Photo: Astrid Stawiarz/Getty Images
Even those who have gotten used to following the ongoing train wreck that is JC Penney were shocked yesterday when the company’s Q4 results came out.
The numbers were abysmal, with JC Penney’s same-store sales–the level of sales made by stores that have been operating for at least a year–dropping a staggering 32%.
On the ensuing conference call, JC Penney’s new CEO Ron Johnson took responsibility for the mistakes JC Penney has made, but he discussed the results as if the company were merely in the midst of a big transformation that will soon be complete.
Whether JC Penney eventually completes the transformation that Ron Johnson has embarked on remains to be seen.
But after a year of horrific results, one thing is clear:
So far, this “transformation” is only a “transformation” in the way that the demolition of a building is a “transformation.”
To reiterate: JC Penney’s same-store sales dropped by nearly a third year over year.
That means that a store that sold, say, $100 million of stuff in 2011 only sold ~$70 million in 2012.
It will not surprise you to learn that highly price-competitive retail stores do not operate at profit margins that can handle that sort of revenue drop.
Retail stores have enormous fixed costs–rent, inventory, people–and they usually operate at very thin profit margins.
As a result, with even a much smaller revenue drop, stores that might contribute meaningful operating profit to a retail chain suddenly become money-losing lead weights.
And when a company has finite resources, the way JC Penney does, these stores cannot remain money-losing lead weights for long, or else the company will go bankrupt.
So Ron Johnson does not have much more time to complete (or at least radically change the direction of) his “transformation” before JC Penney joins legions of other once-powerful retailers in bankruptcy.
But that’s not the only observation about the quarter that JC Penney just reported that’s important to make.
It is possible that JC Penney just reported the worst same-store sales decline of a major retailer in industry history.
Retail chains simply do not report results like this unless they are in deep distress.
They can’t report results like this, because they can’t survive if they do.
I am far from an expert in retail, but I cannot remember any other major retailer ever reporting a same-store sales decline that was anywhere close to this.
Or can we make it official that JC Penney just delivered the worst quarter in retail history?
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