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J.C. Penney's Been a Survivor Before

By Alex Planes - Apr 13, 2013 at 2:30PM

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Learning from the market's past to understand its present.

On this day in economic and business history ...

James Cash Penney opened his first store, one of a chain known as "the Golden Rule," in Kemmerer, Wyo., on April 13, 1902. Penney originally operated the store in partnership with two other entrepreneurs, but Penney proved the more dedicated of the three partners, and within five years the others had sold their interests and Penney was in sole control of three Golden Rule stores. Within a decade, there were nearly three dozen stores scattered across the Rocky Mountain states, and it was time for a new name for the business: J.C. Penney (JCPN.Q), named after the man who built it.

J.C. Penney grew rapidly throughout the western half of the United States and had more than 1,400 stores in 1929, just before the stock market meltdown. Unfortunately for James Penney, the crash of 1929 destroyed much of his wealth, and the economic effect of the Great Depression was such that he had to borrow against life insurance policies just to meet J.C. Penney's payroll. Penney (the man and the company) survived the Depression and grew again, but it took a toll on the health of both. James Cash Penney wound up checking into the Battle Creek Sanitarium -- the birthplace of Kellogg (K -0.38%), where the highly religious Dr. John Harvey Kellogg attempted to cure his patients with boring food -- to recover from the stress of nearly losing everything. That was the end of his corporate leadership, but James Penney remained chairman of the board until after World War II and would serve as an honorary chairman until his death in 1971.

J.C. Penney is also notable, beyond its leading role in American retail, for its formative imprint on Sam Walton. The Wal-Mart (WMT 0.11%) founder's first job following his college graduation was as a management trainee in an Iowa J.C. Penney store. Penney's focus on maximizing the value of customers' visits and their purchases remain clear in Wal-Mart's corporate focus to this day. By the time Walton opened his first Wal-Mart in 1962, J.C. Penney was already truly national -- it had opened a store in Alaska that year, and its first Hawaiian location would open four years later. A decade later, J.C. Penney had more than 2,000 stores across the country. This was "Peak Penney," and the company has never been quite as large, or quite as important to the American economy, since.

The roots of American insurance
A number of prominent Philadelphia citizens and businessmen came together on April 13, 1752, to form the Philadelphia Contributionship, the first property insurance company in the United States. As with many other important developments in early American history, this one owed its genesis to Benjamin Franklin, who had founded Philadelphia's first volunteer fire brigade in 1736 and saw a clear benefit to insuring the properties that might eventually catch fire.

Originally named "The Philadelphia Contributionship for the Insurance of Houses From Loss by Fire," the company retained its focus on fire insurance until the early 1800s, when it switched to using a perpetual policy that would remain in effect permanently until canceled. The Contributionship still exists today, and you can still buy insurance from it, but it's now only one tiny thread in a far larger tapestry. In 2009, the U.S. Census recorded some $423 billion in property insurance premiums underwritten, which includes roughly $170 billion in automobile insurance and about $58 billion in homeowners' insurance. The property-insurance industry generated more than $36 billion in operating profits in 2009 from those policies.

The president vs. the producers
One of the more tumultuous political battles of the postwar era against Big Business drew to a close on April 13, 1962, when President John F. Kennedy emerged victorious against the nation's steelmakers. The New York Times reported on Kennedy's victory:

For three days the great forces at the command of the President of the United States had been brought to bear on the steel industry.

Some of the effort was exerted in the open -- the President's open denunciation of the [steel] companies, calculated to arouse public opinion against them; the opening of grand jury proceedings leading to possible antitrust action, and the threat to divert orders to companies that had not raised prices.

But privately as well, the President and his advisors were bringing every form of persuasion to bear on the industry, trying to hold back the companies that had not yet raised prices and induce the others to roll back the price increase.

Kennedy's offensive against U.S. Steel (X -1.90%), Bethlehem Steel, and several other large steel companies over surprise price increases of roughly $6 per ton had caused turbulence in the markets during a rare period of weakness for the Dow Jones Industrial Average (^DJI 0.03%) in the postwar years. The Dow had spent the previous five months meandering a few percentage points lower from its 1961 highs. Investors feared that Kennedy's pressure on the steelmakers might undermine industry profits or weaken the American defense sector, already operating at a high level of production in the aftermath of the Bay of Pigs fiasco at the depths of the Cold War.

Kennedy's administration had clearly learned a lesson in dealing with the steel industry from the failed efforts of President Harry Truman, who had attempted to bend steelmakers to his will a decade earlier. Truman's bold seizure of industry operations was overruled in the courts -- but by all measures, Kennedy had less of a problem to deal with. His victory, however, could not stop the Dow's slide. Its worst days would be in the two months ahead, and it would finish more than 20% lower than its April 13 close before bottoming out.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$31,261.90 (0.03%) $8.77
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
$119.20 (0.11%) $0.13
Kellogg Company Stock Quote
Kellogg Company
$67.74 (-0.38%) $0.26
United States Steel Corporation Stock Quote
United States Steel Corporation
$23.79 (-1.90%) $0.46
J. C. Penney Company, Inc. Stock Quote
J. C. Penney Company, Inc.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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