Here's How It's Done, Apple Guy -- Now Say Goodbye to JC Penney

When the disastrous Ron Johnson experiment ends at JC Penney (JCP), and the retailer casts about for a new business model, it might look to rival Kohl’s (KSS), which stands for the opposite of everything Johnson has done as Penney’s CEO.

Kohl’s gluts customers’ inboxes with coupons. It serves the shoppers it has rather than searching for new ones. Aiming for continual progress instead of leaping in the wrong direction, it is the tortoise to Johnson’s faltering hare.

In the past five years, Kohl’s has plodded well ahead of JC Penney, as this stock chart shows:

JCP Chart

JCP data by YCharts

The approach to discounting shows the clearest difference between the two chains. At JC Penney, Johnson—who peddled full-price iPhones when he ran Apple’s (AAPL) retail stores—tried to wean customers off discounts, then sheepishly reversed course, as YCharts has reported, with board members growing increasingly anxious. Meanwhile, Kohl’s blares its markdowns: 40% to 50% off dresses! Semi-annual kids’ sale! Extra $5 and 10% off when you sign up for emails!

Then there’s the matter of trying things out before they cost you dearly. At JC Penney, Johnson scoffed at testing his “transformational” change, noting that Apple didn’t market-test its retail strategies, according to the Wall Street Journal. There went $4.3 billion in sales.

Kohl’s is constantly tweaking. Take last year, when it experimented in several markets by expanding some departments, including home, while shrinking others. It didn’t work. It wasn’t a catastrophe.

Kohl’s does have work ahead. After years of rising profits, despite slowing sales per square foot, the retailer posted a disappointing fourth quarter. So far, it hasn’t captured as many defecting JC Penney shoppers as it had expected, and marking down excess inventory eroded its profits. Kohl's profit margins have narrowed of late and its shares have dipped, leaving its PE ratio at about 11.

Kohl’s has replaced its merchandising team in hopes of righting the ship. Its stumble gives investors the cheapest share price per sales dollar in about four years:

KSS Net Income TTM Chart

KSS Net Income TTM data by YCharts

At least Kohl’s knows who holds the purse strings. “In 2013, our advertising will continue to emphasize our value proposition but will be especially targeted at moms, particularly in the 35- to 54-year-old age group,” CEO Kevin Mansell said during the company’s fourth-quarter conference call.

While Kohl’s does update its fashions—its Simply Vera Vera Wang line has been a hit—it won’t confuse or alienate its shoppers. For example, it’s bringing in limited-edition collections, taking a page from Target’s (TGT) playbook, but the new spring styles from high-end designer Derek Lam could easily be worn to a suburban backyard barbecue.

Meanwhile, JC Penney hasn’t attracted the younger, wealthier customers Johnson wants to replace his older, frumpier shoppers—the ones who used to love his stores. JC Penney’s newest brand, Joe Fresh, is a colorful, Old Navy-like clothing line; judging by the ads, it’s designed for shoppers barely old enough to hold a driver’s license.

Kohl’s also benefits from its Menomonee Falls, Wis., mentality. Its headquarters in suburban Milwaukee attract employees who are in touch with the chain’s customer base, and CEO Mansell has worked there since 1987. Contrast that homegrown approach with Johnson jetting from his Palo Alto home to JC Penney’s Texas offices, as we’ve written.

With Kohl’s market cap approaching $11 billion and JC Penney’s tumbling to $3.6 billion, it’s possible that Kohl’s could acquire JC Penney—or some of its locations—to help it expand in the South, where it has relatively few stores.

KSS Market Cap Chart

KSS Market Cap data by YCharts

Since Kohl’s prefers smaller, off-mall locations, the Penney stores would have to be relatively pint-sized and convenient to attract interest. In the meantime, Kohl’s opened nine new stores this month, from Alabama to Oregon. As JC Penney’s woes deepen, the tortoise keeps inching ahead.

Amy Merrick, a contributing editor at YCharts, is a former staff reporter for the Wall Street Journal, where she spent 11 years writing about the Midwest economy, state and municipal finances, and the retail and banking industries. Her work has been published in the Poynter Institute’s Best Newspaper Writing series. She can be reached at



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