With J.C. Penney Company, Inc. (NYSE:JCP) firing Ron Johnson, the ancient retailer looks to be going into a tailspin. CNBC’s Jim Cramer suggested investors consider looking at some of the company’s rivals, who should benefit from the retailer’s struggles.
Cramer says avoid J.C. Penney
Cramer believes that investors should avoid J.C. Penney Company, Inc. (NYSE:JCP). This may be sound advice. Trading at these levels, the company might have some value based on its retail assets alone. In addition, some of Johnson’s most promising innovations — like the Joe Fresh boutique — were only recently rolled out, and could lead to better sales.
But at the same time, the potential for further setbacks remains. The company could lose its legal battle with Macy’s, Inc. (NYSE:M) over Martha Stewart’s products, for example, or Bill Ackman’s Pershing Square could exit its roughly 17% stake.
As the company replaced Ron Johnson with former CEO Mike Ullman — the CEO Ackman pushed out of the company in 2011 — Ackman is probably looking to exit his stake.
Perhaps Ackman will stick around, but as the strategy he pushed for has so clearly failed, an announcement of Pershing Square having exited its stake could come at any time.
Cramer says look at competitors
But while avoiding J.C. Penney Company, Inc. (NYSE:JCP) might be sound advice, Cramer’s suggestion to look at alternatives is a bit off base. In particular, Cramer suggests investors consider Macy’s, Inc. (NYSE:M), The TJX Companies, Inc. (NYSE:TJX) and The Gap Inc. (NYSE:GPS).
Those stocks may be good investments in their own right, but there will likely be little positive effect on them from Ron Johnson leaving J.C. Penney.
Johnson’s damage has already been done. While the stock might continue to drop, it can’t get worse for the customer. Same-store sales have already declined roughly one-third — the customers that were going to leave J.C. Penney for other retailers have already gone.
Before Johnson left, he reinstituted the practice of excessive discounting. Meanwhile, more of his shops have been opening. With Ullman at the helm, Johnson is no longer there to tinker with J.C. Penney’s model and drive away additional consumers.
Thus, competing retailers won’t have customers to gain — unless the company goes completely bankrupt and sells off its stores.
The J.C. Penney-fueled run may have already happened. The TJX Companies, Inc. (NYSE:TJX) shares are up better than 18% in the last year, better than the S&P 500. Ironically, TJX utilizes a similar everyday low pricing strategy to the one Johnson wanted to implement at J.C. Penney. But its bargain prices and similar merchandise is an obvious draw to former J.C. Penney Company, Inc. (NYSE:JCP) shoppers.