Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Best Buy Co., Inc. (BBY) Is No J.C. Penney Company, Inc. (JCP)

If you do a Google search for Best Buy Co., Inc. (NYSE:BBY) and J.C. Penney Company, Inc. (NYSE:JCP), you’ll find lots of commentary suggesting that the two are very similar. Both retailers have struggled to keep shoppers coming in for the past several years. Moreover, Best Buy’s recent move to add small branded shops for Samsung and Microsoft products looks similar to former J.C. Penney CEO Ron Johnson’s plan to divide his stores into collections of about 100 shops.

As my colleague Rick Munarriz wrote last month, “Ron Johnson’s flawed experiment to turn J.C. Penney Company, Inc. (NYSE:JCP) around by opening branded mini-stores in the department-store chain is alive and well at Best Buy Co., Inc. (NYSE:BBY)… The market eventually soured on Johnson’s vision when it failed to generate sales growth at J.C. Penney. A similar fate may also await Best Buy.”

Best Buy Co., Inc. (NYSE:BBY) is opening small Samsung and Microsoft shops in its stores (photo courtesy of Best Buy).

Best Buy Co., Inc. (NYSE:BBY)Yet this J.C. Penney-Best Buy comparison overlooks one very important point: Johnson’s plan to open small branded “shops” within J.C. Penney Company, Inc. (NYSE:JCP) stores was not a primary cause of that company’s dreadful 2012 performance. In fact, J.C. Penney’s branded shops are probably its best assets as it looks to regain its footing. The lessons for Best Buy Co., Inc. (NYSE:BBY) are thus much different. Adding a few brand-oriented stores-within-a-store is more likely to help than hurt.

Shops: a bright spot at J.C. Penney?
Ron Johnson’s plan to split up most J.C. Penney Company, Inc. (NYSE:JCP) stores into collections of 100 brand-oriented shops was one of the most visible aspects of his strategic plan for the company. As a result, it’s natural for investors to associate the shops with J.C. Penney’s meltdown during Johnson’s 17-month tenure.

However, Mike Ullman — who returned to the J.C. Penney Company, Inc. (NYSE:JCP) CEO post a few months ago — has been very supportive of the branded shops. Indeed, J.C. Penney first started adding these shops during his previous stint as CEO. The four shop concepts that predated Johnson were Sephora, Call it Spring by Aldo, MNG by Mango, and Modern Bride.

During J.C. Penney Company, Inc. (NYSE:JCP)’s Q1 earnings call, Ullman reminded investors that it took some time for customers to accept the shops, which offered a different type of merchandise than was typical at J.C. Penney. However, customers quickly caught on, and the Sephora shops are the most successful part of J.C. Penney today.

Ullman’s commentary fits well with my observations during a set of J.C. Penney store visits back in March. In the J.C. Penney Company, Inc. (NYSE:JCP) stores I visited, the “core” tended to be pretty desolate, and the newer shop concepts like Joe Fresh did not see much traffic, either. By contrast, the Sephora and Call it Spring shops were consistently the busiest parts of the stores.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.