What if This Retailer Doesn't Turn Things Around?

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Pershing Square Capital's Bill Ackman isn't ready to give up on J.C. Penney (NYSE: JCP) .

Speaking at yesterday's Value Investing Conference, Ackman was asked about his large position in the struggling retailer. He concedes that there's plenty of skepticism when it comes to J.C. Penney's turnaround strategy, but he stands behind CEO Ron Johnson.

"The CEO is doing the right thing on a five or 10 year basis for the company," he said, as related by Barron's.

Ackman is a fan of Johnson's "mall within a mall" strategy, as J.C. Penney opens up the heart of the store to luxury brands opening stand-alone shops.

Then again, can premium brands as mini-stores and an everyday-low-price makeover for its own merchandise coexist? How does bringing back free haircuts for kids on Sundays next month woo the shopper who's interested in luxury goods in the first place?

Johnson's blowing it, and he's probably not going to be given five years to get it right.

Comps plunged a head-shaking 21.7% in its latest fiscal quarter, and things weren't much better during the prior quarter -- the first period since Johnson's strategy was incorporated back in February.

Hey, at least Ackman isn't beyond some self-effacing humor.

"The bad news is we lost 20% of the customers in the first half of the year," he joked. "The good news is we kept 80%."

Ultimately, it's a serious matter for investors. Johnson was hailed as a savior when he arrived late last year. Johnson was with Target (NYSE: TGT) during the "cheap chic" heyday, parlaying that into a resume-flattering job at Apple (Nasdaq: AAPL) , where he arrived just in time to roll out the tech giant's Apple Store concept.

The rub is that there is no iApparel at J.C. Penney. Even the "cheap chic" market has been blown up, as the surprisingly teen-magnetic Five Below (Nasdaq: FIVE) chain has done to the dollar store -- technically the $1-to-$5 store -- what Target did for discount department stores.

In Ackman's defense, his keynote presentation didn't mention J.C. Penney. His investment in one of 2012's biggest retail laggards only came up during the Q&A component of the conference.

However, banking on a turnaround from a CEO who has only stepped into plum assignments in the past isn't going to be easy. J.C. Penney lacks an identity now, and things won't get any easier as the "mall within a mall" element of its makeover continues.

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