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).

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.