- JCP's home goods stores were old and stale in both consumers and brands.
- JCP is banking on bringing home goods back to catalyze in store sales.
- With competition like Amazon capitalizing on ease of access and frugality, home goods will likely not be a positive catalyst for JCP.
Remember the J.C. Penney (NYSE:JCP) home goods store?
Vaguely, I remember piles of appliances strewn about, with their respective parts sometimes falling about and laying next to them. Floor models that had been toyed with and drooled on by the children of JCP shoppers, amongst kitschy items like sauce spoon holders with pictures of roosters on them, among open boxes of products recently returned by customers and back out on the floor.
I hope this imagery of what I remember isn't what comes to light when the company relaunches this division on Thursday of this week. It's straight out of the "go back to where we once were" strategy that the company has employed after ditching Ron Johnson, bringing back Mike Ullman, and performing a massive dilutive financing.
Judging from this article from CNBC, the company doesn't seem to have any "tricks" up its sleeve - it's going to be restocking their stores with "no frills" items:
J.C. Penney is about to undo the centerpiece of former Chief Executive Officer Ron Johnson's failed vision to take the retailer upmarket.
On Thursday, the department store chain is relaunching its home goods sections. It has brought back many of the more affordable, no-frills brands the former Apple executive ditched and reduced the space given to trendier brands he thought would bring in new shoppers.
Penney is trying to rebuild its home business by offering more lower priced items, more in-house brands and additional floor space for basics like towels and comforters. The retailer wants to recapture former clients and go head to head with rivals like Target and Kohl's.
Kohl's (NYSE:KSS)? Have you ever seen the appliance section at Kohl's? It reminds me of the home goods section at Marshall's - stack a bunch of appliances in a pile, set off a stick of dynamite, and where everything lands - that's where it stays. It's a far cry from a store like Target (NYSE:TGT) which presents its home good in a nice fashion and carries reputable brands.
Additionally, in the year 2014, companies like JCP are competing with retailers like Amazon (NASDAQ:AMZN) who are more than happy to simply ship you your appliances after you've read lengthy reviews of them online. I know, because they just delivered me a new K-Cup (NASDAQ:GMCR) coffee maker just days ago. I would have never dreamed, in a billion years, of going to JCP for such a product.
Thusly, I'm predicting that JCP's home goods store isn't going to do much to catalyze the business for Penney the way they're looking for.
Longs are going to argue that the company is in the midst of a turnaround, and while the stock certainly seems to show that, you have to look under the surface a bit. Nickey Friedman at Motley Fool does well to see the forest through the trees a bit, and offer some perspective as to why things may not be as great as they seem for JCP in his/her article "Take JCP's Turnaround with a Large Grain of Salt":
Now consider the fourth quarter again. Let's ignore the fact that the company is celebrating a turnaround completion with an adjusted $0.68 per-share net loss. The 3.1% growth in sales during the November-December holiday period sounds great, but we already knew same-store sales for November alone were up 10.1%. This means December was a bust.
Making matters worse, part of the reason for November's sales spike may have simply been due to the severe discounting of leftover inventory that began in October. In some cases J.C. Penney slashed prices so severely that it was selling merchandise for less than wholesale cost. That would certainly explain why November showed more growth.
JCP is looking for major growth from its home goods store - growth I don't think the retailer is capable of finding in 2014 selling appliances at a store that's mostly known for its clothing, makeup, and accessories. As JCP cites the frugality of customers as a main reason to bring the store back, they are missing that it's also the biggest reason for a customer to shop online versus going to the store. It's easier, it's cheaper, and hell - you don't even have to put pants on. I'm sold.
Further, let me just say that I did consider JCP a contrarian style buy in the $5-$6 region, but didn't have the stones to make the call. It was almost immediately after that the stock took off and CNBC seemingly rubbed it in my face for hours each day. It was a great trade for those who had the foresight to pull the trigger there, but I'd be wary here and likely locking in those profits right now.
As it relates to investing, I would be wary of what the home goods store can do for JCP stock and I definitely wouldn't be investing here in JCP well off its lows with its expanded share count. Best of luck to all investors here.