Ron Johnson’s First Target at J.C. Penney: Martha Stewart

News reports are coming out this morning that J.C. Penney (JCP) is set to buy a 17% stake in Martha Stewart Living Omnimedia (MSO) for $38.5 million. Not only is this Ron Johnson’s first big step as CEO, it also sheds light on his strategy with the retailer now that he has moved on from Apple to a different kind of retailing operation. There is no doubt that Johnson will be focusing on brands and how to get the best assortment of products in his stores to attract more traffic. He has always said that the reason Apple stores are successful is less about the design of the store and more about the actual products they offer.

Martha Stewart is the perfect candidate for JCP given her mass following. And the fact that her company doesn’t make a profit makes for a relatively cheap investment (less than $40 million is peanuts for a multi-billion dollar retailer). A stronger relationship with Martha Stewart should yield huge returns on this small monetary investment.

Ron Johnson’s track record building out the Apple store concept makes JCP an interesting stock to watch. Given the current price in the low 30’s and the fact that a revamp of the company’s stores is likely to take a lot of time as well as a lot of money, I would not expect financial results to accelerate quickly. This is likely more of a 2013-2014 story from an earnings and sales perspective (not 2012).

In fact, hints of increased corporate expenses as Johnson implements his plan could pressure earnings short term and cause a negative reaction on the company’s shares. At that point, investors might want to take a strong look at the stock if the price is right. In the mid to high 20’s I would be intrigued (the stock closed yesterday at around $33).

Full Disclosure: No position in JCP at the time of writing, but positions may change at any time.

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3 Thoughts on “Ron Johnson’s First Target at J.C. Penney: Martha Stewart

  1. Considering it was the nothing short of revolutionary Apple products that made the stores such a hit I wold not have high hopes in trying to repeat the Apple’s success with old, albiet popular brands alone.

    The recepie of utilizing high brands to attract customers (and increase margins) is nothing new by itself and high-end retails specialize in doing just that.

    It will take nothing short of (re)creating a whole new category as Apple did with the iPod to pull stores significantly up.

    With Apple, the product was first and the stores followed.

    While seemingly popular (and I have to open a bracket here: I personally do not know anyone who follows her let alone youth; “insider trading”, “jail”, “pillows” and “television” is the associations I personally make with the name), so while seemingly popular she’s just another player in a well established market and if she has brought anything revolutionary it must have escaped me big time.

    Granted, JCP may not need to exactly mimic the Apple success. Outperforming competitors might do just as well.

    But without additional signs of a direction and at least some results I’d be careful.

    Especially in the light of Eddie Lampert’s history where his initial moves never developed to what you expected.

  2. Chad Brand on December 8, 2011 at 7:35 AM said:

    @Bobby:
    I think you nailed it with this sentence…”Granted, JCP may not need to exactly mimic the Apple success. Outperforming competitors might do just as well.” That is exactly what they need to do. And even before Johnson arrived they had done so versus the likes of Sears.

    I would point out a couple differences compared to SHLD and Lampert. Ron Johnson is a merchant to the core. His track record at Target and Apple speaks for itself. The problem Lampert ran into is that he wa s a hedge fund manager masquerading as a retailing mind. From the outset everyone thought (myself included) that he would focus on capital allocation and not the retail side. He didn’t, and as a result the cash flow has declined to the point where asking where he is going to invest it isn’t even that important anymore. So in that sense it is quite the opposite situation.

    In addition, JCP is doing quite well already from a profitability standpoint and its losing customers, two things Sears and Kmart could not claim. Johnson has a much better chance of taking market share from other department stores like Sears, Macys, and Kohls than a hedge fund manager from CT did. In hindsight, Lampert should have hired Johnson five years ago.

  3. justin james watt jersey on December 22, 2011 at 4:05 AM said:

    I would point out a couple differences compared to SHLD and Lampert. Ron Johnson is a merchant to the core. His track record at Target and Apple speaks for itself. The problem Lampert ran into is that he wa s a hedge fund manager masquerading as a retailing mind. From the outset everyone thought (myself included) that he would focus on capital allocation and not the retail side. He didn’t, and as a result the cash flow has declined to the point where asking where he is going to invest it isn’t even that important anymore. So in that sense it is quite the opposite situation. 。。

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