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    Tuesday
    Jun122012

    JC Penney Update

    Update August 10th

    This Presentation given by JC Penney Ceo Ron Johnson had the unusual effect of reversing an initial post expectation-miss share decline. Worth looking at, we are.

     

     

    This June 12th  investor update from Pershing Square contains some very interesting JC Penney information:

    By changing the pricing and promotional strategy of the business and updating the JCP brand, Ron has been able to attract a large number of new vendors and brands that were previously unwilling to sell in a JCP store.

    By allowing these vendors to open their own ‘boutiques,’ ‘shops,’ and ‘stores’ – essentially small, medium and large stores within a JCP store – they can control their selling environment, presentation and the customer experience. Some of these new stores within a store will begin to open this August.

    Previously, the only alternative for these vendors to control their store environment would be to open specialty stores in a mall, pay high rents, invest materially more capital, and train and employ a large sales force to sell their products. By partnering with JCP, the vendor avoids these additional business complications and the capital costs of building out their own mall-based store portfolio, while gaining an overnight national presence.

    JCP’s new business model allows it to leverage one of the Company’s important competitive advantages, i.e., its ownership of 49% of its real estate with the balance leased at about four dollars per square foot. This low cost real estate is an enormous competitive advantage when compared with specialty store rents which average approximately $40 per square foot in malls where JCP is located.


    JCP’s store-within-a-store experience with Sephora has proven that non-discounted high quality brands can achieve high sales per square foot in a JCP store. Sephora stores inside JCP currently generate sales of more than $600 per square foot compared with an average of about $150 per square foot for the rest of the JCP store. By building out new shops which generate substantially higher sales per square foot, JCP should be able to greatly increase its overall sales per square foot and profitability.

    Bottom line: Looks like JCP is aiming at high end mall tenants, mall owners will be forced to react resulting in increased comptition to land these retailers or malls using legal/leasing restrictions to limit the JC Penney shop in shops.  Will get interesting.....

    Source: Pershing Square Q1 12 Investor Letter June 12th 2012 (See pages 5-8)

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