The Exchange

Why Has J.C. Penney Entered the Secrecy Zone?

The Exchange

By Marek Fuchs

J.C. Penney's (JCP) presentation at Bank of America's (BAC) retail conference on Wednesday might remind you of something else happening this week – in Rome. After all, both the cloistered conference of the prelates and Ron Johnson’s powwow are shrouded in a considerable degree of mystery. The cardinals are meeting behind the closed doors of the Sistine Chapel to elect a successor to Benedict XVI and – well, JC Penney will effectively be throwing a tarp over their Bank of America conference proceedings by banishing media and the prospect of a webcast.

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[See related story: J.C. Penney's Last Shot at Survival]

The implications of a company effectively speaking under a cone of silence aren’t as simple as they might appear. After all, instinct tells us to automatically distrust a company that clams up – but instinct isn’t always right.

There’s a little outfit called Apple (AAPL), for example, that has done pretty well over the years without deploying sunlight as a disinfectant. Similarly, Wal-Mart (WMT) discontinued their long-held practice of reporting monthly same store sales numbers a few years ago, and the stock has basically been consistently higher ever since.

A different case

J.C. Penney, though, is a different case, and traders and the media should hold their silence in suspicion. For one, from the moment Ron Johnson left Apple – where he headed the celebrated retail division – for Sears in June of 2011, he was vocal, to the point of being rash. He trumpeted his theory that he could transform the J.C. Penney customer by weaning them off discounting, and he stepped into the center of the retailing universe formerly occupied by folks including Gap (GPS) legend Mickey Drexler.

Now just about the only thing that gives the stock life are rumors, denied by J.C. Penney, that Johnson will resign. J.C. Penney's fourth-quarter earnings were a straight-shot down, with sales falling 28% and a loss even worse than the one expected. It's been a vice-blighted time for J.C. Penney shareholders.

Johnson’s victory lap, of course, came before accomplishing a single thing, but here’s the most important part: The current sound of silence comes as a marked departure. In this sense, J.C. Penney’s silence is a much worse indicator than Apple’s ever was. Above all else, traders need consistency in a company’s approach. Apple, for example, was always silent. A shift – in this case, a startling lurch – indicates that a company is adrift beyond easy measure and operating from a purely defensive crouch. That’s rarely a good sign.

Hold yourself accountable

Another issue with J.C. Penney’s newfound move into secrecy is this: There are no secrets in discount retailing, so you might as well hold yourself accountable.

Apple, by contrast, can always hold a secret. Their products tend to be pathbreaking, so very few can see, feel and touch them immediately. The media and traders have to wait for the curtain to rise on the release. Not so for J.C. Penney. From that outdoor rug for the patio to the hosiery – well, it’s all pretty obvious.

Moreover, checking on Target (TGT), Macy’s (M), Kohl’s (KSS) and other competition, as well as a myriad of macro numbers, gives you a good bead on what J.C. Penney is up to. As a result, its secrecy arouses suspicion without any apparent benefit.

In other words, there is no white (or black) smoke here. Only J.C. Penney blowing smoke.

Marek Fuchs was a stockbroker for Shearson Lehman Brothers before becoming a journalist who wrote The New York Times' County Lines column for six years. Fuchs speaks regularly on business and journalism issues at venues ranging from annual meetings of the Society of American Business Editors and Writers to PBS to National Public Radio. His recent book, "Local Heroes: Portraits of American Volunteer Firefighters," earned widespread praise. He is on the writing faculty at Sarah Lawrence College. When Fuchs is not writing or teaching, he serves as a volunteer firefighter. You can contact him on Twitter: @MarekFuchs.

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