I've written pretty extensively about how poor of an investment J.C. Penney (NYSE:JCP) is. Between a lack of stability at the top levels of management, no clear plan to revitalize the company's image and attract new shoppers as sales continue to plummet, and most recently the massive dilution of loyal shareholders, there's little to like. Heading into the holiday shopping season (too soon to bring this up?), the company could be facing its last chance to turn the ship. With more popular and trendy stores like Urban Outfitters (NASDAQ:URBN) and Macy's (NYSE:M) having a stronger brand connection with customers, and the growth of online shopping both at traditional retailers and via online-only sellers like Amazon, J.C. Penney is facing one tough challenge. 

Does it have a chance? Let's take a closer look.

What's the strategy?
Former CEO Ron Johnson may have alienated the customer base by discontinuing the company's coupon program and attempting to shift to a more "everyday low price" model. But his mission -- to begin drawing new customers -- was central to J.C. Penney's ongoing struggles. CEO Mike Ullman (who Johnson actually replaced back in 2010) and his team have reinstituted the heavy discounting via coupons program, which is heavily featured on the company's website:

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Source: Image capture of JCPenny.com 

The quarter following Johnson's ouster didn't exactly net strong results, indicating that the return of coupons didn't either draw in new customers, or bring back enough old customers who loved the coupon program. As a comparison, Macy's website -- which does have some price discounting mentioned -- heavily features brands and fashion first:

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Source: Image capture of Macys.com

Macy's website is an extension of the company's My Macy's strategy. CEO Terry Lundgren, from the 2012 Annual Report:


My Macy's is our formula for localization – in merchandising, in marketing and in shopping experience. Even after our three consecutive years of phenomenal success in bringing localization to life, no other retailer has anything like My Macy's. It is our sustainable competitive advantage. No one has copied it. No one is likely to copy it because of the investment required in infrastructure, systems and talent ... We are identifying and sharing the best examples of what's working in one place – for example, granularly honing the mix of sizes, colors and brands in a store with a unique customer marketplace – so we can tailor a version of that best practice in other stores with a different mix of customers.


Macy's is continuing to tailor its message, and make each store a better reflection of the local clientele instead of making each store the exact same. While there's something to be said about the efficiency benefits of a "cookie-cutter" model, focusing on growing your business through tailoring each store to the local market has so far been a winning strategy. 

J.C. Penney, on the other hand, has yet to implement a strategy that will make the same sort of impact on its business as My Macy's has had for Macy's. Here's a look at the five-year total returns for both:

M Total Return Price Chart

M Total Return Price data by YCharts

The value of targeting a segment
Urban Outfitters has taken a different approach than the big-box retailers. From the company's Investor Relations website:


Our established ability to understand our customers and connect with them on an emotional level. The reason for this success is that our brands — Urban Outfitters, Anthropologie, Free People, Terrain and BHLDN — are both compelling and distinct. Each brand chooses a particular customer segment, and once chosen, sets out to create sustainable points of distinction with that segment ... The emphasis is on creativity. Our goal is to offer a product assortment and an environment so compelling and distinctive that the customer feels an empathetic connection to the brand and is persuaded to buy.


Each of the company's brands executes on its mission within its targeted demographic, similar to how Gap has operated with multiple brands Banana Republic, Old Navy, and Piperlime, instead of trying to be one-brand-fits-all like Macy's and Penney. While both strategies can be effective, it's worth taking a hard look at the company with the best growth potential:

JCP Revenue TTM Chart

JCP Revenue TTM data by YCharts

Urban Outfitters has a substantial opportunity to grow. And while it's hard to see it in the chart above, the company has grown revenues almost 65% in the past five years. 

Final thoughts
Saks CEO Stephen Sadove joining the Penney board is a positive, and his expertise with the upscale market could eventually lead to better results. But for now, there's way too much downside as the company struggles to stay afloat. Could Penney become a turnaround story? Sure. But instead of risking your money in speculation, take advantage of the compelling long-term opportunities that Urban Outfitters and even Macy's offer. While it may change if the company survives, J.C. Penney isn't much better than a lottery ticket right now.

 

Jason Hall has no position in any stocks mentioned. The Motley Fool recommends Urban Outfitters. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.