO. I’m not sure what a telecom guy brings to the table for retail — even one who worked with the company for a long time as a consultant — but that’s just me. Oh, and D’Ambrosio led Avaya through the maze of taking a public company private. Just worth noting.

In November 2011, J.C. Penney brought on Ron Johnson, an Apple (NASDAQ:AAPL) retailing guru, to change the company’s strategy (and hopefully its fortunes). Johnson’s first move was to empty the corner offices of any lingering JCP detritus, so he signed up four new executives — including two with high-level retail experience — with a tempting $26 million in total bonus money. Johnson’s personal retailing brilliance will cost JCP a mere $53 million in executive compensation alone.

New Strategy

Johnson and his board decided Penney needed to establish itself as the “Fair and Square” company, which means the discounting and sales events JCP made its bones on are gone. J.C. Penney now is focused on one “low” price all the time. The company is spending billions of dollars reformatting stores, right-sizing inventories and laying off people to get the strategy right.

D’Ambrosio is overseeing what almost appears to be a “dismantle” strategy. Of course, he will abide by whatever Eddie Lampert — whose ESL Investments is the majority shareholder — determines. Perhaps Lampert, a real-estate guy by trade, sees the intrinsic value of the company assets as more important than retailing. The company has jettisoned the Outlet and Hometown stores, sold off Canadian leases, lowered its investment percentage in Sears Canada and closed down smaller stores throughout the U.S. Oh, and Sears’ Land’s End business is on the block, too.


Article printed from InvestorPlace Media, http://investorplace.com/2012/05/sears-jc-penney-jcp-shld-retail-stocks/.

©2014 InvestorPlace Media, LLC

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