We present below excerpts from analyst
presentations by two retailers.
presentations by two retailers.
The first is an old, well-known department
store chain, and the presentation was made last September, when its long-time
CEO spent an hour or so ruminating about the transformation of his company.
store chain, and the presentation was made last September, when its long-time
CEO spent an hour or so ruminating about the transformation of his company.
The second is more recent—like, this past Friday.
And it’s by JC Penney, or “JCP” as its new-age
executives insist on calling it—a misguided nod to the company’s stock ticker,
which seems to be the one thing those executives understand about the company
and its now-muddied 110-year old relationship with the American consumer…a
relationship that won’t be getting any better any time soon so long as its
executives insist on referring to a stock ticker that 98% of Penney’s customers
wouldn’t recognize if you tattooed it on their foreheads.
executives insist on calling it—a misguided nod to the company’s stock ticker,
which seems to be the one thing those executives understand about the company
and its now-muddied 110-year old relationship with the American consumer…a
relationship that won’t be getting any better any time soon so long as its
executives insist on referring to a stock ticker that 98% of Penney’s customers
wouldn’t recognize if you tattooed it on their foreheads.
After all, did Steve Jobs walk around talk
about the great things “AAPL” was creating?
Does Coke run ads saying, “Enjoy a KO Today”? Do Wal-Mart greeters say, “Welcome to WMT” to
the overburdened mothers and their screaming toddlers as they begin the hair-pulling
search for the day’s bargains?
about the great things “AAPL” was creating?
Does Coke run ads saying, “Enjoy a KO Today”? Do Wal-Mart greeters say, “Welcome to WMT” to
the overburdened mothers and their screaming toddlers as they begin the hair-pulling
search for the day’s bargains?
No they do not. But Penney executives would.
Worse still, the company runs newspaper ads
with no identification except “JCP” on the page. And
TV ads with only a “JCP” logo on the screen.
It’s no wonder the company’s sales collapsed 21% last quarter.
with no identification except “JCP” on the page. And
TV ads with only a “JCP” logo on the screen.
It’s no wonder the company’s sales collapsed 21% last quarter.
But if you’re expecting ex-Apple retail genius
Ron Johnson to bend a little on the “JCP” thing, well that’s not going to
happen, if last Friday’s earnings call was any indication—but we’re getting
ahead of ourselves.
Ron Johnson to bend a little on the “JCP” thing, well that’s not going to
happen, if last Friday’s earnings call was any indication—but we’re getting
ahead of ourselves.
The point here is to contrast Penney’s Friday
morning transcript detailing its current “transformation” with last year’s
presentation from another, larger department store—we’ll call it “XYZ” for
now—describing its own “transformation.”
morning transcript detailing its current “transformation” with last year’s
presentation from another, larger department store—we’ll call it “XYZ” for
now—describing its own “transformation.”
If you
can guess what company “XYZ” is, well, you just might be cynical enough to work
on Wall Street.
can guess what company “XYZ” is, well, you just might be cynical enough to work
on Wall Street.
Who We Are
XYZ: I
think, overall, we feel good about our position in the marketplace…I would say
that our transformation over the last five to seven years—I came [here] at a time when
the turnaround had been complete and we identified the fact that we needed to
be an attraction that people came to us for merchandise, but they also had to
have an experience that was memorable.
think, overall, we feel good about our position in the marketplace…I would say
that our transformation over the last five to seven years—I came [here] at a time when
the turnaround had been complete and we identified the fact that we needed to
be an attraction that people came to us for merchandise, but they also had to
have an experience that was memorable.
—9/7/11.
JCP: We are going to become an entirely new
class of department store that doesn’t exist today. We are going to create a new category that we
call the specialty department store and we think it is going to be profound and
let me tell you about it…
class of department store that doesn’t exist today. We are going to create a new category that we
call the specialty department store and we think it is going to be profound and
let me tell you about it…
—8/10/12
Our Customer Experience
XYZ: So we focused very much on engaging
our associates and having them be the best ambassadors. I’m pleased to say that our customer
service scores have been outstanding and lead recent American Express poll
three years in a row, lead for department stores. I think that is a real testimonial
to the effectiveness of our sales associates.
XYZ: So we focused very much on engaging
our associates and having them be the best ambassadors. I’m pleased to say that our customer
service scores have been outstanding and lead recent American Express poll
three years in a row, lead for department stores. I think that is a real testimonial
to the effectiveness of our sales associates.
—9/7/11.
JCP: But
where we are most excited is how we are going to use RFID to transform the
customer experience… So next spring we will be rolling out personal check out.
So in addition to being able to check out from any employee anywhere, any time,
you will be able to check out by yourself in our stores. And we think customers
are going to like it and it is going to help our conversion and the customer
experience.
where we are most excited is how we are going to use RFID to transform the
customer experience… So next spring we will be rolling out personal check out.
So in addition to being able to check out from any employee anywhere, any time,
you will be able to check out by yourself in our stores. And we think customers
are going to like it and it is going to help our conversion and the customer
experience.
—8/10/12
Our Technology
XYZ: We
maintain a $650 million capital expenditure commitment this year primarily on
digital infrastructure as well as remodels, two new stores, and fixture
rollouts for our attractions and new initiatives…
maintain a $650 million capital expenditure commitment this year primarily on
digital infrastructure as well as remodels, two new stores, and fixture
rollouts for our attractions and new initiatives…
—9/7/11.
JCP: From a technology perspective…we have overspent on technology as a
company. Part of that is because we have an extraordinarily complex and an
abundant number of applications to run the business.
company. Part of that is because we have an extraordinarily complex and an
abundant number of applications to run the business.
Mike shared
last January we have 492 unique applications, 88% of them are customized,
meaning we have done all this hard work internally to make them unique to us
and the challenge of that is 95% of the money we spend every year, $400 million
was spent to maintain and support outdated applications, which meant we only
got to spend about 5% on strategic go forward initiatives.
last January we have 492 unique applications, 88% of them are customized,
meaning we have done all this hard work internally to make them unique to us
and the challenge of that is 95% of the money we spend every year, $400 million
was spent to maintain and support outdated applications, which meant we only
got to spend about 5% on strategic go forward initiatives.
If you
think about that, that is $20 million a year out of $400 million going to
something new to improve the customer experience or ability to manage the
business and the balance going to maintain outdated legacy systems. That is a
problem.
think about that, that is $20 million a year out of $400 million going to
something new to improve the customer experience or ability to manage the
business and the balance going to maintain outdated legacy systems. That is a
problem.
—8/10/12
Our Promotional Policy
XYZ: Well, our pricing and promotion is set in
a year in advance, so we don’t react on a week-to-week basis, but I will say that we
are well priced; as I said, we’re the lowest priced anchor in the mall and we
compete head-to-head in the off-mall.
a year in advance, so we don’t react on a week-to-week basis, but I will say that we
are well priced; as I said, we’re the lowest priced anchor in the mall and we
compete head-to-head in the off-mall.
—9/7/11.
JCP: In
2011 our Company ran 590 unique promotions and the average item had 20 to 30
prices — different prices during the year. And so I figured going to three
types of prices would be a lot simpler. A great everyday price, some items at a
month-long better value and then clearance, which we called best price.
2011 our Company ran 590 unique promotions and the average item had 20 to 30
prices — different prices during the year. And so I figured going to three
types of prices would be a lot simpler. A great everyday price, some items at a
month-long better value and then clearance, which we called best price.
—8/10/12
Our Home Business
XYZ: We’ve done very well in luggage, in
housewares, in the soft home side. We have a very well developed window
covering business. I think one-third of all windows in the United States have [our]
window coverings. That’s a tremendous advantage when people are building homes
and remodeling.
housewares, in the soft home side. We have a very well developed window
covering business. I think one-third of all windows in the United States have [our]
window coverings. That’s a tremendous advantage when people are building homes
and remodeling.
—9/7/11.
JCP: And on
the home thing, just so you know, there is going to be a material change in
home.
the home thing, just so you know, there is going to be a material change in
home.
—8/10/12
Our Online Business
XYZ: I’ve said many times we’d been better off
if we started from scratch the dot-com than trying to change the locomotive’s
engine while we’re running down the track. So I believe we’ve done a good job
of understanding the issue, but it has not been easy, and has not been
accretive to our monthly comps. Having said that, we’ve invested heavily
because we believe it is a strength and that we have a history of being able to
ship items to a customer’s home effectively and the customer looks to us for
that.
if we started from scratch the dot-com than trying to change the locomotive’s
engine while we’re running down the track. So I believe we’ve done a good job
of understanding the issue, but it has not been easy, and has not been
accretive to our monthly comps. Having said that, we’ve invested heavily
because we believe it is a strength and that we have a history of being able to
ship items to a customer’s home effectively and the customer looks to us for
that.
—9/7/11.
JCP: Yes,
we have not been performing well online. It is one of our big opportunities.
Steve Seabolt is here in the front row. Steve took over the online store in
May, we have uncovered a lot of issues — basic issues. We don’t set up our
items on time. We had items in our shops that weren’t set up online. Our
navigation is kind of kludgy at times.
we have not been performing well online. It is one of our big opportunities.
Steve Seabolt is here in the front row. Steve took over the online store in
May, we have uncovered a lot of issues — basic issues. We don’t set up our
items on time. We had items in our shops that weren’t set up online. Our
navigation is kind of kludgy at times.
—8/10/12
Our Cost Structure
XYZ: Our expense program, overall, is really
designed to get us to as competitive as possible of a cost structure. Our
margins have been – are historically high, so we just need to make sure that
our cost structure is competitive to get back to double-digit operating profit.
designed to get us to as competitive as possible of a cost structure. Our
margins have been – are historically high, so we just need to make sure that
our cost structure is competitive to get back to double-digit operating profit.
—9/7/11.
JCP: Expenses
— we have talked a lot about this at $900 million. So in 2011 we had $5.1
billion of expense. Our anticipation is that number will be down by over $900
million in 2013. And where is that coming from? About $400 million of it is
coming from our stores. It’s about $350 million coming out of our home office
and about $150 million coming out of our marketing.
— we have talked a lot about this at $900 million. So in 2011 we had $5.1
billion of expense. Our anticipation is that number will be down by over $900
million in 2013. And where is that coming from? About $400 million of it is
coming from our stores. It’s about $350 million coming out of our home office
and about $150 million coming out of our marketing.
—8/10/12
Our Workforce
Scheduling System
Scheduling System
XYZ: Our workforce utilization, our jTime
– what we call jTime, which is matching schedules to when the customer is in
the store, that’s, again, we’ve taken out cost. But at the same time, our
customer service scores have gone up because we have better staffing when the
customers actually are in the store and save the expense when obviously there
is less traffic.
– what we call jTime, which is matching schedules to when the customer is in
the store, that’s, again, we’ve taken out cost. But at the same time, our
customer service scores have gone up because we have better staffing when the
customers actually are in the store and save the expense when obviously there
is less traffic.
—9/7/11.
JCP: So I
think in many ways our employees are so far ahead of us and they are so tired
of having to go find a piece of paper to figure out when they should work…
think in many ways our employees are so far ahead of us and they are so tired
of having to go find a piece of paper to figure out when they should work…
—8/10/12
Our Store
Merchandising System
Merchandising System
XYZ: We have a very sophisticated process that
allows us to merchandise every store differently even if they’re in the same
market or in the next community.
allows us to merchandise every store differently even if they’re in the same
market or in the next community.
—9/7/11.
JCP: So we
will have as many distinct shopping choices in our 130,000 square feet as you
will find in a 1 million square-foot mall, except you won’t have to go from
check out every time you leave a store, this will be a whole unique
environment…
will have as many distinct shopping choices in our 130,000 square feet as you
will find in a 1 million square-foot mall, except you won’t have to go from
check out every time you leave a store, this will be a whole unique
environment…
—8/10/12
Those readers with good memories, or long
experience with JC Penney, or long experience with this virtual column, are
probably already ahead of the game and know that both XYZ and JCP are one and
the same: JC Penney.
experience with JC Penney, or long experience with this virtual column, are
probably already ahead of the game and know that both XYZ and JCP are one and
the same: JC Penney.
Or “JCP.”
Take your pick. Either way, will
the new JC Penney “transformation” work any better than the previous one?
Take your pick. Either way, will
the new JC Penney “transformation” work any better than the previous one?
If it does, Ron Johnson really is a
genius. If it doesn’t, well, at least he
tried a whole lot harder than the last crew.
genius. If it doesn’t, well, at least he
tried a whole lot harder than the last crew.
Jeff Matthews
Author “Secrets in Plain
Sight: Business and Investing Secrets of Warren Buffett”
Sight: Business and Investing Secrets of Warren Buffett”
(eBooks on Investing,
2012) Available now at Amazon.com
2012) Available now at Amazon.com
© 2012 NotMakingThisUp,
LLC
LLC
The content contained in
this blog represents only the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and
clients advised by Mr. Matthews may hold either long or short positions in
securities of various companies discussed in the blog based upon Mr. Matthews’
recommendations. This commentary in no
way constitutes investment advice, and should never be relied on in making an
investment decision, ever. Also, this
blog is not a solicitation of business by Mr. Matthews: all inquiries will be
ignored. And if you think Mr. Matthews
is kidding about that, he is not. The
content herein is intended solely for the entertainment of the reader, and the
author.
this blog represents only the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and
clients advised by Mr. Matthews may hold either long or short positions in
securities of various companies discussed in the blog based upon Mr. Matthews’
recommendations. This commentary in no
way constitutes investment advice, and should never be relied on in making an
investment decision, ever. Also, this
blog is not a solicitation of business by Mr. Matthews: all inquiries will be
ignored. And if you think Mr. Matthews
is kidding about that, he is not. The
content herein is intended solely for the entertainment of the reader, and the
author.
8 replies on “A Tale of Two Retailers”
As a 18+ year employee of jcpenney, Ron Johnson is not telling the whole story! He is doing exactly what walmart received such bad press for !! Reducing full time associates hour so they dont qualify for benefits!!
You can have all the latestest technology in the world, however if there is no one in the store to use it or assist a costumer in using it, it's for not !!! My prediction is Ron Johnson is preparing to sell the company!!
Most retailers try the same "improvements" in order to stop the bleeding and/or increase the short-term business metrics (i.e profits and share price)…The Home Depot is a perfect illustration of this and and the stock has stayed flat for the past 10 years-or-so, until fairly recently. The long-term ability for JCP to stay relevant is pretty low, similar to Sears.
Retail is a tough business…Haven't been inside a JCP in years.
Keep up the good work Jeff!
Former J C Penney employee of 30 years.
The company started changing a few decades ago and now it's in deep water with a clueless CEO at the helm. He has no idea who his customer base is or was and no idea how to draw them back in. It's a total shame to see this company die simply because a few eggheads thought they could recreate a success into their idea of a well-dressed iPad.
It could just be that they want to shorten the name, not draw attention to the stock ticker. Recall that KFC was once Kentucky Fried Chicken and MGD was once Miller Genuine Draft.
Great piece. I love retail dramas as a spectator. These CEOs are like bull riders, there is just never a shortage of guys wanting to saddle up on Bodacious. It's what they do. Investors though are not supposed to be bull riders. Why do they keep getting involved in these things?
Y'all really do need to get into JCP stores often to see what's really happening. Good things ARE developing: shops are coming alive and look super; fashion goods look sharp and represent incredible value at the retails offered. And take a look at home fashions….of the 17 beds with spreads reviewed, all but a few reflected updated fashion looks, priced right. Johnson didn't promise fast results, rather said it would take a few years. Currently, he's tweaking the promotional effort in the attempt to increase traffic. Once agin, my advice is get into the stores and walk around…..good things ARE beginning to happen.
Bails-In-Minnesota
As a petite female customer I had a hard time finding clothes in my size at the brick and mortar stores. So I was ecstatic to discover how easy it was to shop JCP on-line for clothing my size. Well mysteriously that all stopped about a year ago. Every time I went to the JCP on-line site I noticed they didn’t have the selection they use to, nor did they have my size in anything. At first I thought it was a fluke, but it now appears to be the way they’re doing business. Sales are down because Ron Johnson is a MORON and completely out of touch with the JCPenney customer let alone any potential customer. Can someone tell Ron that it doesn’t matter if you can use your iPhone to self-check out when they DON’T have the product available for the consumer to BUY…
This is a common problem caused by some agency trying to 'calibrate' a generic message to an investor audience. It doesn't work. It's insulting. I refer you to CIT Group's advertising just before their fall; in the final analysis it comes down to a CEO who simply doesn't know the street.