It’s safe to say that May wasn’t exactly a terrific month for former retail giant J.C. Penney (OTCMKTS:JCPNQ), formerly (NYSE:JCP) stock. And it’s even safer to say that JCP stockholders have lost an awful lot of share value this year.
The shares, now taken off of the New York Stock Exchange, trade well below $1 apiece. Plus, there’s a letter “Q” at the end of the stock’s ticker symbol now, which is almost never a good sign. Whether deserved or not, there’s a certain stigma attached to stock tickers with five letters and a “Q.”
Speaking of letters, there’s also the dreaded “B”-word to contend with here. When J. C. Penney filed for bankruptcy protection in mid-March, it felt like the beginning of the end for this century-old retail-sector mainstay.
It appears, though, that J.C. Penney isn’t going down without a fight. And JCP stockholders did celebrate a 13% share-price gain in the final trading day of the month of May. So, is there a compelling reason to hold on to the shares amid all the bad news?
Failure to Evolve
It’s important, when making any decision about JCP stock, to understand how the company got to this point. After all, multiple generations counted on J. C. Penney for sale-priced apparel. Indeed, the department-store chain was a fixture in malls across America for many years and the company even survived the Great Depression.
Yet, the current market environment has been especially tough on the retail sector. Shelter-in-place mandates caused by the spread of the novel coronavirus have kept people away from malls and shopping centers. And that in-store traffic is the lifeblood of J. C. Penney’s business model.
And therein lies the crux of the matter. J. C. Penney didn’t evolve its business model to the extent that many other retailers did. The shift to e-commerce was already under way even before the Covid-19 crisis. And the coronavirus pushed that shift into warp speed, to the detriment of brick-and-mortar retailers unable or unwilling to adapt.
Upon the announcement of the company’s Chapter 11 filing, J.C. Penney Chief Executive Jill Soltau released a statement. In it, Soltau placed the blame for the company’s woes squarely on the advent of the coronavirus:
“The coronavirus (COVID-19) pandemic has created unprecedented challenges for our families, our loved ones, our communities, and our country… As a result, the American retail industry has experienced a profoundly different new reality, requiring JCPenney to make difficult decisions in running our business to protect the safety of our associates and customers and the future of our company.”
Not Much Time Left
The lack of any mea culpa underscores the company’s willingness to take responsibility for its failure to adapt and evolve. The company’s problems have been at least half a decade in the making. Whether Soltau wants to admit it or not, having a comparatively insubstantial online presence has dragged on J. C. Penney’s bottom line for years.
The fact is, J. C. Penney’s sales have declined every year since 2015. And as Euromonitor’s Bob Hoyler correctly points out, broad retail-sector problems have contributed to J. C. Penney’s decline, but so have the company’s “strategic missteps.”
According to analysts at Cowen, J. C. Penney will need to close at least 25% of its stores if it’s going to survive the bankruptcy process. If that’s the case, then J. C. Penney will have to be a very different company. Whether the retailer can survive this type of adjustment remains to be seen, but the path to recovery will be narrow and treacherous.
The Takeaway on JCP Stock
A cheaper JCP stock and a smaller J. C. Penney will take some getting used to for long-term investors. But without the willingness to evolve, this once-renowned American retailer might be taken off of life support before 2020 is over.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.