Consensus Advisors: New CEO Facing Uphill Battle to Transform Penney
Through a special arrangement, presented here for discussion is a summary of a current article from Consensus Advisors, a boutique investment and advisory firm specializing in the retail industry.
With the NBA lockout dragging on forever, All-Star Deron Williams of the New Jersey Nets has decided to play professionally in Turkey for Besiktas. While I am sure Mr. Williams is thrilled to be playing basketball (even without his $17 million salary), there certainly will be times when he will wake up during a bus trip to Trabzonspor and long for the luxuries of the NBA.
Similarly, as Ron Johnson officially transitioned at the start of November from the head of retail at Apple to the CEO of J.C. Penney, he awoke in a cold sweat wondering how he ever gave up a situation where he was in charge of a retail chain like no other. Mr. Johnson has left a position where his stores were located in the most coveted retail locations, carried a few dozen SKU's, had a single captive vendor, a passionate and dedicated workforce, a parent with a bottomless bank account and an obsessive customer base that accepts the fact that his products are never discounted and think nothing of sleeping out all night to buy a replacement for a product they had slept out to purchase only a few months earlier.
Great products and a fanatical customer base is a dream combination and can transform a technology company into the world's most remarkable retailer.
Penney is everything the Apple store isn't. A department store is predicated on the ability to attract consumers by offering a wide variety of merchandise under one roof. For decades the breadth of selection attracted affluent consumers to department stores. With an endless merchandise selection only a few clicks away, consumers are increasingly turning to the internet to locate hard to find merchandise. As e-commerce has exploded, department stores have seen their share of consumer spending deteriorate over the years, and Penney is no exception.
Penney's sales-per-selling square foot has dropped 15 percent over the past four years. Today the company operates 1,100 stores, about the same number of stores it had in 1928. Mr. Johnson seems ready for the challenge of turning around this once proud retailer. "In the U.S., the department store has a chance to regain its status as the leader in style, the leader in excitement," he said in an interview in June with The New York Times. "It will be a period of true innovation for this company."