JCPenney announced a $62 million dollar loss for the quarter. With the announcement, its share price plunged 16% breaking the $4 barrier for the first time. Stocks under $5 are considered “penny” stocks.
Please consider JCPenney Nosedives to All-Time Low on Big Loss.
Yup. JCPenney is now a penny stock — a Wall Street term for a company trading under $5. JCPenney (JCP) said it lost $62 million in its second quarter. That’s more than a year ago. The retailer also said that same store sales — a measure of how well stores open at least a year are doing — fell more than 1% during the quarter.
JCPenney is the latest department store chain to announce dismal results. Macy’s (M), Kohl’s (KSS) and Dillard’s (DDS) all reported a decline in same store sales on Thursday as they struggle to compete against Amazon (AMZN, Tech30) and Walmart (WMT).
The massive shift in the retail landscape has led many chains to shut down underperforming stores.
JCPenney is one of them, announcing earlier this year it would be closing 138 stores. JCPenney wound up delaying the closings by a month though after consumers rushed to many of the stores to take advantage of the massive liquidation sales.Ellison also said during the analyst call that JCPenney expects many retailers to ramp up promotions and discounts to try and lure shoppers into their stores. The CEO warned these sales may be even more aggressive than “what we’ve traditionally seen.”
Don’t Blame Amazon
Amazon is not to blame, but Amazon sure does not help either.
Retail is massively overbuilt. That’s the big problem. And it’s not just the box retailers. The fast food restaurants are all cannibalizing each other’s sales too.
Vitaliy Katsenelson accurately states It’s not just Amazon’s fault. Changing consumer habits are killing old retail biz
Retail stocks have been annihilated recently, despite the economy eking out growth. The fundamentals of the retail business look horrible: Sales are stagnating and profitability is getting worse with every passing quarter.
Jeff Bezos and Amazon get most of the credit, but this credit is misplaced. Today, online sales represent only 8.5 percent of total retail sales. Amazon, at $80 billion in sales, accounts only for 1.5 percent of total U.S. retail sales, which at the end of 2016 were around $5.5 trillion. Though it is human nature to look for the simplest explanation, in truth, the confluence of a half-dozen unrelated developments is responsible for weak retail sales.
Our consumption needs and preferences have changed significantly. Ten years ago we spent a pittance on cellphones. Today Apple sells roughly $100 billion worth of i-goods in the U.S., and about two-thirds of those sales are iPhones.
Consumer income has not changed much since 2006, thus over the last 10 years $190 billion in consumer spending was diverted toward mobile phones. Between phones and their services, this is $340 billion that will not be spent on T-shirts and shoes.
But we are not done. The combination of mid-single-digit health-care inflation and the proliferation of high-deductible plans has increased consumer direct health-care costs and further chipped away at our discretionary dollars. Health-care spending in the U.S. is $3.3 trillion, and just 3 percent of that figure is almost $100 billion.
Then there are soft, hard-to-quantify factors. Millennials and millennial-want-to-be generations (speaking for myself here) don’t really care about clothes as much as we may have 10 years ago.
All this brings us to a hard and sad reality: The U.S. is over-retailed. We simply have too many stores. Americans have four or five times more square footage per capita than other developed countries. This bloated square footage was created for a different consumer, the one who in in the ’90s and ’00s was borrowing money against her house and spending it at her local shopping mall.
Hugely Overbuilt
Malls, retail stores, and fast food restaurants are all hugely overbuilt. Analysts still have not put 2 and 2 together on what this means.
It’s the overbuilding of all kinds of retail and fast food stores that has provided the high job growth, low wage growth environment that we are in.
You can blame (or thank) the Fed for that, depending on your view. Regardless, the expansion will come to an end at some point. And when it does, the Fed governors will not know what hit them.
Lowering interest rates further will not do a thing for the economy in this overbuilt setup, once the turn takes place.
Mike “Mish” Shedlock
Excellent observation. I cringe everytime the media blames online for retails woes. Sure it doesn’t help. For example, all our Christmas shopping and now our back to school supply shopping is done online. We but everything online except clothes,shoes and big ticket touch and feel items. We have also shifted our spending habits like you said. We but clothes but not alot. My kids do not have rhis big whopping to do about clothes. They prefer going to do stuff for experiences. You are right we spend money on apps. Smartphone and the Internet are pressuring margin. We price check everything. Even my kids do it. They refuse to over pay. Selling clothes is a terrible business because everyone and their mother is selling clothes . There is Aliexpress and other apps that put you in direct contact with manufacturers in China. I would hate to be in retail now. We need to lose 50% of the stores to reach an equilibrium. Fast food also needs a serious culling too.
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You cant just look at Amazon’s gross sales in order to dismiss their devastating effect on traditional retail. Amazon is pressuring margins and driving traditional retailers into losses and bankruptcy. It is that simple. Also dont ignore the effect of 99c (dollar) stores. People no longer pay $5-7 for those items that they now can get for $1.
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It was
I quoted the article I noticed on the chart it broke $5 before
Did not feel like quibbling
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Exactly. I tell people I have no loyalty to stores only price. The smartphone and price checking is the game changer. Only the leanest retailers will survive. I went from doing less than 5% of my grocery shopping at Walmart to about 90% for our family. I don’t buy produce or meat there, instead I go to our local supermarket chain.I have been getting more stuff from the Dollar store now as well. I noticed that the supermarket chain that I used to shop at is aggressively advertising on radio and tv now as Walmart is eating their cake. I save easily 30% on my grocery bill. If the local supermarket chain becomes cheaper I will go back there.
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There is asset deflation staring anyone in the face – labour.
So maybe the question is what happens when an asset which makes up the greater part of the market , deflates?
Another round of crowd funding by the Fed, or will it be the next level of equality studies by government ?
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Walk down any street. Look around. People are glued to their phones like zombies. Me included. You can buy ad space all you like. I ignore ads. Besides, the ad would have to induce me to look up from my phone and buy something. Good luck with that. This is why Amazon isn’t dead yet. I can buy what I need in ten seconds and then get back to reading my phone? Done!
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Misinformed consumers with teeny tiny attention spans is not a highly coveted consumer segment.
Everything I have seen on Amazon is available elsewhere — at the same or better price. This assumes that Amazon isn’t shipping a counterfeit product, which happens more often than anyone admits. I don’t shop at JC Penny, but I’ve never heard that their products are counterfeit like Amazon.
There are quite a few products of higher quality that are not available on Amazon (at any price). You will never find out about them because they target higher end customers.
Amazon is for persons with short attention spans
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Amazon’s position is more one of convenience and confidence. Once they have you set up for one-click and prime, 2 day shipping is then free, and all the effort required is one click. Buying from a disparate set of mom-and-pops, each with varying shipping terms, and that each require your payment info, is simply more work.
Then there is the fact that you have bought from Amazon before, gotten prompt delivery, and any issue has been quickly and reasonably resolved. Same reason why many prefer buying their burgers from a known chain, rather than a mom and pop hole in the wall. And why they “overpay” for Coca Cola vs possibly just as good alternatives. Doubly so in countries whose food provenance they are unfamiliar with. Amazon may not be the bestest at all things, but for most, they are a known quantity. As long as they manage to keep the added markup (if any) they charge for that to non abusive levels, may will simply stay with what they know.
And then there is their reviews. Again, due to size, when buying something with which they are unfamiliar, a huge catalog of reviews, up to date, carry a lot more weight than what the manufacturer says, or what they may have paid some blogger or other professional “reviewer” to write.
Not saying Amazon is some sort of perfect. They are definitely struggling to stay on top of quality and authenticity issues within their vast supplier and marketplace network. But it’s not like their popularity is solely due to some massive, society wide, delusion on part of those buying from them.
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–> “Amazon may not be the bestest at all things, but for most, they are a known quantity.”
That’s fair. People driving down the highway stop at McDonalds because its a known entity, certainly not because its healthy or great cuisine. It fills your gut until you get to your actual destination.
–> “But it’s not like their popularity is solely due to some massive, society wide, delusion”
Well, yes it is. Its the latest pet rock, hula hoop, cabbage patch kid doll, Air Jordan sneakers. Its the latest AOL “free” signup CD. After AOL imploded, remember when Yahoo search was the thing, and who needs this google search? Now it looks like Google’s days may be numbered too.
Its great marketing, but the product (service) is blah at best. The website is easily replicated. Most of the products come from somewhere else (nothing unique).
You can buy cabbage patch dolls at a local church tag sale for $1; there is a whole big box full of them… some parent probably spent well over $100 for the toy their kid “had to have” a couple xmases ago.
No one cares about AOL CDs or yahoo search or…
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“Retail is massively overbuilt. That’s the big problem. And it’s not just the box retailers. The fast food restaurants are all cannibalizing each other’s sales too.”
It’s become all too obvious, even without the unprofitable Amazon taking all the oxygen out of the room. It would have never gotten this far in a normalized rate environment. Some of retail will survive to better times, someday.
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+100
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America was “over Malled” going back as far as 20 years ago.
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And what might this mean for all the shopping malls built on borrowed money? Overbuilt retailers and overbuilt restaurants are their main tenants. When those two start closing unprofitable locations, who moves in?
BTW, when I was young, the then-emerging technology of television was called “the idiot box.” Given what I’ve seen some folks with smart phones do, the appellation is more suited to the latter.
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1. How come JCPenny was not a penny stock back in May at $4.17?
2. Retail is dying because people have NO MONEY. In the last eight years – higher taxes, obamacare fees, the destruction of American manufacturing, outsourcing of jobs, H1B visas, unlimited immigration, insane housing prices and rents due to ZIRP/cheap and easy money, the crushing impact of democrat regulations – just where do these retailers think the money is coming from? Bill Gates and Jeff Bezos don’t shop at JCPenny.
3. JCPenny is a very blah place to shop. So many better options. And those places are doing pretty well. It is just the natural cycle of retail. Times change – many businesses do not.
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True. It would help if their stores didn’t smell like urine.
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One thing for sure: A Penny’s saved will not be a Penny’s earned.
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The retailers glomed onto prop 13 here in california capping their property taxes along with home owners. Gutted the school budget. Oops.
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@2banana – “Retail is dying because people have NO MONEY. In the last eight years – higher taxes, obamacare fees, the destruction of American manufacturing, outsourcing of jobs, H1B visas, unlimited immigration, insane housing prices and rents due to ZIRP/cheap and easy money, the crushing impact of democrat regulations…”
+1000000000
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nine year of zero private sector economic growth (less than zero)not amazon,and with prices on virtually everything ridiculously expensive,no buys new,craigslist ebay,and with state and federal taxes soaring almost on a monthly (daily) basis,taxes on your avg new 75k (lol)pickup is now wait for it…..10k (lol)and rising really fast,used is the new new
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Aside from food my personal shopping consists almost entirely of second hand stores, craigslist, ebay. Reasons are that old things tend to be of better quality, with longevity of all things deteriorating through planned obsolescence and shortened revision cycles. Used things are cheaper. Old things have a track record with credible reviews, unlike new things that are aggressively marketed. And money, of course, is another component. I’m one of those people who has had a single raise in the last 11 years which covers only about a year worth of food price inflation. Also, reading a lot more and growing more disillusioned in reality, I find myself craving less consumption all together. I don’t drive as much. I don’t travel at all. Instead I go online and read about places. I work longer hours. Also, I cook at home a lot more than I used to, which means I’m spending less money and spending even more time at home in order to prepare meals.
With the memory of the last financial crash still being fresh, I save as much as I can in anticipation of the next leg down.
I don’t blame online retailers for anything. They provide an essential service. It’s better with them than without. It’s as simple as that.
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I don’t think anyone is saying online is not a good idea, the criticism is that it, and the wider market, has become very skewed for some not very good reasons. At the end of the day people do what they consider best for themselves, a one person boycott is not easily going to challenge decisions made by others ‘ on the behalf of the whole nation’. You either amble along sort of with, or near, the herd and make the best of it, or you turn your back and just go and do your own thing completely.
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I just ordered from Amazon – cheaper, in comfort of home, no pressure sales or upselling, delivered within a week. Bye malls!
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Our JCPenny just closed. I bought a couple dress shirts for 95% off. Otherwise I hadn’t been in a JCPenny for 20 years. My wife & daughters still ‘enjoy’ the act of shopping, so they’ll always find brick & mortar options. Like many (all?) men, I hate shopping with a passion, so online is the only way to go. If the dinosaurs at JCP, et al, can make their online presence ‘work’ like amazon, then I’ll be back.
‘Malls’ are dead to me.
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KMart and Sears have to be as bad off as PCP. Second tier retailers will be in a continual round of store closedowns with liquidation pricing cutting struggling competitors off at the knees.
Walmart seems to “get it” with their purchase of AMZN, mini-me competitor, Jet. And this has the potential of adding a bone breaking bricks/clicks hybrid to the fray.
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crashing retail will crash CRE, which will crash banks & pension funds, which will crash everything…
there is no escape for markets.
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I wonder how many small to medium sized municipalities have a big dependence on property tax revenue from these failing brick and mortar stores? In Michigan, commercial/industrial/rental property has to pay 18 mils school operating taxes, where as home owners, who claim a homestead exemption, do not.
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I noticed a big sign on the JC Penny mall store as I drove by recently – “Now Selling Appliances”.
Yipee! Now I can buy appliances at Amazon, Best Buy, Lowes, Home Depot, Sears, Costco, Walmart, Fry’s, the local appliance store (still a couple of those in my neighborhood) and lord knows who else.
Who in JCP management thought selling appliances was anything more than another low profit commodity?
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Hopefully no-one, rather they were motivated surely by universal offering, thereby to generate foot-fall and help instill consumer loyalty (in the sense of more spend being with that store).
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I assume JCP was looking for some way to use dead air space in their stores and came up with floor displays for appliance sales. Probably all third party execution of the appliance sales and zero shopping guidance from JCP floorwalkers. Red hot competitive scene but basically zero incremental overhead.
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What should investors do, now that JC Penny market capitalization has fallen well below sum of the Cryptocurrency market?
Buy JC Penny or Bitcoin? Buy Amazon or QQQ?
https://coinmarketcap.com/all/views/all/
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“Consumer income has not changed much since 2006”
In other words, consumer income is stagnant, not increasing. At the same time, the Fed is conspiring to raise consumer prices. Higher consumer prices per unit and less income means less retail volume. Fewer retail stores is a natural response, particularly with wage mandates and other government interventions making the retail business in general less profitable.
Consumer income and spending power is actually declining, rather than just stagnant, if you figure in the drain by higher taxes (e.g. Obamacare, sales taxes, property taxes, Trump import tariffs). Peak debt means that credit cannot boost retail. Retail contraction and store closings are a natural economic response. No mystery here. Amazon is not exactly making profits, and eventually they will get hit. Likewise, people eventually will have no choice but to cutback on cell phones, cable, etc. It is called a declining standard of living, and it has been a long time in the making for the USA. Unfortunately, the Beltway remedy of more socialism, more demonizing Russia, and higher taxes is not a remedy.
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OT : The winning ticket in the big Mega Millions lottery on Saturday was sold in Illinois. The final jackpot totaled something like $400,000,000.
Now then, where the heck is IL going to come up with the cash to redeem that ticket? LOL!
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Mega Millions is run by a corporation, not by any one or even several states. Never take the annuity. The corp could file for bankruptcy and you wanna-cry!
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Vitaliy Katsenelson wrote (in the quote) — “The combination of mid-single-digit health-care inflation and the proliferation of high-deductible plans has increased consumer direct health-care costs and further chipped away at our discretionary dollars.”
What planet does this guy live on that he thinks we have “mid-single-digit health-care inflation”???
Obamacare Insurance premiums are rising more like 30% nationwide (actually 31.2% according to Kaisser Permanante’s analysis). So where does this lying fool get his “mid single digit” nonsense?
And deductibles have been skyrocketing across the board, not just on high deductible plans. Many people who have insurance can’t afford to use it because they have to pay such obscene amounts out of pocket (to meet the deductible). Vitaliy Katsenelson is just highlighting how out of touch he is.
When a finance nerd is trying to make a point about retail sales, and tries to slime in a lie like the above… it says the reader should not trust anything the guy writes.
Congress thinks Obamacare isn’t an epic disaster because they exempted themselves. Ryan and McConnell are getting well-deserved criticism in their districts (Congress is on “recess” like school children). Unlike aloof members of Congress, voters still have to suffer the injustices of Obamacare… and if Ryan wants to remain speaker he is going to repeal Obamacare whether he likes it or not.
As for whatever else Vitaliy Katsenelson wrote… the healthcare quote is such a glaring error that it brings in to doubt everything else he wrote.
JC Penny was on a downhill trend before Amazon opened for business. The “experts” blamed (at different times) everything from specialty stores (consumers preferred stores that specialized in shoes or appliances — not a one-size-fits-all bazar like JC Penny), other times the “experts” blamed discounters like Target and Walmart, and now the same clueless experts are blaming Amazon (which still doesn’t make any profit on retail sales, only on web services).
Instead of shorting JC Penny (one would be 25+ years too late), short the overpriced hustlers on Wall Street giving dumb and inaccurate advice like “mid single digit health inflation”. If you want to know “where are all the customer’s yachts”, any customer that believes the made up statistics Wall Street is peddling (its not just CPI or just Katsenelson’s erroneous health inflation or just the Fed’s debt binging) — customers that buy into these sales narratives are not smart enough to own a rubber duck.
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When it comes to Amazon I am not a fan. Because of how it disrupts local economies I strongly urge people to consider what kind of community and society they want in coming years before jumping on the Amazon bandwagon.
Amazon excels in creating illusions that fail to hold up under scrutiny. For all the praise many people and politicians heap upon small business they are often quick to cut the very throat of the creator of much of our wealth and jobs. In the article below are fifteen reasons why Amazon is not the answer to a better future for America.
http://brucewilds.blogspot.com/2017/04/amazon-is-not-answer-to-creating-better.html
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This is the long delayed result of the farce perpetrated by the Feds response to 2007. We were massively overbuilt in all aspects of the debt driven “growth” coming out of the dot.com smash. The Fed sought to ease the pain but the disease never was treated. ow we have it. Expect consolidations and closings until retail is rationalized. Surely we then can hope for an Amazon competitor or 2 to emerge as the postponed recovery occurs.
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It’s amazing what a few percent in sales decreases can due for company or sector. It shows how leveraged everything is and the financial pain when outcomes do not meet expectations.
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Excellent article as well as some excellent comments by many. Only a few biased comments by certain individuals trying to “blame” something, or misrepresent something that they don’t like for the entire retail problem.
The reality is that there are dozens of reasons for problems in retail as eloquently stated by many here. This is all part of the normal creative destruction process of capitalism. Change is part of life. Get used to it.
This changing retail landscape will not trigger a recession or depression. Existing retail space will be re-purposed, or in some cases torn down and re-built. This has been going on for over a hundred years and it will continue for the next hundred. I imagine in 15 years, we will be re-purposing parking garages, parking lots, and parking spaces as autonomous vehicles begin to dominate the roads.
Personally, “shopping” as an activity or experience has never appealed to me, so I’m not going to be too upset as the retail landscape changes.
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I’m reminded of traditional downtown retail space as built in the 20’s and 30’s during the sixties and seventies. It was pretty much abandoned in favor of suburban shopping malls with plentiful parking. Many cities tried to convert downtown into outdoor malls by blocking streets and some cosmetic improvements to sidewalks. These were not successful because people had already changed their habits to frequent the suburban malls.
Now I am seeing the reverse trend as downtown streets are rebuilt with residential apartments and retail space at street level. Seems like a good idea for folks without a large family. Maybe possible to ditch the automobile soon and use robot auto to take a trip out of town when necessary.
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I agree. Good comment.
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I live near two small malls. One in Glenwood Springs Colorado is circling the drain. It looks tired and old. They lost K-mart, they lost Radio Shack, and they’re about to lose JCP. Their biggest tenants are the state DMV and the military recruiters (or maybe the jewelry stores), but there are a few locals like a vape shop, cell phone reseller, and a gymnastics studio. The place is hauntingly empty most of the time. The other is Mesa Mall in Grand Junction. It has a Target, Best Buy and Cabella’s (red state REI). The parking lot is usually pretty busy. Target almost always has lines at the checkout. Cabella’s isn’t quite wall to wall people, but for sure not empty. I do a lot of shopping there because their clothes tend to cater to people with “red state” bodies, unlike many other retailers. There’s a good mix of locals and chains, and the ubiquitous phone screen repair kiosks. But it also has a lot of empty space.
I also do a lot of shopping at REI (blue state Cabella’s). They’re usually pretty busy too. Their flagship store in Denver is a destination at least once a year just to see what’s new. Depending on when you go you might have a tough time getting a parking spot.
When I see these articles I just think about Target and Walmart and realize it’s not retail in general, it’s obsolete retail. Sure Cabella’s and REI have a massive online presence and claim to be discounters (HA!) but it seems to me most of these failing retailers ignored their customers until it was too late. Or in the case of Radio Shack, went entirely in the wrong direction.
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Nothing to do with the FED as always. The restricted consumption of the masses is always a function of income growth or its absence. A more prosperous working class working fewer hours would go out and shop instead of ordering on line before they fall asleep exhausted after their double shift of work. What is happening is not due to technology, it is due to impoverishment and overwork. It is a social problem. Had the income of the mass of North Americans grown in real terms then there would not have been this overbuilding of shops and restaurants and conversely less buying online. The sorry state of most malls is emblematic of the decline of the USA.
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Misallocation of resources and hyped expectations. Shop until you drop takes on a new meaning when the credit you used over the past year means you have to now work longer for less just to survive.
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“It’s the overbuilding of all kinds of retail and fast food stores that has provided the high job growth, low wage growth environment that we are in.”
In the 1920’s it was over building industrial capacity. With the industrial base being hollowed out, the overbuilding of capacity, went in a different direction- consumption overcapacity.
Last economic expansion we had a subprime housing boom, this time a subprime auto boom.
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But the building itself provided wages…what would have happened if that route was not taken? Not possible to answer but it might not have been the forward escape we have had.
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I tried shopping online at Walmart. The site is slow, clunky and hard to navigate. Amazon site is fast responsive and intuitive to navigate. Which would you use?
Sears had the right idea with catalog sales years ago. Instead of embracing that idea online they abandoned it. People with vision will thrive today, those with none like jcpenny and Xerox will fade regardless of the retail landscape.
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That would be Kodak not Xerox.
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Change used to be slow,not any more. The system favors monopoly it soon will be the United State of Amazon.com as long as the goodies are available to the public there will be no problem. People don’t care what form of Government they have if the dinner table is well supplied.its when the tables r empty that pitchforks come out. At the rate population is growing it won’t be long.
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Actually, population growth is close to zero in developed countries and growing more slowly every year in the developing world. Without a higher birth rate (or more immigration), most developed countries face a demographic problem of too many retired citizens and not enough workers to help support them.
Otherwise, most of what you said is pretty accurate in the USA.
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Was talking to my GF; I wear mostly shorts, levis and t-shirts. I don’t really need anymore clothes. Levis don’t last as long as they did 50 years ago, but they still last and there are less expense options for jeans. I buy patagonia shorts; the stand alone ones… I have one pair that look almost brand new after wearing them for over 25 years. I just don’t need much as I approach retirement age.
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Reblogged this on World4Justice : NOW! Lobby Forum..
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I’m a cyclist and at least 3 bike shops in my area have closed in the past couple of years. I caught up with the mechanic at one of those closed shops so he could repair my bike. He can’t find a job. He blames Amazon for the closure of his shop. I know 1 of the other shops also blamed Amazon. Ironically enough, he ordered the part I needed off of Amazon. One of the owners at the other shop that closed runs a door-to-door service out of the back of a box truck. Does all the repairs on site – great idea actually. But I’ve gotta imagine other bike shops are under pressure as well.
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Interesting. I would have thought that bicycle enthusiasts would buy local, provided that prices weren’t too far out of line. Obviously, the shops can’t survive on repairs alone.
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My wife and I support a local bike shop that is near us.
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I agree that health care costs are cutting into spending, but so are college expenses. The college kids AND their parents are taking on debt for college expenses, or parents are spending their current income on college expenses. Either way it cuts into disposable income.
I have also noticed that the millenials are very frugal as a group. They would rather cook than pay the cost of eating out, they enjoy frequenting “used” clothing stores instead of buying new, and they comparison shop online before buying almost anything. This is a generation that has no confidence in the economy or job market. They live waiting for the other shoe to drop. They are willing to take on debt for education but not for anything else. Yes they are buying expensive phones, but only when they have the cash to do it.
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One kidney stone and $12,000 later due to employer high deductibles and copay plan, along with an outrageous charge for a one hour non-invasive procedure, and I’m wondering how much health care costs are impacting others’ pocketbooks. We are not rich. This is a big hit to our annual income.
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