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Is J.C. Penney a Lost Cause?

J.C. Penney (NYSE: JCP  ) fell nearly 5% at the open this morning before bouncing back somewhat, down about 2% as of 3:25 p.m. EDT after yet another Wall Street analyst cut its views on the ailing retailer. BMO Capital Markets lowered its call on the stock from "market perform" to "underperform" and slashed its price target on the stock from $18 to $12, implying that the firm sees about another 20% of downside from current levels.

Courtesy: J.C. Penney.

The problems that J.C. Penney faces are well-known. Having suffered a long history of having to discount merchandise dramatically in order to move it out the door, J.C. Penney decided to bring in CEO Ron Johnson in an effort to change that losing strategy. Johnson's response was to force discount-addicted shoppers to go cold turkey, giving up on the discount model in exchange for a massive reworking of the company's entire image, from renovating its home-furnishings department to rolling out new shop-within-a-store concepts aimed at driving excitement and repeat visits from customers.

Running out of time?
So far that strategy hasn't produced good results. It's arguably unfair to expect such a massive turnaround to have an immediate impact, but investors must be nervous about the big capital expenditures J.C. Penney is making in a gamble for the company's entire future. Now the company has started to cave, reintroducing some minor promotions that have an eerie resemblance to the discounting it used to do more freely.

Meanwhile, overhanging J.C. Penney's changes is a legal battle with Macy's (NYSE: M  ) over its deal with Martha Stewart Living (UNKNOWN: MSO.DL  ) . As it's still uncertain whether J.C. Penney will ever get to put a single Martha Stewart item in its collection, major investor Vornado reportedly sold a 10 million-share block of its stake in J.C. Penney amid the pessimism surrounding the stock.

What's increasingly clear is that investors on Wall Street and shoppers on Main Street are losing confidence in J.C. Penney's business strategy. The retailer needs to make a final decision on its future strategy soon and then dedicate all of its resources to making it work, or else the exodus of both investors and shoppers will continue.

So far, though, J.C. Penney has simply been unable to engineer a convincing comeback, and investors are no longer certain that Johnson can weave the same magic he did in previous jobs. To get the latest insight from our top Motley Fool analysts on whether J.C. Penney is a buy today, you're invited to claim a copy of the Fool's must-read report on the company. Learn everything you need to know about the company; simply click here now for instant access.

Read/Post Comments (3) | Recommend This Article (4)

Comments from our Foolish Readers

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  • Report this Comment On March 25, 2013, at 9:26 PM, sandyclaws99 wrote:

    What "magic" did Ron Johnson work at Apple? Steve Jobs had a vision for Apple retail stores and Johnson was hired to implement that vision. Apple sells high-margin products to repeat customers who value Apple technology and have fantastic brand loyalty. Implementating Apple retail stores was a no-brainer.

    He has wrecked JCP and is in over his head. Ackman won't fire him because Ackman doesn't want to admit he made a mistake bringing him on board.

  • Report this Comment On March 25, 2013, at 11:44 PM, ThomLee wrote:

    While the J.C. Penney stores in my area do not have the fabled Joe Fresh Line, the stores (Hopkinsville, Ky and Clarksville, Tn.) look great. People are walking out of the stores actually carrying JCP bags!

    I left the Penney Company many years ago as a store level senior merchandiser in Kentucky but have maintained an interest in the company. My career included full-line stores in St Petersburg and Tampa and Miami where Penney's failed in its effort with the Treasury Stores to compete with Walmart. I personally think the Company is now on the right track with its distinctive - not a copycat - new look even though there have been well-documented missteps. There is a definite fresher look that has brightened the stores and indicates a new direction that might not appeal to the old Penney customer but certainly to their sons & daughters and grandchildren. After all, unless you are in the mortuary business your expanding life-time customer base comes from the younger customer!

    In my view patience with JCP will reap great dividends.

  • Report this Comment On March 30, 2013, at 7:53 AM, DCconsumer wrote:

    How did Ron Johnson ruin JC Penney? How do we count the ways? 1) He ran a "screaming" TV campaign last year that horrified people, 2) He failed to realize that JC Penney has great product brands that are under promoted (e.g., Linden Street), 3) He never thought of slightly raising the prices of his home decorator--much valued---products, 4) He tried to appeal to youth on apparel and didn't realize that they just don't shop at discount stores--it ain't cool and there's too much competition that's cheaper and cooler, 5) he has no sense of his demographic, 6) he has a horrible marketing team, 7) he lost first principles. I will never ever understand this obsession with Martha Stewart. Her designs are not pretty, they are not cool, the colors are one-note, there is nothing unique in her work, and I CAN GET MS STUFF AT KMART. She's very expected. Please....get over this obsession, we are suffering from Martha Stewart FATIGUE!!!!!

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9/30/2016 4:03 PM
JCP $9.22 Down -0.03 -0.32%
J.C. Penney CAPS Rating: *
M $37.05 Up +1.00 +2.77%
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MSO.DL $0.00 Down +0.00 +0.00%
Martha Stewart Liv… CAPS Rating: *