Has Vornado Given Up on JCPenney?

by Lawrence Meyers | March 6, 2013 9:41 am

Has Vornado Given Up on JCPenney?

In late 2010, JCPenney (NYSE:JCP[1]) got some unwelcome news: Pershing Square Capital Management, an activist hedge fund, announced it took a 16% stake in the company. Alongside Pershing, Vornado Realty Trust (NYSE:VNO[2]) claimed a 9.9% stake.

However, what initially looked like a hostile attempt to push Penney in a different direction became a more friendly partnership to turn the company around. Pershing’s honcho, Bill Ackman, and Vornado’s chairman, Steve Roth, joined Penney’s board of directors and hired Ron Johnson away from Apple (NASDAQ:AAPL[3]) to become Penney’s new CEO.

Personally, I felt this was a no-lose situation. Johnson came up with the innovative Apple Store concept and had already reinvented Target (NYSE:TGT[4]), giving him exactly the kind of experience needed to help this struggling brand.

Turnarounds take time and patience. They also require vision and execution. So far, Johnson’s turnaround plan has gotten some time and patience, but with resulting revenue and same-store-sales declines exceeding 20% YOY in each of the last four quarters … the vision and execution is up in the air.

Nobody ever said a turnaround would be easy, but apparently Vornado has felt enough pain. Reports are circulating that Vornado dumped half its position — some 10 million shares — at a price of $16.40. The shares were originally purchased at $25.76, translating into a $93 million loss.

What’s particularly troubling is that Vornado has a seat on Penney’s board, and has decided it’s better to eat $93 million than let it ride.

However, this does not necessarily mean that Vornado thinks the turnaround itself is failing, nor does it mean the death of JCPenney.

VNO is a real estate investment trust, so it likely jumped in because it believed there was a way to monetize Penney’s real estate assets. By selling out, Vornado might have come to the conclusion that its real estate goals weren’t going to pan out, not that the turnaround itself wouldn’t.

Johnson and Penney still have their work cut out for them, to be sure. Their biggest problem is that after a year of transforming Penney into the store-within-a-store concept — a concept which I find rather innovative — customers aren’t shopping. Customer confusion might be part of the issue — JCPenney previously eliminated coupons, but now seems to be bringing them back.

Penney also faces the issue of retail commoditization. People shop at various retailers for very specific reasons. The Penney shopper is different from the Macy’s (NYSE:M[5]), who is different from the Nordstrom (NYSE:JWN[6]) shopper.

Penney had its niche, its brand and its perception. All of those have been disrupted. I don’t think shoppers know what Penney is anymore, and until that matter gets sorted out — and I hope it does — the stock will languish.

As of this writing, Lawrence Meyers did hold a position in any of the aforementioned securities.

Endnotes:
  1. JCP: http://studio-5.financialcontent.com/investplace/quote?Symbol=JCP
  2. VNO: http://studio-5.financialcontent.com/investplace/quote?Symbol=VNO
  3. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  4. TGT: http://studio-5.financialcontent.com/investplace/quote?Symbol=TGT
  5. M: http://studio-5.financialcontent.com/investplace/quote?Symbol=M
  6. JWN: http://studio-5.financialcontent.com/investplace/quote?Symbol=JWN

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