Mike Ullman has accomplished much in the three months since his stunning return to the helm of J.C. Penney (JCP). Having run JCP from 2004 to 2011, Ullman has the right emotional connection with the employees and enough credibility with vendors to pull the storied retailer out of its death spiral. Ullman has secured a $1.75 billion lifeline with Goldman Sachs (GS). He has also apologized and restored the company’s wild promotions and discounts.
Ullman has performed corporate triage, but J.C. Penney is still on life support. The question for investors and shoppers is whether or not Ullman can make J.C. Penney healthy again. Long-time JCP critic Brian Sozzi of Belus Capital Advisors is slowly becoming a believer — a fact that surprises even him.
“I can’t believe I’m saying this, and I’ve lost mucho hair about this,” moans Sozzi. “It’s a call I don’t take lightly because I have not liked the stock since January 2012.”
In the attached video Sozzi gives the reasons why he’s risking hair and reputation on a JCP “buy” call.
1. They’re getting their act together online.
Customers and investors can learn a lot about a company by comparing its online operations to what’s on display in the stores. If the “dot-com” segment of a retailer is out of sync with what you see in the mall, it’s a sign of trouble.
Under Ron Johnson, who is ironically a former Apple (AAPL) executive, JCPenney.com was being run as a free-standing division of the company. As a result, there were problems with inventory control and consistency of message to the customer.
Sozzi says Ullman has brought the online and offline J.C. Penney shopping experience back into sync, which makes running an online store more of a complement to the bricks and mortar store rather than a competing business.
2. “Stores within a store” offerings are expanding.
Johnson’s plan to reinvent JCP was built around letting vendors create their own semi-independent shopping experiences within JCP locations. The most high-profile example of this is in the housewares department with Martha Stewart. Those initiatives were left half-finished by Johnson, leaving customers struggling to figure out where JCP ended and Martha Stewart, Levis or Sephora began.
Sozzi says the concept remains and will become more robust in the next few months. “What everybody is failing to realize is that extra stores are coming before the holiday season.” The separate stores are still under construction but not left for dead. In Sozzi’s mind most analysts fail to understand that the remodels are already paid for and, more importantly for investors, they’ll be generating sales by the critical fourth quarter.
3. Promotions are back in vogue.
The biggest debacle of the Johnson era was the end of promotional pricing. When JCP compared coupons to addictive drugs and made customers go cold turkey, it alienated and insulted its most loyal fans. Ullman has brought markdowns back with a vengeance.
There is a certain element of snake-oil salesmanship in overpricing certain goods then putting them “on sale.” However, the truth is people like to feel like they’re getting a deal and have come to associate JCP with promotions, deals and discounts.
Call it an addiction relapse if you must, but Ullman has brought back the addictive deals.
4. Management change is coming.
Ullman has done good things upon his return, but investors aren’t forgetting that he was in the corner office during the years of decline at the chain. Johnson was brought in to reverse JCP’s flagging fortunes.
“Ullman is not the guy to lead this company into the next generation,” Sozzi concedes. His job is stabilizing JCP and laying out a five-year plan that will attract a new CEO over the next 18 months. In Sozzi’s vision, Ullman’s next replacement will be brought in to advance and enhance an existing JCP plan rather than starting from scratch the way Johnson did.
Can JCP make it? It’s up to the company to win back the trust of customers and investors. It’s going to be a long ride, but Ullman has at least put J.C. Penney in position to surprise some people in a good way over the next few years.
For long-abused investors, anything that wasn’t actively hurting the chain will be a dramatic improvement.