As more devastating economic numbers flood national headlines, it’s becoming clear that a V-shaped recovery only exists in the minds of the extremely optimistic or the hopelessly naïve. On Thursday, the U.S. Department of Labor reported that 4.4 million people filed for unemployment benefits for the week ending April 18. Unfortunately, it’s becoming untenable to support dangerously speculative names like J.C. Penney (NYSE:JCP). The crisis could likely take JCP stock to zero.
Despite the many challenges that have plagued the once-proud department store giant, J.C. Penney is still an American icon. Understandably, I want to be careful in how I address this sensitive topic. But no matter how I look at it, at now-less-than 25 cents, JCP stock screams trouble. Ultimately, I believe most people would prefer the honest truth rather than disingenuous fluff.
Frankly, J.C. Penney was as at great risk for collapse before the novel coronavirus struck the U.S. According to CNBC, 2019 was a record year for store closures. From what we’re seeing already, this year could trump those figures, no pun intended.
When state governments responded with stay-at-home orders, retail came into focus as the looming casualty. As non-essential services, JCP, along with rivals like Macy’s (NYSE:M) and Nordstrom (NYSE:JWN) had no choice but to temporarily close their doors. In doing so, the broader retail industry bore the brunt of the damage.
Even with some states attempting to reopen their economies, I’m afraid we’ve gone too far. It’s no longer a matter of if we lose some retailers, but how many. Here are three reasons why JCP stock is at risk for getting its plug pulled.
COVID-19 Threatens the Core Customer Underlying JCP Stock
In November 2019, J.C. Penney CEO Jill Soltau stated that the discount department store’s target customer was “the all-in shopping enthusiast.” Soltau further explained that this enthusiast is a consumer that loves mall shopping.
Honestly, I think she would have been better off saying her company’s target customer was Santa Claus. Both are fictional characters but at least referencing the jolly old fat man gives you plausible deniability. After all, many people love to play the role of Santa Claus, providing the cover for such a statement.
But by mentioning the all-in shopping enthusiast, Soltau merely confirmed what we knew all along — J.C. Penney has never recovered from its identity crisis. In reality, JCP has always catered to older consumers. According to a marketing survey in 2016, the retailer’s average shopper was 51 years old.
Well, that’s a bit of a problem when you consider that the coronavirus has mostly affected the older demographic. Therefore, even if we get some good news regarding the health front, the stores’ target customer — the real one, not the “enthusiast” — will be the last to abandon shelter-in-place orders.
And I’m not just speaking from my hind end. According to a Kaiser Family Foundation poll, eight in 10 Americans favor strict shelter-in-place orders. Moreover, they are willing to continue self-quarantining for a month or longer.
Sadly, this is not the news you need to have confidence toward a JCP stock recovery.
Demographics Disproportionately Hurt the Beleaguered Company
One of the common messages that we’ve heard in this crisis is that “we’re in this together.” Of course, nothing could be further from the truth. We’re never in anything together and the coronavirus has only exposed this trite aphorism.
Indeed, sociologists are having a field day lamenting the disproportionate impact that specific Americans are suffering in this crisis. Over many prior articles, I’ve highlighted the increased stigmatization that has victimized Asian Americans. In recent weeks, reports indicated that communities of color are suffering financially at a higher rate than their overall representation.
According to USA Today, Latinos are disproportionately dying and losing jobs because of the coronavirus. As evidence, in New York, Latinos make up 29% of the population but represent 39% of fatal victims of COVID-19.
Again, this hurts JCP stock on a demographic basis because the underlying company has aggressively marketed toward the Hispanic community. And consumer research demonstrated that Hispanic men and women as a group tend to like JC Penney.
But with the health crisis casting a dark cloud on this key demo, I don’t see where JCP stock could go but down. Because now, that’s two vital consumer groups whose purchasing power has been diminished.
No Respite from the Rich
Theoretically, J.C. Penney could make a pivot toward the rich. Personally, I can’t help but notice that the parking lots of Costco (NASDAQ:COST) and Target (NYSE:TGT) are packed, almost as if these two retailers are immune from the pandemic.
Of course, most are shopping there because you can find everything you want at these warehouse or big-box retailers. But it doesn’t hurt that these companies cater toward the affluent shopper. Therefore, you’d expect these two to be the last man standing in the retail version of musical chairs.
With that, management can try to snag some of these well-heeled shoppers. However, I just don’t see it.
Even in the best of circumstances, JCP stock was never a rich person’s investment. Rather, it’s bread-and-butter was the middle class. As troubles piled up, the brand has become an increasingly undesirable place for the affluent.
Besides, even if the pandemic worsens, shoppers are more likely to explore online options. In fact, Target reported massive online sales in this month and March. With no realistic options to save JCP stock, you’re best off avoiding this name.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.