When J.C. Penney Was Ahead Of the Game

When Ron Johnson left J.C. Penney (NYSE: JCP  ) , he left a trail of horrible marketing moves littering his past. As it turned out, Johnson was very good at selling things people liked to upper-end consumers, but when faced with a new set of circumstances, his strategy fell apart. One of his hit-and-miss moves was to establish shops within J.C. Penney stores. While no one seemed especially interested in shopping at the store because of the shops, it was an interesting idea, allowing J.C. Penney to set itself up as a mall within a mall.

Now that idea has caught on with other big stores. As consumers become accustomed to shopping online and big-box retailers try to cut back on costs, the idea of giving space over to specific brands for a kickback of some sort makes a lot of sense. It turns out that Johnson may have really been on to something -- just not for J.C. Penney.

The value of going small
It's not totally fair to say that the shops didn't work for J.C. Penney. While they didn't rescue the chain from its own bad decisions, the shops did generate some good sales. Early figures had comparable sales in the shops 20% ahead of the rest of the store, on average. That's a good return for setting aside a little bit of space.

Now that Mike Ullman is back in the CEO role, J.C. Penney is going to keep the shop idea, but is going to start talking about them as "attractions." The reason for the broader term is that the shops are going to be part of an overall plan to get shoppers interested in the stores again. This is what companies like Best Buy (NYSE: BBY  ) are hoping to do, as well.

Best Buy has already opened some Samsung  (NASDAQOTH: SSNLF  ) locations in its stores, and will be opening more Microsoft shops in its stores later this year. The plan is generating lots of positive attention, and in its first analyst note after returning to coverage of Best Buy, Credit Suisse cited the shops as a big winner for the company. Analyst Gary Balter said, "If there is one line to describe the change, it is that [Best Buy] is turning its store base from a cost liability to an offensive weapon." That change is coming from the new shops.

Running with an idea
While J.C. Penney is taking the shop idea in one direction, Best Buy is moving toward the original idea that Johnson laid out. The Samsung shops in Best Buy will be staffed by Samsung specialists, and will give customers the experience of being in a different store altogether. That's good news for Best Buy, as it gives customers a new reason to come into the store.

It also means that those big, expensive stores can start generating a steady stream of income. Samsung agreed to a three-year deal with Best Buy. That gives Best Buy time to use the Samsung brand to bring customers in, and turn them into repeat visitors.

While the move may not have saved J.C. Penney, it looks like Best Buy is making the most of the idea. With Samsung and Microsoft as the first big players, I wouldn't be surprised to see other companies -- especially mobile brands -- making moves to open Best Buy locations. If the same sort of increase that J.C. Penney saw is seen at Best Buy, this might mark a real turnaround for the company.

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.


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