Brand Scoop is a breakdown of prominent brands that have made headlines in this week's business news. Typically, brands make headlines for very positive or very negative reasons, which of course affects their brand integrity and value on the stock market. Before investment, there is perception.
Today's featured brand is J.C. Penney (NYSE:JCP).
Why J.C. Penney still matters
Never underestimate the power of sentimental value. It's a formidable emotional force, and one that just might save J.C. Penney from extinction. Sentimental value is what compels people to return to homes devastated by natural disasters and sort through the rubble in search of a grandmother's necklace, a wedding picture, or a father's favorite fishing hat.
Sentimental value is also a lucrative commodity for historic brands such as J.C. Penney, founded in 1902, which have both a story to tell and a powerful emotional connection with consumers and their families. No one who shops on Amazon has memories of being dragged by their mother through the aisles of the men's clothing section in search of back-to-school deals on pants. Thanks to its long legacy of offering customers memorable shopping experiences, consumers still feel connected to the J.C. Penney brand, and that means J.C. Penney still matters.
Turning the corner
Any brand that has been around for well over 100 years will certainly experience ups-and-downs, but robust and viable brands are self-aware and figure out a way to understand, adjust, and even predict changes in consumer behavior patterns and evolutions in cultural sensibilities. In recent years, however, J.C. Penney has been unable to adapt and remain relevant to consumers.
This lack of vision was, in part, orchestrated by former CEO Ron Johnson who, in 2012, implemented an ill-conceived strategy that -- among other bad ideas such as eliminating popular house brands -- removed discount promotions from J.C. Penney's business model. Mr. Johnson's disastrous 17-month stint at the helm of J.C. Penney resulted in a 50% decrease in the brand's stock value. Ouch. Consumers, it turns out, prefer the histrionic spectacle of a promoted discount more than the mundane, humdrum banality of everyday discounted prices. Live and learn. And J.C. Penney is doing exactly that. The brand reinstated former CEO, Myron Ullman, who has ushered in an energetic and vibrant strategy that is moving merchandise, bringing customers back into stores, and increasing sales -- which just this past November enjoyed a 10% same-store sales spike compared to the previous year.
With depreciating stocks, apathetic customers, and very public leadership turmoil, the past few years clearly have not been kind to J.C. Penney. Today, however, it is a brand of broken bones but not a broken spirit -- which makes now the ideal time to buy in. With the right amount of fiscal discipline, visionary fortitude, and consumer-engagement therapy, J.C. Penny can return to being healthy and remain that way as it ventures into another century of retail life. Nevertheless, though the CEO shakeup and sales bump are all reasons to be optimistic, investors have shied away from J.C. Penney. Myopic investors state that Mr. Ullman's strategy of moving inventory by drastically reducing prices is a short-term stunt designed to boost sales -- yet offers little, if anything, in terms of profit.
But Mr. Ullman isn't giving away the store; he's giving away the experience. And for consumers experience is invaluable (just ask anyone about their favorite restaurant). J.C. Penney doesn't merely want to sell products; it wants to connect customers with the J.C. Penney experience that was part of their upbringing. It wants to rekindle that sense of sentimental value and bring its wayward customers home again. That process begins by having them walk through the doors, hopefully with their friends and families. And there is no better time to appeal to consumer emotions than during the holiday season, which thus far has been good to J.C. Penney as its stores were reportedly thronged with deal-seeking customers on Black Friday.
Sizing up the competition
J.C. Penny has also positioned itself well in the retail category with its new strategies that signify an intelligent return to what worked for decades with customers. The brand has managed to differentiate itself from other big-box competitors by offering quality clothing and products at modest prices, giving customers a welcome middle ground instead of having to decide between saving at Kohl's (NYSE:KSS) and Wal-Mart (NYSE:WMT) or splurging across the street at Abercrombie & Fitch. Furthermore, Kohl's is grappling with a plague of institutionalized inefficiencies -- from cluttered store aisles to anemic and uncompetitive product selections -- problems indicative of inner disorganization and unwieldy inventory management. Reading many of the frustrated customer-generated comments on Kohl's Facebook page adds further evidence to internal dysfunction. Wal-Mart, while being a ruthlessly successful juggernaut of corporate capitalism, continues its lucrative race to the bottom in the important venue of public perception as poorly compensated employees and connections with exploitative Chinese trade practices increasingly become part of its brand image. It also doesn't help that Wal-Mart is the conduit for 50% of Duck Dynasty's almost $400 million in retail sales. The bearded spiritual leader of the Duck Dynasty empire, Phil Robertson, is embroiled in a public relations disaster after revealing to GQ his homophobic beliefs and shockingly tone deaf views of others who don't live according to his redneck values.
J.C. Penny's other notable competitor, Macy's (NYSE:M), a brand with similar historical and emotional ties to consumers, is having a respectable holiday season that unsurprisingly reflects the trend of attracting more shoppers who are spending marginally less (we'll know more later this month when then numbers come out). Remember that recovery takes time, and this retail parable isn't a race between the tortoise and the hare. The hares are online. But there are millions of dollars at stake for the retail tortoises; no one ever made a Christmas movie that played on the emotional power of shopping online. Slowly evolving positive trends represent good news for venerable brands like J.C. Penny and Macy's. Sure, people are spending less, but they are showing up and spending, and in this competitive economic climate, that means the race is still on. In fact, the U.S. Department of Commerce reports that, thanks to growing consumer confidence and the festive season, retail sales in general are up 0.7%. Despite speculation, Macy's isn't going to devour J.C. Penney; if anything, Macy's is the canary in the retail coalmine. And it's singing a positive tune -- which also makes Macy's a wise investment.
Stay the course
It's unfortunate that brands with gritty, stoic business DNA like J.C. Penney are being abandoned by reluctant investors. Wall Street types, which spook like rainbow trout at the hint of bad news, remain skeptical of J.C. Penney's potential. Most recently the hedge fund Hayman Capital Management sold all of its shares in J.C. Penney, and is now leading the paranoid hysteria. These types of mind-sets are scared off because J.C. Penney has work to do -- real, challenging work, and that is something money manipulators find undesirable, even incomprehensible. That's how followers, not leaders, think.
As investors, we need to ascertain if J.C. Penney is committed to the difficult work necessary for a resurrection. Judging from J.C. Penney's recent actions and decisions, the answer to that question appears to be, yes. By reintroducing itself to shoppers and offering them products they want at reasonable prices -- and implementing the return of discount promotions and bringing back beloved house brands -- J.C. Penny is poised for a comeback. So stay the course. J.C. Penney doesn't need a miracle. It simply needs some time. Just like the rest of the economy.
Fool contributor James Thompson has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. 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.