have presented a thesis for investing in JCPenney viewing it as a “Startup” company - They are wrong !
While a prima facie case might be made based on the high debt and low sales figures/data that is common in many “Startups” you need to dig a little deeper and find the reasons for the “high debt” and “low sales” - - - a startup company has a vision, a focal point, high morale, excitement, a theme, and will move forward to accomplish those goals - JCPenney doesn’t have a clear “vision” as they can’t decide if they want to continue with RJ’s plan, go back to the “good old days”, or a mish-mush combo of the two - - - - their focal point seems to be just “hanging on” and “hoping” - - - - - the morale seems to be improving slightly but you can’t undo the severe damage done over the last 12 months in just a few weeks/months/years - - - - trust takes a long time to build and even longer to rebuild, not only with employees, but with customers - and I believe they will run out of money before they run out of ideas. A startup company has no “Bad” history to overcome - they can devote 100% of their energies to “moving forward” - - - the sense of excitement is lacking in the JCPenney “turnaround”. It is a rule in retail that the effects of any changes, no matter how minor, take 6-18 months to filter to the bottom line - JCPenney doesn’t have that much cash or time.
They claim to be looking for the “new” customer but don’t have the advertising budget neccessary to bring them into the stores in the quantities necessary to cover the new/increased debt load. In addition to bringing in “new” customers - they are still losing some “old” customers.
Very good post Retay, thank you for the continued focus. With that said I think we can agree that much of what you have offered is subjective based opinions, but aren't they all right. I see many statements that you must believe in as you offer them as facts even though they are mostly forward looking in nature. Do you factually know, through researched statistics, if the new customers coming in are greater than old customers leaving assuming that some two years later there are old customers that have tolerated the JCP issues and now, finally are leaving? Or less than the latter of course?
Furthermore, could you offer point of fact- like situations in which you have referenced a specific time frame and its "turnaround" effects. I'm very familiar with the nature of the consumer and the retail industry so I'm looking forward to hearing some like examples, similar sq. footage, national footprint, retail segment, et cetera.
Not sure I agree with the pigeon-holing idea of what is or isn't a start-up company, but we each are entitled to what defines the arguable notion. While some characteristics are there that do represent itself as a start-up, some aren't and I would acquiesce to that, but if I think about this on a global scale I can't draw a conclusion that a similar scenario has presented itself for a company in the past for which it successfully completed its "start-up" or restructuring, if that makes one feel better as they essentially both offer the same thing, & became profitable.
I don't know that many people are expecting a miracle in the next 6 months, but I would ascertain that the liquidity issue you focus on would not be experienced, if at all, for another 18 months. I can't stress enough how many times I have heard the same commentary from the top spot on Wall Street to the lowliest of analysts & each & every time they are proven wrong if not for the simple fact that cheap money and high risk are always a marriage made in heaven & w/success
Do you factually know, through researched statistics, if the new customers coming in are greater than old customers leaving
Ah - but I didn't say "greater" - - - I said "some" - - - you chose to use the word "greater" - - hopefully not in an attempt to degrade my point in any way?
I posted = (In addition to bringing in “new” customers - they are still losing some “old” customers)
As far as a source goes, I yielded to your expertise and assumed since you quoted Facebook "likes" as a customer satisfaction reference - I would be allowed the same source to note people who were dis-satisfied and vowing "never to set foot in JCPenney again" - - -
I agree the 'start-up' analogy is bogus. No start-up has dying mall locations and bedraggled employees.
I do think it can be reshaped, smaller, possibly spin-off a REIT on a debt swap. Right now its a project.
If you don’t know what you are - - - - how is the customer supposed to know?
I still maintain the “good” stores are being groomed for a future reorganization at which time the “bad” stores will be closed, common will be wiped out, bondholders will take the crumbs left after GS picks the carcass clean, and even possibly a buyer? stepping in to purchase the new slimmer trimmer JCPenney- -Tesco only has a couple hundred stores in the US - wonder if they might use a few more???
Specific projections of sales, margin, traffic, conversion rates, and expenses - - - - - - part two
You are correct. As for JCP being a "start up" company...I believe that was a Ron-John quote early in his tenure, as he tried to describe his "vision" at the time: New merchandise, stores within stores, new look, new logo, new customers, etc.
No "start up" company comes to market with the excess baggage JCP is carrying. Generally, they come to market with a clear cut vision regarding the market niche they intend to serve. They have a plan in place and a defined direction in which to take the company.
The only thing I can see that JCP has in common with a start up company is lack of liquidity. Many start ups rely on the capital of their principals, venture capital and/or borrowed funds. And, I would go so far as to say that many start up companies today recognize the importance of social media and a strong Internet presence...something JCP, even under techno-genius Johnson, failed to implement.
JCP is like a fish out of water...flopping around in the sand, unsure if it wants to grow legs and evolve or desperately try to get back into the water. They seem to have planted themselves back into the old ways of doing things, while simultaneously inching their way into the Johnson vision, with some trepidation. The result is muddled confusion.
Good posts. Worth thumbs up.