Why J.C. Penney inspires confidence and Sears doesn't

CEO Ron Johnson has a realistic vision for the venerable chain.

By Jonathan Berr Feb 24, 2012 11:42AM

 Image Source/Getty ImagesJ.C. Penney (JCP) CEO Ron Johnson, whose company reported a fourth quarter loss Friday, sure talks a good game.

Speaking to the Harvard Business Review last year, the former Apple (APPL) retail guru, who joined the venerable retailer in November 2011, argued that the traditional brick-and-mortar retail industry is its own worst enemy.

"So it's not department stores' size or location or physical capabilities that are their problem," he said. "It's their lack of imagination -- about the products they carry, their store environments, the way they engage customers, how they embrace the digital future. There's nothing wrong with the capability. There's a problem with the execution."

Johnson is putting his money where his mouth is. The Plano, Texas retailer plans to reorganize its stores into a series of 80 to 100 brand shops around a "Town Square." It also introduced a three-tiered "Fair and Square" pricing system with monthly promotions. I have no idea whether this strategy will work, but Wall Street is giving J.C. Penney the benefit of the doubt because of Johnson's track record at Apple. That's not the case with Sears Holdings (SHLD), which has been in the midst of an endless turnaround for years.

Edward Lampert's empire managed to convince Wall Street on Thursday that it isn't running out of cash any time soon. Unfortunately, the most effective cash management strategy in the world isn't going to boost Sears Holding's flagging sales. J.C. Penney is in a similar situation, but Johnson seems to have a better grasp on it than his counterpart at Sears Holdings, Louis J. D'Ambrosio, who was hired by Lampert last year despite his lack of retail experience.

Shares of the 110-year-old retailer have gained more than 18% since the start of the year, but the stock is down Friday morning on the disappointing earnings report. Last month, the retailer warned that the fourth quarter results would be below expectations because of the steep discounts it offered during the holiday season. It wasn't alone, however, as many retailers lowered expectations.

In the three months ended Jan. 28, J.C. Penney lost $87 million, or 41 cents a share, versus net income of $271 million, or $1.13 a share, a year earlier. Revenue fell 4.9% to $5.42 billion, below the $5.5 billion consensus forecast. Excluding one-time restructuring charges, profit was 74 cents, beating the 67 cents expected by Wall Street analysts.

Though J.C. Penney is not out of the woods, Johnson is one of the few people who can breathe new life into a moribund brand.

Jonathan Berr hates shopping as much as going to the dentist. He owns no shares discussed here.

4Comments
Feb 24, 2012 3:48PM
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@V8Cat No one gives refunds without receipts or gift tags. That has nothing to do customer service, otherwise people could return things they lifted from a store for $.  

As to JCP, everyone is excited to see changes. As to Sears its still a shock to witness the incremental death of one of the true pioneers in retailing.
Feb 24, 2012 12:13PM
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I had one of the worst customer service experiences last year when I tried to exchange or get a refund on a gift that came from J.C. Penney. I did not have a receipt because it was a gift (clothing), but the tags were still on it, and the Dept. Manager said it did come from their store. I finally just gave up and left the item with the Dept. Manager and told him to give it to charity or resell it as it was of no use to me unless they could get me the the right size. J.C. Penney sells no tools or appliances, I never found much reason to go into that store before my customer service experience and would never buy anything there now.
Mar 16, 2012 12:46AM
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I'm just glad our Sears is staying open.

 

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My wife loved shopping for bargains there. Not the same anymore. She is not going back.

Hello TJ Maxx .

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