JCPenney Under the Apple Guy: Debacle or Transformation? Clues Gleaned From Competitors

BY LAURA HELLER

The news coming out of JCPenney (JCP) is bad and keeps getting weirder � the exit of President Michael Francis after a mere eight months is just the most recent example. But as the retailer continues down a path set by former Apple (AAPL) retail chief Ron Johnson, perhaps it�s time to stop merely looking at JCPenney in a vacuum and size the company up versus its competitors.

Sure, to date Johnson�s strategy of ending constant sales and switching to every day low prices makes JCPenney look like its own worst enemy.

JCP data by YCharts

The company has lost half its value since its peak in January when new Johnson announced JCPenney�s new strategy. It sounded pretty good to the market at the time.

JCP data by YCharts

Then came the disastrous first quarter results:

JCP Profit Margin data by YCharts

Johnson�s plan still may succeed and the contrarians among us stand to win big should that happen. But JCPenney needs to be clear about who its shoppers are and which retailers its competing against to keep and win shoppers. The most commonly held believe is that JCPenney competes most directly with Macy�s (M). Both are department stores, both sell apparel, jewelry, accessories, shoes and home furnishings. Both chains operate in or near regional malls and both are bucking for the role of America�s store.

Retail consultancy Big Insight recently looked at 10 years of shopper data and took a closer look at who is JCPenney�s closest competitor. Walmart (WMT) and Kohl�s (KSS) rank first and second as favorite shopping destinations for apparel, and JCPenney and Macy�s have been grappling for third place.

But here�s the kicker: once JCPenney�s new �fair and square� pricing policy was announced, shoppers seemed to flee Penney for Macy�s. Uh oh.

According to Big Insight, just prior to the pricing shift, 6% of women 18 and older said they shopped most often for apparel at Macy�s while 7% named JCPenney. By the next month that number was tied and in April just 8.5% of shoppers preferred JCPenney compared to 10% of those who shopped at Macy�s for apparel. That roughly 1.5% preference for Macy�s has held through the beginning of June when the research was conducted.

It�s pretty clear that Johnson and company know they must compete with Macy�s. The plan to build brand partnerships like the already announced programs with Nanette Lepore and Martha Stewart Living (MSO) are geared toward that. Stewart herself has defected from Macy�s, put her other retail initiatives at risk and gotten herself sued in order to align with the new concept.