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JCPenney and Best Buy Are Retail Bellweathers

04/05/2012

Two major retailers are on the bubble right now – JC Penney and Best Buy. How each performs over the next 12 months will indicate survivability of each brand.

There are, of course, other retail brands floundering. Sears Holding Co. is said to be shopping around for a buyer for Lands’ End to infuse cash into the ailing Sears chain. Payless ShoeSource is poised to sell itself for less than any apparel retailer in America, which may be the best price it can get. Sears and Payless appear to be on their last legs.

With JC Penney and Best Buy there are two different scenarios.

JCP has reinvented itself. Executives have systematically changed the brand, pricing strategy, store look, product assortment – pretty much everything. JCPenney’s evolution has been previously covered here in “Pricing Strategy Will Force Competitors To Change” and “JCPenney Needs To Focus On Product – Pronto!“. JCP is well on its way to improving their performance, brand awareness and consumer confidence. We believe JCP will be a winner.

Best Buy is in trouble. The company’s stores have become the showroom for Amazon, the founder of the company’s famous Geek Squad resigned last month, 500 stores have been slated for closing this year and CEO Brian Dunn has lost the confidence of Wall Street.

Best Buy’s problem is price transparency. The rise and success of comparative price shopping and “showrooming” have become critical business challenges for retailers, placing a heavy stress on them to take price transparency seriously.

In 2011, over 40 percent of retailers cited increasing price transparency as a top business challenge and one that is compromising their pricing strategies, a 29 percent increase from 2010 to 2011. More than ever, retailers are feeling the heat and are looking for innovative ways to keep their once loyal consumers from abandoning them for the cheaper prices online. If anything, it is clear the relationship between consumers and retailers have become strained over the years due to mismatched expectations and diminished trust.

This is exactly Best Buy’s dilemma. We believe Best Buy will be a loser.

JCPenney is not out of the woods yet, though.

Competitors and industry analysts alike have openly questioned whether such a strategy can be pulled off. February sales numbers were down 4.9% from the same month last year.

Despite lackluster sales, all of the hype is paying off in the form of increased interest in its site. JC Penney attracted an additional 2.3M unique shoppers – a 13 percent increase – from February 2011 to February 2012. Customer comparisons of JCPenney with Kohls, Macy’s and Sears are down about 6 percent. But that may just fine with CEO Ron Johnson. None of those retailers customers are loyal to anything but the lowest price.

Let’s see where 2012 takes JCPenney and Best Buy. It will be a heck of a holiday season – that’s for sure!

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2 Comments leave one →
  1. Larry Thompson permalink
    04/05/2012 12:09 pm

    There may be a chance for JCP. Don’t think Best Buy will be able to pull it out. The other retailer out here in perpetual big trouble is Eddie Bauer. They finally got so e good merchandise, but with the economy, nobody is buying apparel. I predict they’ll go under.
    When they first were for sale about 20 years ago, LL Ben entertained the idea of buying them but passed. That would have been good PR: 2 of America’s oldest outdoor retailers join forces from coast to coast.

    • 04/05/2012 12:43 pm

      EB is indeed in trouble. It’s a shame…a great brand gone to waste. My first job out of college was at the EB store in downtown Minneapolis. I worked in the camping dept. We sold sleeping bags, tents, skis, snowshoes – the whole shootin’ match. I wasn’t aware that Bean had considered buying EB. Probably smart to have passed on it. Thanks for commenting.

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