The Decline of JCPenney...What Happened?

[Music] the decline of JCPenney this is a topic that many people have been asking me to talk about because they're one of the biggest stores to ever exist they were big a hundred years ago I'm sure you've been to a JCPenney your parents have been to JCPenney your grandparents and maybe your great-grandparents have been there historically it's been one of these companies that you figure will always be there but well I'm guessing most people realize that JCPenney isn't what it used to be but you may not understand how severe this is I'll get into the numbers a little deeper in a minute but just looking at 2018 they're comparable store sales were down 3.1 percent which means on average each store is generating 3.1 percent fewer sales than the year before this is really bad considering that fewer stores than last year and in fact have fewer stores than they've had in many many years it's currently at 864 and that number is traditionally over a thousand so it would make sense that in 2018 they reported lower sales than in any recent year also in 2018 they lost two hundred and fifty five million dollars and have been reporting losses for the past eight years they are undeniably and consistently losing money they brought in over 11 billion dollars and they lost money from it part of the reason is because they paid 313 million dollars in interest expense which means they have billions of dollars of debt weighing them down as far as the stock market their current trading price is around a dollar 50 which is down in 2006 it was around $80 I found this article from The Motley Fool titled three stocks to avoid like the plague JC Penney is one of them I got this from there 2018 annual report it shows that if you had invested $100 in JC Penney in 2013 today you'd have $22 remaining in 2013 wasn't exactly their highest year oh and hold off on all those comments saying that the internet killed JC Penney and all the retail stores are doomed yes that's part of it but it's not that simple if you look here JC Penney has performed much worse than similar department stores one hundred dollars would only be down to $94 if you had invested in the other S&P department stores which are Macy's Kohl's and Nordstrom so I think we can agree that's all part of it but there's more here JCPenney goes all the way back to 1902 James Cash Penney was a Salesman at a retail store in Wyoming called the Golden Rule after three years at the position he was promoted to manager and business partner and given the opportunity to invest in his own store a few years later he bought out his partner shares and took over the business completely and in 1913 he changed the name to JCPenney by 1923 the chain was approaching 700 locations mostly in the West but they were making their way out east as well two big factors that contributed to this early success he would give the store managers the opportunity to open their own store and be partial owner of them similar to the way he gained his ownership and that helped increase the number of stores but the thing that made them profitable was private labels these are what you would call the JCPenney brands it's still a big part of what they do today back then there were different names but today its equivalent of Worthington st. John's Bay Arizona the jeans not the ice-t in these cases other companies make the clothes than JC Penney puts their label on it they're cheaper for the store to obtain and therefore cheaper for the customer and if it's good stuff that name gains credibility and the store can justify pushing up those prices which leads to good margins if done right everybody wins they became a public company in 1929 which if you're familiar with the history of the US economy in the stock market that wasn't the best time but they made it through it and unlike most others they grew over those years it was the Great Depression so customers were looking for clothes that were cheap but durable and high-quality which is what JC Penney famously offered in the 1960s they were offering just about everything that's when they started their mail-order catalog which soon became the second biggest of its kind in the US they also started offering hardware and auto services and gardening equipment in Sporting Goods and many aspects they were becoming Sears it was in the early 1970s when they opened their 2000 store they hit their all-time high soon after which to put that into perspective it's about twice as many as they've been operating over the pass couple of decades another meaningful comparison all of these locations combined with all of this extra stuff that they were offering it led to some high sales in 1981 not adjusted for inflation they had higher sales than they did in 2018 but I sales doesn't necessarily mean they're doing well there's plenty of other numbers to consider Plus consider their competition I suggested that they were essentially becoming seers and in 1970s 1980 Sears is not a company you want to compete against even if you are JCPenney in 1982 they decided that they would become more of a traditional department store by specializing in clothes and the other stuff that we know them for today and facing out most everything else they slowly made these changes throughout the rest of the 80s and as a result they were a smaller but more focused and efficient company that's how we got the store that we all know today now for the decline there's two parts to it the first part is pretty simple economic downturn in 2008 there was a weak economy so a department store that targeted the middle class ran into some trouble it's all pretty basic I don't have too much to say about it it's all reflected in their figures sales fell comparable store sales went into the negative income went down but still remain positive I wouldn't say there's anything major here that would really threaten the safety of the business I'll admit they were seemingly hit harder than their competitors maybe because of their size or target demographics but if they play it smart they should recover with the rest of the economy looking at this graph it's the same as the one I showed before but for the previous six years they fell and started recovering right with everyone else but then in 2012 when everything else continued to go up JCPenney went crashing down just about any graph I can show tells the same story things went crashing down in 2012 and everything was far worse than they were during the recession it's obvious that this 2012 downfall wasn't market related it was an industry related it didn't come from the outside the CEO of JCPenney from 2004 to 2011 was Myron almond he was the one in charge during their peak year of 2006 he got them through the recession and did some good things for the company then November of 2011 Ron Johnson took over he used to be a big part of Apple and is thought to be the one most responsible for the design and success of the Apple stores he looks up to Steve Jobs and takes heavy influence from him so in late 2011 Johnson took over JCPenney and almost instantly started this massive transformation there was a lot to it but here's some of the highlights the store layout he changed it from what you typically see into what they call 100 separate boutiques with a town square in the middle the products they offer he strayed away from the private label the JCPenney brands in favor of the more popular in many cases higher end brands a new logo and spokesperson they brought on Ellen DeGeneres to promote all of these new changes and dramatically changed the logo they abbreviated their name to JCP and stuck it in the corner of a box I guess it was more modern-looking maybe the biggest part of their transformation was what they call fair and square pricing they would set their prices and that's that no coupons or clearance racks or rushing to the store before noon to take advantage of their Labor Day sales bonanza or whatever they're called just fair and square pricing if you're familiar with Apple I think you can see the influence here in many aspects he was applying the Apple model to a department store which is an idea but it's an odd one I can see that Ron Johnson was doing what he knew but you just can't take something that works for cellphones and apply it to clothing like consistent pricing it no one goes bargain hunting for a $700 cellphone that they're going to be using for the next two years if they bring that price down to 680 it really doesn't increase my chances of getting it it's not that kind of thing but you know what people do go bargain hunting for clothing hey do you want to stop by JCPenney and see if there's any good deals is something that people stopped saying when they adopted this new pricing in my perception anyway do you know who loves bargain hunting moms and that leads me to the real reason all of this failed historically the JCPenney customer is a middle income middle-aged woman most of these changes were intended to broaden that demographic to attract younger and higher income people bringing the popular brands have this trendy boutiques lay out in a hip new logo well the young people really didn't fall for it and instead they just ended up repelling it their older existing customers there were no more bargains there was no urgency to visit some of the brands that they liked were gone the layout was new it was essentially a different store it took them by surprise too because they didn't even test any of this I would think that before implementing any major changes to a brand that's had a loyal following for a hundred years I would test them bring in some regular customers or potential younger customers into a concept store ask them questions have them fill out surveys make adjustments along the way and ideally end up with something that everyone likes but know they felt the changes needed to be made fast and there was no time for any of that the result a 25% decline in comparable store sales and it almost killed the company in 2013 they fired Ron Johnson and brought back Myron omen and basically asked him to reverse all of this nonsense and bring things back to how they were that's exactly what happened the damage was done but he stopped the bleeding and hoped that the wound would heal over time in 2015 almond left again and they brought in this new guy Marvin Ellison he was an executive over at the Home Depot for the previous 12 years this is when JCPenney started trying to sell appliances but that didn't work out in 2018 Ellison resigned to take over a CEO of Lowe's which makes sense and now there's a new CEO who can hopefully do something to fix this whole mess let me know in the comments is there any hope for JCPenney personally I don't see it and that seems to be the popular opinion I think they showed incredible disrespect toward their customers they're in this whole campaign apologizing for everything but I don't blame them for not coming back James Cash Penney took this company to some crazy Heights and did a lot of good things over a hundred years of building a reputation and they lost it so quick and now they're still trying to recover from it on top of dealing with all these online retailers it is a definite uphill battle from this point also what do you think of the store itself do you remember when this transformation was taking place and how did it change your perception of them did anyone actually think it was an improvement I'd like to hear what you have to say thank you for watching [Music]

Channel: Company Man

Views: 841,261

Rating: 4.9086485 out of 5

Keywords: JCPenney, Sears, Retail, Business Failure, Stock

Id: 0d6op86y51U

Length: 11min 11sec (671 seconds)

Published: Wed Apr 10 2019