Buying stock is not always the best idea when you learn that a troubled company has been taken over by a supposed turnaround genius. It is still likely that the business will be wrecked and customer loyalty will waver. This was what happened with J.C. Penney.
The mastermind behind the turnaround of Target and the Apple Store, Ron Jonson, aimed to usher J.C. Penney along into this century. His brilliance for marketing was supposed to bring in a new generation of young shopper, but he only instead drove away the established, older base of customers.
The fliers he sent out looked like catalogs which left older shoppers offended, the far from modest models only turning customers away. Now, the J.C. Penney situation appears to be fairly hopeless, shares for the company at only $14.80 as of yesterday. Wild Bill Ackman, guru of the hedge fund, is looking to fire Johnson, who now confesses that his attempts to bring in new customer traffic were mistakes. He only succeeded in making the company among the greatest shorted stocks to be found in New York’s Stock Exchange.
Investors should learn from this that there comes a time when a company cannot become great again once it is too late. Take Thrifty Drug, who was nearly forced into selling before being overtaken by suitors. There comes a time to allow a business to die out gracefully, and sometimes not even the most visionary of CEOs are enough of miracle workers to bring back a dying company.
It should also be considered that Target and Apple were excellent companies at the start. Johnson had much to go off of with Target, a store which was in great shape, and Apple, which came with dedicated Apple fans and the backing of Steve Jobs. In the case of J.C. Penney, though, he was working with an already dying chain, a model for business centered around malls with a base of declining customers. The only customer loyalty he had to work with was that of older, conservative middle class shoppers uninteresting in change.
Johnson neglected to do the necessary research to uncover what it was customers were looking for but he instead told customers what to buy and was perplexed when they did not comply. Does this make J.C. Penney a value stock? The company’s nature points towards no. They will not become any sort of bargain retailer, which would be their only hope of survival. It cannot compete with club stores such as Costco or bargain stores such as Walmart. It has no potential as a retailer online as online shoppers see no appeal in the brand. There is no one out there who would be able to bring J.C. Penney to the high end standards of a store such as Nordstrom, Inc. Therefore, there is no turnaround for the company in the foreseeable future.
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