Whether you are a bull or a bear, you can find support for your view on the troubled J.C. Penney
I have made the case for a J.C. Penney investment for some time now. It's a deep-value pick with top-tier talent at the steering wheel. But the company's performance this year doesn't lie --shrinking profits, big-time capital outlays, and a failed marketing strategy. In the long run, I'm still a Penney's fan and will stick by my call, but I admit the company has a long road ahead to become what Bill Ackman believes it can be. In the meantime, there are a few companies out there that are seeing material benefits from all that is going on behind the scenes at Penney's renovation. Regardless of whether the department store chain makes it or not, the money it has spent on sprucing things up is nonrefundable and ends up in someone's bank account. I may not be able to convince everyone that JCP is a solid long-term hold, but these shorter-term plays are definitely worth your attention.
As you likely know by now, the face of J.C. Penney's new effort is to bring in more notable, desirable brands in the form of mini-stores within the department store itself. It's a strategy that I firmly believe in -- why try to convince people to buy your no-name brands when you can outsource the whole thing to brands that are already on the minds of shoppers? JCPenney the department store will soon become a real estate company -- leasing out its massive showroom to companies with established brands.
Part of this strategy involves creating desirable showroom spaces for Penney's partners to inhabit. You can equate this to remodeling your home -- new shelving, cabinetry, lighting fixtures, displays, etc. Just like your shag-carpet living room with the brown plaid couch, JCPenney stores are in need of a more modern look.
So far, that has involved some big orders from Leggett and Platt
J.C. Penney might not be rewarding shareholders, but this satellite play is up almost 30% since the end of June.
Tag, you're it
Leggett & Platt isn't the only shop benefiting from the new J.C. Penney. Taking a page from his days at Apple, CEO Ron Johnson has decided to rid the stores of cash registers and move item inventorying to an RFID system. RFID tagging makes managing inventory easier and checkout go more smoothly. Though it's an expensive crossover, I believe J.C. Penney will ultimately see a major benefit. It is one of the first companies to fully make the switch to RFID, as most major retailers are still in testing phases. Johnson is sure, though, from his experience at Apple, that this system is far superior to traditional inventory management systems and will transform the business when it switches over early next year.
One company vying for JCP's RFID contract is R.R. Donnelly & Sons
I am hopeful for the future of J.C. Penney. I believe a brilliant manager can turn around a dead company -- just look at Berkshire Hathaway (cheap shot, I know). But these companies may be safer picks for the risk-averse investor.