by James Brumley | December 17, 2013 11:22 am
Whether it was a good year or bad for JC Penney (JCP) or JCP stock owners is largely a matter of opinion, and/or a matter of when you got in. There’s no denying that JCPenney was one of 2013’s biggest stories, though.
Between the exit of highly-touted but highly-disappointing JCPenney CEO Ron Johnson, the near-death experience of the company itself, the abdication of an over-involved hedge fund manager, the surprisingly-successful secondary offering, and then same-store sales in November that finally offered a glimmer of hope for the company, there was rarely a dull moment for those watching or invested in JCP stock.
And, like most big stories, the JC Penney saga doled out some key lessons for new as well as veteran traders. As nice as it would be think the JC Penney fiasco (and the corresponding misery inflicted on the value JCP stock ) won’t be repeated again in the future, the reality is, history is recycled over and over.
These three lessons will be forgotten and repeated by corporate managers. Smart investors, however, will tuck these nuggets away for future reference. Take a look:
When former Apple (AAPL) executive Ron Johnson was hired as CEO of JCPenney, the market lauded the announcement as the beginning of a new — and better — era for the struggling retailer. The value of JCP stock jumped 17% in one day following the news, and why not?
After all, Johnson was the guy who made Apple’s retail stores a tourist destination of sorts … a consumer-technology amusement park. They were always crowded, and Johnson had to be the reason why.
As it turns out, the success of AAPL direct retail efforts had more to do with the quality of the product and less to do with Johnson’s retail acumen. When the same “shop” approach was employed in several areas in all JCPenney stores, the shops ultimately cannibalized the core JCP business far more than they contributed to new growth (though they were called a success by the few folks who actually walked through them).
As for Johnson’s legacy, the value of JCPenney stock fell 57% during his year-and-a-half tenure, roughly in step with the 22% decline in the retailer’s annual sales total for that timeframe.
Though Ron Johnson directed the ill-fated decision for JCP, it’s not as if JCPenney is the only corporation that assumed it could redefine how the shopping experience should feel for customers. Big mistake. Customers hate change, and rather than figure out the changes, they’ll simply go elsewhere to spend their money.
The changes JC Penney made were two-fold, but related. The first change was the near-elimination of themed sale events (and a subsequent cancellation of the mailed sale flyers that promoted them). The other change: Rather than in-store signage that noted the sale price on a particular item, JCPenney opted to advertise its goods at a never-changing “fair and square” price.
As it turns out, shoppers looked for the special — and short-lived — sale signs in the company’s stores, and customers liked to be told of sales events by promotional mailers.
Interestingly, although the value of JCP stock hasn’t been given a boost from it yet, the reinstitution of its more traditional marketing effort is already showing signs of life. Case in point? In November, JCPenney reported a 10% increase in same-store sales for only the second time in 23 months. It’s not much, but it’s a start, and verifies that old habits die hard … for better and worse.
Truth be told, hedge fund manager and acting Sears Holding (SHLD) CEO Eddie Lampert has taught this lesson at least as well as JCPenney has, though both companies make the point pretty well: Retailing may look easy from the outside, but from the inside, it’s exceedingly difficult.
It requires maintaining the right balance of personnel management, effective advertising, expense control, customer service, proper inventory systems, and efficient operations (just to name a few). And, it requires balancing those things in an environment where doing things right in one of those areas may adversely impact success on one of the other fronts.
It’s a finite balance that’s not required in any other industry, which may be why activist investor and former-largest JCP stock holder Bill Ackman seemed genuinely surprised when his and Johnson’s initiatives failed to get traction. He was running the business by the numbers, as if it were a factory.
In other words, the “if you build it, they will come” approach doesn’t work in retail. It sure didn’t work for JCPenney and JCP stock owners anyway. It’s ultimately about people-management rather than numbers-management.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities
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