2 floundering retail giants

JC Penney and Walgreen seem to have lost their way, to the benefit of their competitors.

By Jim Cramer Jun 20, 2012 9:45AM

There are a lot of ways to win in business. You can out-execute the others in your category. You can expand from regional to national and ultimately to global. You can offer a better mousetrap.

 

And then again, sometimes you can win by doing nothing, doing nothing but going against flailing and faltering competitors who seem to be flummoxed and floundering in unfathomable ways. Or, to put it another way, you can be lucky enough to compete against J.C. Penney (JCP) and Walgreen (WAG).

 

On Monday night, J.C. Penney announced the departure of Michael Francis, a key executive who had been brought over from Target to help Ron Johnson turn around J.C. Penney. Francis was part of the dream team that Johnson, late of Apple, put together to reinvent Penney in a fresh, imaginative way and wean its customers off the "high initial markup and then coupon down" strategy that had been Penney's modus operandi.

 

Johnson is already, I believe, way over his head in this attempted turnaround, one that racked up horrendous comparable-store sales (down 18%) in the most recent tally, and now he intends to take over the merchandising as well as the overall running of the stores.

 

Frankly, J.C. Penney, while it is still early on under the reins of Johnson, seems to have totally lost its way. Some of it may be because Johnson seems barely engaged. He has yet to move to Penney's Plano, Texas, headquarters. Some of it might be because the company has no raison d'etre. And some of it might be because the store's longtime customers can't understand or fathom what the heck is happening.

 

The result? There are billions in sales up for grabs, and those sales are going to Target (TGT), to Macy's (M) and to Wal-Mart (WMT). Penney is the gift that keeps on giving, not just to the short sellers but to this troika of very lucky competitors.

 

As for Walgreen, ever since it declared war on Express Scripts (ESRX), formerly its pharmacy benefit manager, it seems to be all downhill for this gigantic drugstore chain. Customers have been fleeing to competitor CVS Caremark (CVS), as demonstrated by the 9.9% decline in comparable pharmacy sales that Walgreen announced Wednesday.

 

Walgreen, rather than trying to stem the defections, announced Tuesday that it has taken a 45% stake in Alliance Boots, a gigantic drugstore chain based in the U.K., for $6.7 billion. To which I say, what the heck? Is spending a fortune buying a portion of a global chain of drugstores the way to reverse the defections to CVS? I don't think so.

 

Retail is a tough business. Going from domestic -- which is, frankly, one of the things I liked about Walgreen -- to international at a time when international could pull down the strongest U.S. company, doesn't make a lot of sense to me, especially when you pay a price per earnings that is much higher than the acquirer trades at.

 

Going in a host of directions at once, as Penney is trying to do, doesn't make a lot of sense either. Maybe Walgreen and J.C. Penney can pull off these aggressive growth plans. But in the meantime, I say they are terrific reasons to buy their competitors, as their failures and footfalls play right into the hands of the stores right next door to their own operations.


 

 

Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and is long CVS

 

 

 

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35Comments
Jun 20, 2012 4:39PM
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I would still shop at Penney if they had treated their employees right when Johnson took over.  However, they tried to change everything in the store including customer service.  How can you have customer service when you only have a handful of part time high school and college kids working for you.  They treated their longtime employees like they were dirt and have let all of my friends that were fulltime employees go so they could hire part time no show.  I will not shop at JCP any longer.

 

Jun 20, 2012 1:22PM
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What does anyone see in CVS except high retail prices? 
Jun 20, 2012 12:36PM
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No surprise with J.C. Penney....SOMEBODY TELL THE CEO OF J.C.PENNEY that his bright idea of marketing is CRAP.  Us women LOVE, LOVE, LOVE SALES....we know it was marked up and then put on sale but it's just a thing with us, WE LOVE OUR SALES.  I went into Penneys on Mother's Day weekend and the mall was packed and all the stores were crowded with buyers because there were wonderful sales going on.  I went into Penneys and it was almost empty....I rest my case.  They used to have cute clothes and great sales......please bring the old Penneys back before it's too late.

 

Jun 20, 2012 4:03PM
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Does it really matter what brand name you slip into the sentence "xxxx retailer is in trouble."?

All big businesses follow not lead. In 1983, 99% of all publicly traded businesses subscribed to the same business plan-- We will hoist our brand and they shall flock to our reputation. Well, no one did, and by year-end, most had either went bust, were acquired, consolidated or emerged far less than they were. Only 1% looked out the window and adjusted operations to real world conditions. Further many on auto-pilot had down-sized too. Those went "poof" from a lack of legitimate talent.
Our jobs have been taken away, incomes driven down, opportunities suppressed and families stressed to the max. What... we should shop like nothing is wrong? BIG, is broke. Who wants to go to some big box and see tables and racks full of goods from nations where our jobs were exported to? Who cares if prices are dropping if quality is lacking? There is no reason to go to a big box when you can get ripped off just as easily online and perhaps for less? JCP hired a tech guy to run a retail business. Dump the Board and bring in the old ladies who keep the shelves dusted. I'd bet the farm that the last CEO wouldn't have made the long list much less the short one. A college education is GREAT. Now go start as a sweeper and learn the business before you drive it into the ditch. America is desperately looking for integrity. It doesn't exist anywhere near Wall Street or any Ivory Towers. Hire back the experienced career people who used to make these places great.

Jun 20, 2012 2:34PM
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MSN has zero credibilty as long as they allow this carnival barker to ply his scam
Jun 20, 2012 10:16AM
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One cannot make such a radical change as JCP has done and not expect the reaction that it sees now...  Ms customer wants to see that sales sign, that certain % off and that $10 purchase credit that she can use... It's the nature of doing business in this country.  No one believes the sign in the store that states the item is on sale... show me!!   My wife when she receives that Kohl's letter with the % discount... especially the 30%... she and her friends and my daughters cant wait to go shopping... Is JCP doing same? NO!! 

I worked for JCP and it's not the same company I remember... they do not treat their associates the same as former associates... for us old timers, we loved working at JCP, when times were hard, they did not lay off... they had a pension plan, all that is gone...

Bringing outsiders who have no clue about the retail business should have no business leading such a great company.  Get rid of the top!! Start fresh and bring some of the old timers back so that they can turn JCP around.

Jun 20, 2012 2:37PM
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cramer's all american picks right now ETN,CLX AAPL,COST...........DOWN AVERAGE OF .7 PERCENT

TODAY..............MARKET DOWN ONLY .2 PERCENT

 

his thesis of beating the market with individual stocks is just simply wrong...he can't do it..........

that's why he makes his money selling YOU his newsletter

Jun 20, 2012 4:41PM
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There are millions of people saving and paying off debt to try to secure what they have worked for over the years,  right now many are looking for ways to cut back on things to save money, like cable etc. they are stocking up food to save money, most people I know are doing this, it is one reason the growth is slowI started eating smaller portions of my breafast meat when they raised the price to off set the amount they raised it they buy things on sale and stock upon the items on sale, it will get worse , I paid off my car to save the monthly payment, now both are paid for, and I drive the one car all the time to save mileage on the newer one, I will try to not buy a car for the next twenty years that is the results of greed !!! people cut back and save money !!!
Jun 20, 2012 4:33PM
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Cramer.  Pre-IPO Facebook pimping/promoting and subsequent post-IPO revisionist history articles.

Need I say more.

Jun 20, 2012 4:15PM
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and please don't forget mens warehouse that gapped down after cramer picked it......he later

came on his show and apologized but that is part of his scam to make the con believable

Jun 20, 2012 6:12PM
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CRAMER has to be the best snake oil salesman ever he could have given PT BARNUM a run for his money.....If you do the exact opposite of what cramer tells you money will flow your way.this guy is nothing but a clown boo yaaaaa
Jun 20, 2012 7:05PM
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Customers "defecting to CVS" from Walgreens is not the appropriate way to state the fact.  The customers had no choice - their health insurance no longer covered the prescriptions at Walgreens so they had to go somewhere else.  Since you are in the drugstore to get the scripts filled, you would also buy other non-prescription products while there - it is convenient.  I personally didn't like having to give up Walgreens.  I now use Rite-Aid in southern California.  I will not shop at CVS - they cheat their customers - I filed a complaint about their dishonest pricing policy with the Better Business Bureau a number of years ago in Phoenix AZ.  There is one price on the shelf and a higher price in the computer when the product is rung up/scanned.
Jun 20, 2012 6:21PM
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Penney's has been our go to store for years!  until....I decided to check out the new Penney's  with an open mind and pocket book (in spite of the god awful TV ads), twice. First time was like a ghost town with a " third world" feel in the lack of merchandise and display changes. Where were my piles of reliable go-to lables and variety of fits and colors? I basically used my quick scanning as a shortcut through the store into the rest of the mall. I stayed away for weeks and then when soft again looking for  some baby items and back I went with the same emptiness greeting me along with ripped out customer service kiosks (and the employee service to go with it). Crazy redesign of the customer service piece!The wanted baby items no longer available and slim pickins.  My once bustling Penney's has totally alienated many like me,consumers, who are ok with pricing changes but just want a good selection and knowledgable sales staff  to buy from  - but nobody's home.
Jun 20, 2012 7:33PM
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Where's Cramer been. He's just getting the news Walgreens & JCP are facing challenges. This guy's awful slow on the uptake.
Jun 20, 2012 7:29PM
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everything is floundering including cramer

Jun 20, 2012 3:43PM
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Good comments on JC Penny and Walgreen. Another retailer in trouble is Jos. A. Bank. After a decade of amazing success they have replaced their advertising agency of ten years. Stock down from $54 to $41 since then( end of March). Look for more weakness this quarter even though management is bullish on this quarter.
Jun 20, 2012 12:16PM
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marketing jcp not price gimics.  always.....
Jun 20, 2012 11:15AM
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don't forget.....with oil at 105 and gas at 3+ he predicted oil at 150 and gas at 5

oil now low 80's and gas less than 3 in some areas.........is he that wrong or was it a pump and dump

oil stocks?......you be the judge......idiot or scam man?

Jun 20, 2012 5:06PM
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I like JCPenney its not as expensive as Macys and Its better than Kohls or Burlington Coat factory. Walgreens has its problems but given the choice CVS/Walgreens I would definitely go to Walgreens pharmacy.

Jun 20, 2012 3:31PM
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I used to shop at JCP but their so-called "sale" prices were pretty much baloney anyway.  For example, a $44 golf shirt, supposedly "on sale" for $25??  Now $25 is their regular price - all they have done is remove the baloney about having a "sale".  

 

Unfortunately, other discounters (Ross, Marshalls) carry those same golf shirts for $14-$18.

The reality is about competition, not marketing gimmicks.

 

So - as a male shopper - JCP has gone out of the loop for me.  Ladies, there are better bargains elsewhere then JCP......even when JCP has a so-called "sale".

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