We like much or what JCP is doing to its merchandise right now.Note, that is by no means a change in tone for us. Our call has never been about product. It has been about the cost associated with changing around a retailing strategy by such a startling degree, and the extent to which JCP will wake several sleeping giants (KSS, Macys, Gap) with its aggressive pricing strategy which will ultimately come back and haunt them.
With that mouthful said, check out the images below from JCP’s latest Izod store. Authors’ note: I’d wear some of that stuff. But that’s not the question to ask. Johnson’s goal is to transform JCP into ‘America’s Store’. Ask yourself if an autoworker in Detroit will wear this? How about a police officer in Columbus? No and No. We realize that we’re being very narrow in our definition of customers, but the reality is that the cost of customer acquisition is going up very dramatically. It’s hard for this product to have such broad appeal to the people that they already count as customers.
So the punchline for JCP is that the revenue delta will improve - but it won’t outstrip the painfully eroding cost delta. That’s bad for JCP. For others like Macy’s, Kohl’s, and Gap, it means that JC Penney is – come hell or high water – bringing more product into the US to sell at what it thinks will be very sharp everyday low prices. The thing that people miss is that 100% of this product WILL SELL. It’s just a question as to what price it sells.
If there’s significant discounting needed, then it is bad news for these other retailers that need to compete with JCP by offering similar product at what is today elevated prices. When that course corrects, it will be painful competitively for each of these retailers, but will also create a vicious cycle that will come back to haunt JCP as well.
In order of shorts, we like M, GPS, KSS, CRI, JCP, SPLS, and UA.