More Financial \”Free-Falling\” at JC Penney

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\"TheWow!! Another disastrous quarter, and the beat goes on. Louder and louder it gets, and the media and financial analysts are having a field day. They have to be loving Ron Johnson for being “out there,” pouring forth the fodder they feed on. One provocative angle after another, for three quarters, fills pages and screens and increases readership and ratings.

\"TheHow can I compete with those guys? They’re covering it faster, more rigorously and completely than I ever could. And, most of them are now joining the naysayers team. Also, as each quarter passes, the rate of email traffic into my box is increasing at the same rate as Penney’s is falling. All of them are instructing me to “just look at the numbers.” (reminds me of Detective Jack Webb of TV Dragnet series in the 50’s: “….just the facts ma’am.”).

\"TheWell, my answer is: how could I not look at the numbers? They’re all over the place, so much so that I certainly do not have to repeat them all. And, I want to remind my readers that I am confident that there is one guy who is not only looking at the numbers, but analyzing them and deliberating over them more than anyone else, and that would be hedge fund titan, Bill Ackman, founder of Pershing Square and major stakeholder in the company. Further, I would say that his accumulated wealth of an estimated $2 billion was not gained from being stupid. Further yet, the last I heard, Ackman still supports Johnson’s strategy.

\"TheNow, having said that, I do not have to repeat the numbers. But there are a couple of numbers I do want to repeat, and those would be the productivity numbers that are clearly connected to, and strengthen the case for sticking with his strategy and enduring the pain of change to its successful conclusion.

Across the enterprise there is a total of 111 million square feet. Of this total, 64 million are transformable into branded shops. To date, they have transformed 6 million square feet. Before conversion, the 6 million square feet produced $180 per square foot in sales. After conversion, they are contributing $239 per square foot, a 33% increase in productivity.

Furthermore, they conducted some before-and-after research among their core customer segments to determine their reactions to the shops and whether it affected their image of JC Penney.

Pre-tour               Post-tour
Traditional          Modern
Old fashioned     Innovative
Value                    Good value
Polyester              Sophisticated
Outdated             Trendy
Disorganized       Organized
Quality                 Higher quality at lower prices

\"TheKind of a no-brainer; how could they not have been overwhelmingly positive about the change? This, of course, confirms my view that the “old” JC Penney customer, if anything, is inspired by the new image, and many of those that may have left prematurely due to pricing confusion, will return.
So, the naysayers, the “numbers guys” who are largely short-termers, not unlike most of Wall Street, can blah blah blah all they want about the short-term disaster of three short quarters, the “sky is falling” and there’s no place to hide.

Johnson gets a “double down” from me because my bet is on the two factors that prove his long-term vision is a winner: the productivity numbers of the converted space and the most important factor —drum roll please — the consumer. Oh, and hanging in there with Ackman isn’t so stupid either.



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