Whenever I go shopping I look over at the nearest mall.
In Atlanta, that's often a Simon Property Group (NYSE:SPG) mall. What I usually see is an immense expanse of parking next to not very much.
That "big box" retailers have been killing malls for years is not news. Most of the big mall owners have been actively looking for a way out of that box . Some have tried outlet centers, some have tried renting to big box operators like Costco (NASDAQ:COST), others are looking at street-level retail. Of all the mall owners Simon seems to be most tied to the traditional mall.
Malls are failing because their hearts, the "anchor tenants," like Sears (NASDAQ:SHLD), Macy's (NYSE:M) and J.C. Penney (NYSE:JCP), have been stuck in the middle market, squeezed from the top by company-owned specialty retailers and from the bottom by WalMart (NYSE:WMT), Target (NYSE:TGT) and the warehouse stores.
The only thing that is going to turn a mall operator like Simon from a speculative land play to a steady profit is for the mall business to get healthy again. Which means middle-market retailing must get healthy again. Which means JC Penney must get healthy again.
Within the "anchor store" group, only Nordstrom's (NYSE:JWN) and Dillards (NYSE:DDS) have performed for shareholders over the last five years, the former by opening outlets while making itself appear up-market, the latter by cutting brands, cutting management and focusing on a single product category.
The secret to the Apple Store has something in common with both these stories. It appears to be up-market, like Nordstrom's, but the financial profile of an Apple Store and a Penney's buyer is actually very similar. Apple also offers its buyers a single brand image, like Dillard's.
That's what Johnson has to deliver. A single, high-quality image, with a limited number of attractive brands, so that people come in for a unique experience, not just to buy stuff.
Before joining Apple a decade ago, Johnson was an executive with Target. Target estimates its revenue per square foot of space at about $316, in a good year. He got "fire" at Apple, but he knows retail operations. J.C. Penney's sales per square foot are about half that of Target. Those of the Apple store, by contrast, are over $4,000.
Kohls has succeeded by staying out of malls and by appearing to give shoppers a bargain. I don't think that's where Johnson is going. He seems more intent on making JCPenney a destination "experience," with fewer choices but more style, more freedom for the customer and tighter control on operations.
If he can succeed it won't just be good for J.C. Penney. It will be a huge win for mall operators like Simon, which may see full parking lots again. If you're looking for a safe way to play Johnson's possible success, SPG would be it.
Disclosure: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.