Chart: JCP – Time to Slap a Stock Analyst?

Stock analysts love to sell the idea of JCP stock at $40.00. Just check out here and here.

However, looking at the 5-year chart, you’ll notice that there is very strong resistance at the $40.00 level.

J.C. Penney Company Stock Chart by YCharts

So, considering the continued weak state of the economy, and the strong resistance right around the $40.00 level, it appears incredible to me that stock analysts would have a $40.00 or higher target.

Reviewing the chart, JCP, in fact, crossed into overbought territory around $42.00 and then proceeded to drop through all the support levels of the Andrew’s Pitchfork until, on 3-23-12, the price took out the sell trigger.

JCP has fallen through the sell trigger line

Could JCP stock rise in price and cross the sell trigger line to the upside? Yes, it has been hovering near that line for several days.

A similar chart, over a slightly longer time frame looks almost the same as the chart above.

JCP 1-year chart

I believe these charts reflect not just technical information and patterns about the price of JCPenney stock, but they also reflect skepticism that JCPenney can execute its campaign to become the “favorite store for everyone”. Such hyperbole is more worthy of a teenager wishing to be the most popular kid in school than a major retailer with the long and storied history of JCPenney.

Steven P. Dennis offers some interesting criticism in a two-part article:

First, anyone who knows retail knows how foolish a high/low pricing strategy seems. The amount of money spent advertising events in weekly circulars and various broadcast media is enormous (and increasingly ineffective). The payroll and collateral costs of constantly changing in-store signing is a major line item. And “forcing” consumers to wait for a sale or have a coupon or get your store credit card to obtain the best price is seemingly a big customer dissatisfier (sic).

So going to “fair and square” everyday pricing would seem to be a win for the consumer and a major improvement to any retailer’s earnings. Why not emulate Nordstrom and get both great Net Promoter scores and have an advertising to sales ratio that is the envy of the competition? It’s a slam dunk, right?

Well, not so fast Skippy.

First of all, unlike Nordstrom, every promotional retailer like Penney’s (and Sears and Macy’s and Bed, Bath & Beyond, etc.) has taught their customers–over many, many years–that their “regular” price is a sucker price. Reversing this perception will not happen quickly, no matter how creative your new ad campaign is and no matter how much money you throw at it in the first few months.

Second, every retailer has a customer segment that is intensely deal driven. This group refuses to buy unless they are convinced they have gotten the best possible price. And they believe they can ferret that out. They love the thrill of the hunt. Buying something without some special incentive is an anathema to them.

History shows–whether you are Sears, Macy’s or Saks–that when you pull back on promotions this segment’s business drops like a rock. If they are a tiny fraction (or an unprofitable piece) of your sales, it’s not a big issue. If, as I suspect is the case at JCP, they are a meaningful profit contributor, the short-term hit is significant and they will be hard to win back.

Third, like it or not, promotional marketing creates urgency to buy. Major events with limited time offers drive traffic. In-store messages that shout a great deal increase conversion. Over time hopefully Penney’s can teach their consumers that every day is a good day to check out their store and that there is no reason to shop around for a better deal. In the immediate term sales will suffer.

Lastly, and perhaps most importantly, the math on everyday pricing is tough. While it is true that most consumers buy at the lowest promotional price, it is also true that there are plenty of customers who pay full price (or receive a lesser discount). To achieve the same gross margin percentage would mean setting an everyday “fair and square” price that is above the lowest historical promotional price. But by doing that, you will be uncompetitive with your direct competitors.

In the second article Dennis outlines how JCPenney takes a swing of the bat and misses with its new strategy:

But at the same time, there are several critical aspects of their vision–and way of thinking–that I worry about.

First, there are the relentless comparisons to Apple and the success of their retail stores. Every time I hear Ron Johnson refer to his success there I’m reminded of the old Steve Martin joke about how to be a successful millionaire: “Step 1: Get a million dollars. Okay, Step 2 …”

While I have no doubt that Penney’s can benefit from many of the leadership lessons and certain tactical aspects of Apple’s retail strategy, Penney’s ain’t Apple. It’s a lot easier to build retail stores around products that are in high demand, have limited distribution and “fixed” high margins. Apple is a single brand specialty store with a clear tribe of loyalists, not a multi-brand, multi-category store serving an incredibly diverse set of customers. Apple is vertically integrated and the stores benefit directly from total brand advertising–and a ton of buzz. All of Apple’s stores are in “A” real estate locations and have a tight prototype and are not unit intensive. The list goes on and on.

Second, in their investor presentation they said “we want to be the favorite store for everyone.” I hope this is hyperbole because it’s so patently ridiculous. While the size and scope of Penney’s footprint necessitates a reasonably broad set of consumer segments, THE number one challenge of this management team is to define the key customer segments they wish to own, rigorously edit (and develop) their assortments against these target segments and then deliver a remarkable and relevant cross-channel experience for them. Penney’s will not win by going broad and shallow. Every winning retailer on the planet wins through a well-honed differentiation strategy and clear positioning.

Related to this is the new team’s apparent unwillingness to believe that “treating different customers differently” is an increasingly powerful point of competitive advantage and fuel for profitable growth. Various reports suggest that little to no consumer research or segmentation analysis was done to vet their new strategy and one of their first moves was to blow up major pieces of their customer analytics/CRM group and bring in a guy with little apparent direct marketing/customer analytics experience to head up the remnants. In their 2 day investor presentation there was little mention of any actual consumer behavioral data and what was mentioned was, to me, either obvious or irrelevant.

Clearly Penney’s must get the big, foundational pieces right or the notion of competing on analytics by moving to deeper personalization will be irrelevant. But to move towards an everything to everybody sort of strategy strikes me as somewhere between folly and lunacy. I suspect you will see them reverse their course on this by year’s end.

As Penney’s reports what I am fairly certain will be a disappointing set of initial results, I hope the new team will embrace humility, stop flogging the Apple comparisons and get focused on deep customer insight and the need to build a set of rich, relevant, channel-agnostic and increasingly personalized set of value propositions for a well-defined set of customer segments.

If not, it will be strike 2.

Ultimately, I believe that JCP will strike out with its new strategy. The idea that JCPenney can transform itself into a cross between Apple and Target is absurd. Apple and Target already exist and fill their niches quite nicely. The idea of becoming the “favorite store for everyone” is equally absurd.

In my opinion JCPenney needs to focus on delivering the right products at the right price. These products need to be merchandised attractively and easy to find. Sales staff should be made to stand out rather than blend into the boring JCPenney woodwork as they currently do. The idiotic concept of stores within a store should be abandoned. Such a concept strikes me as concentric circles of shopping hell. Instead, JCPenney should concentrate on creating one unified, pleasant, and affordable shopping experience. Perhaps, if JCPenney focused on this rather than their current incomprehensible and dead-end strategy, they might give the public a reason to shop there and stock analysts a real reason to raise their price forecasts.

Disclaimer: The above is for informational purposes only. This should not be considered investment advice. Any investment decisions are your own and should be made after conducting your own independent research and / or in consultation with a professional investment advisor.

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