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Is the Retail World Big Enough for Both JCP and Sears to Succeed?

JC Penney (JCP) is finally showing signs of life, reporting a brisk 10 percent jump in same-store sales for November. But is the retailer’s success coming at the expense of Sears’ turnaround efforts?

Some experts suggest that JCP’s recent surge is, in fact, taking a bite out of Sears’ business. Since the department store as a retail category is rapidly shrinking, ceding ground to general merchandisers like Target and Walmart, the growth of one department store necessarily comes at the disadvantage of others.

And the diminishment of the department store as a hub of retail is well documented empirically. According to the U.S. Department of Commerce, the category now accounts for  6.1% of all retail sales, a paltry amount in comparison to the 15 to 20 percent registered some twenty years ago.

Struggling to capture its former glory, JCP has finally experienced some evidence its turnaround strategy is beginning to yield fruit. According to a JCP spokesperson, the retailer increased its sales in November by 10 percent, registering a jump in same-store performance numbers for the second consecutive month. October was also touted by the company as evidence of an increasingly successful turnaround strategy; sales jumped 0.9% for the month, a substantial improvement in light of the fact that September suffered a 4 percent decline. A company spokesperson said that the stronger performance was largely attributable to improved inventory in central private brands as well as an overhaul of the home goods department.

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Much of Ullman’s turnaround strategy for JCP amounts to a grand undoing of the damage wrought by former CEO Ron Johnson’s disastrous tenure. Johnson deemphasized promotional discounts, reinvented the home department to focus on more expensive designers and brands and reorganized stores so products were grouped by brand rather than category. JCP is also winding down its controversial deal with Martha Stewart, which Macy’s alleged was an infringement on a preexisting arrangement it had with her company, promising exclusivity.

JCP reported that it ended the quarter with $1.23 billion in cash, up from last year’s total of $525 million. It continues to carry a substantial debt load, pegged at approximately $5.61 billion.

For the fiscal period ending November 2, JCP endured a staggering $489 million loss, or $1.94 per share, compared to last year’s $123 million loss, or 56 cents per share. Thomson Reuters analysts had expected a better performance, estimating a per share loss of $1.77.

Little in Sears’ recent performance provides cause for optimism, though. For the third quarter, Sears reported an eye-opening loss of $534 million, or $5.03 per share, an increase from last year’s loss of $498 million, or $4.70 per share. Furthermore, revenue fell 6.6% to $8.27 billion. Net profits dropped an astonishing 46.4%. Domestic same-store sales were down 3.1% with K-Mart posting a 2.1% dip.

If the department store sales pie is contracting in overall size, then a larger slice of it for JCP means smaller servings for its competitors. The department store universe, caught in a spiral of steady decline, might not be big enough for two retail giants to have successful turnarounds simultaneously. If JCP’s efforts are starting to gain traction, that could worsen matters even more for an already stumbling Sears.