Like Its Stores, JCPenney Stock May Simply Be Too Far Gone to Salvage

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It’s tempting to try and wait it out. Give J. C. Penney Company (NYSE:JCP) enough time, it will win by attrition. Sears Holdings (OTCMKTS:SHLDQ) is on it last leg, and Amazon.com (NASDAQ:AMZN) can only offer so much of an apparel browsing experience.

Current and prospective owners of JCP stock who are willing to hold out hope, though, may want to dial back their expectations. Relatively new CEO Jill Soltau may have a wealth of the right experience but she’s inherited a machine that’s beyond repair.

The JCPenney’s brand will likely always be around, in one way or another. But, the retailer as we (still) know it today just wasn’t built to last.

An Inevitable Fate

Soltau seems more than qualified. Prior to assuming the helm for Penney’s, she was CEO of Jo-An Stores, served as president of Shopko and did stints with Sears and Kohl’s (NYSE:KSS) in senior positions.

Managing and marketing the merchandise, however, isn’t the problem.

Rather, the problem has been and remains a problem of relevancy. Consumers don’t shop the way JCPenney sells anymore. Last August, GlobalData Retail analyst Neil Saunders opined that Penney’s suffers a “lack of understanding about what it is, what it stands for, and who it wants to serve.”

Those are blunt words, but arguably understate why the retailer remains on the defensive and is still being forced to close stores; 27 more units were put on the chopping block last month.

Some investors who’ve followed the saga for a while will track the beginning of the end back to 2012, shortly after former Apple (NASDAQ:AAPL) executive Ron Johnson took the helm, ran it like Apple’s stores, alienating its core customers. An aggressive ‘shop within a store’ strategy also turned out to be a bit overwhelming.

And to be fair, there’s some truth in the idea that Johnson put the company — and JCP stock — on a path toward destruction. It’s unlikely anyone else would have sidestepped the company’s inevitable end though. Penney’s, as a premise as well as a brand, is a relic.

A Relevancy Problem

In simplest terms, with the exception of its Sephora cosmetics shops, JCPenney doesn’t offer shoppers anything they want that they can’t get somewhere else faster, cheaper or better. And, even as successful as Sephora’s presence has been, these shops have used up valuable in-store square footage…

…not that it matters.

Penney’s spent the past several decades teaching the world it was in the middle: the place for middle-income, middle-class, middle-aged people to purchase moderately priced goods of moderate quality. It certainly offered the occasional novelty item or aspirational type of merchandise, but by and large, the company offered a decent variety of respectable value.

Value doesn’t mean much anymore, particularly when it comes from JCP. Younger apparel buyers prefer cheap fast fashion from a store other than “grandma’s favorite place to shop,” and for even the middle-aged crowd that the retailer could best address, they’re not buying what JCPenney is selling. Consumers are either going hyper-casual (think athleisure) or over-the-top. JCPenney can offer neither.

The same goes for goods like housewares. Consumers, broadly speaking, are willing to shell out big bucks for top-of-the-line goods from Williams-Sonoma (NYSE:WSM), or are perfectly content with that simple mixer from Walmart (NYSE:WMT).

And yes, to the extent JCPenney might still be able to draw a crowd with its merchandise, consumers have largely given up on malls. They consume too much time — the commodity people find most valuable right now.

As Mark Cohen, the director of retail studies at the Columbia Business School, described Penney’s stores in November, “They’re in a leaky boat that eventually will sink. The prognosis for the future is not happiness.”

Bottom Line for JCP Stock

To her credit (and possibly good for JCP stock), Soltau is arguably the best CEO the retailer has had in years. She knows what JCPenney is, and what it isn’t. It’s unlikely she would have ever pushed the introduction of home appliances into the mix, as her predecessor did with poor results.

Indeed, the very presence of refrigerators and washing machines may have damaged the company’s remaining credibility as an apparel venue.

Knowing what the company is and isn’t, however, doesn’t inherently mean JCPenney can become what it needs to become. With malls as a shopping venue in trouble and consumers valuing time above all else — and devaluing value merchandise relative to super-cheap or ultra-high-end goods — the retailer doesn’t have much of a future. It may not have any future, making ownership of JCP stock a risky bet.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.

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