You Can Evaluate JCPenney By the Company It Keeps

In case you haven’t heard, JCPenney (OTCMKTS:JCPNQ) has filed for bankruptcy. I mention that because I was trying to find a logical reason why any investor would dabble in JCPenney stock at this time. Then I read this article by Matt McCall and it made sense. In two words, it’s name recognition. Like Sears (OTCMKTS:SHLDQ), the name of JCPenney is worth more than the stock.

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Of course, that’s no reason for you to buy the stock. Both Sears and JCPenney are examples of a time that’s been long gone from retail. The game has passed them by, so to speak. But as McCall points out, investors have been pumping life into Sears stock for a couple of years now. And I suppose that some traders will do the same for JCPenney.

Some lessons just have to be learned the hard way. If you’re one of those who are inclined to gamble on JCPenney stock, let me explain why that’s a really bad idea.

The Last Vestiges of a Dying Model

Catalog marketing was still alive and well as recently as the 1980s. And so were retail giants like Sears and JCPenney. But in the mid- to late-1990s, there was a noticeable shift. Let’s just say a thing called the internet happened.

All of a sudden, consumers didn’t have to wait for the JCPenney catalog to arrive in the mail. There was less need to comb through the newspaper for the weekly ads. Information was available on demand. It was a younger, more intuitive way to shop. And it appealed to a younger, more intuitive shopper.

Simply put JCPenney’s core demographic was aging, and the company failed to adapt quickly enough to the trends that mattered to consumers the most. And those trends were not just about what they were buying, but how they were buying it.

The Myth of Branding

Like Sears, JCPenney fell victim to the belief that its brand name alone was enough to ensure customer loyalty. In the absence of a core strategy to reinvent their business, the company “freshened” their branding and took steps to look more relevant to today’s shopper. The problem was that this strategy alienated their existing customers, and it didn’t look “authentic” to the audience they were trying to capture.

Whereas the internet gave many brands the opportunity to choose a niche and master it, JCPenney continued their focus of trying to be all things to all customers. And that approach has failed to work.

Bankruptcy Won’t Bring an End to a Vicious Cycle

As JCPenney lost customers and revenue, it did not have the capital to take the steps that were necessary to be relevant in the digital, omnichannel retail economy. Thriving and surviving to compete with Amazon (NASDAQ:AMZN) in today’s retail economy means you have to be focused, adaptable and nimble. JCPenney was none of those things.

Instead, the company tried to benefit from Sears collapse by entering into the appliance area. That was a disaster waiting to happen. Consumers just don’t purchase these items with enough frequency and home improvement warehouses like Lowes (NYSE:LOW) and Home Depot (NYSE:HD) have become the one-stop shop for those items anyway.

This Won’t End Well for JCPenney Stock

As someone who spent a great deal of time in marketing, I had a front row seat to Sears slow, but steady descent into irrelevance. And that’s why it’s easy to see that same story playing out in a different way with JCPenney.

However, unlike Sears, there’s no guarantee that JCPenney can successfully emerge from bankruptcy. According to Camilla Yanushevsky who analyzes retail stocks for CFRA Research, the company may not survive.

“I don’t think that J.C. Penney is going to be one of those companies that emerges,” said Yanushevsky. “At the end of the day, I think they’ll be liquidating their assets to get some cash back to creditors.”

And even if the company can successfully emerge from bankruptcy, they will have to provide customers and investors with a well-defined strategy to propel them into the future. And with so many retailers already light years ahead of JCPenney, this is a story that has reached its final chapter.

Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.

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