Macy's, J.C. Penney, and Sears: A Clear Winner Stands Among Them


At one time, Sears Holdings was a popular retailer that offered everything you could possibly want. That's a sound principle, but not when Wal-Mart, Target, and Amazon grow in popularity. Sears has been unable to compete with Wal-Mart's everyday low prices, Target's clean and comfortable shopping atmosphere that primarily attracts a middle-to-high-end consumer looking for discounts, or Amazon's online shopping convenience and massive product offerings.

J.C. Penney was also once a popular retailer. It had a loyal following that its promotional discounts often drove to its stores. Of course, Ron Johnson's hiring in 2011 proved to be a failure. He switched from promotions to everyday low prices and altered many store designs in an effort to attract younger and hipper consumers. This didn't work, and it led to J.C. Penney's once-loyal customers shopping elsewhere.

Before moving to a quick intro for Macy's , first consider a top-line comparison chart for Sears, J.C. Penney, and Macy's since 2004:

SHLD Revenue (TTM) Chart
SHLD Revenue (TTM) Chart

SHLD Revenue (TTM) data by YCharts

Notice that all three retailers began to suffer in 2007. The difference between Sears/J.C. Penney and Macy's is that Macy's found a way to get ahead of industry trends by investing heavily in technology.

Partially thanks to its omni-channel initiatives, Macy's now expects fiscal year 2014 sales to increase by 2.5%-3% and earnings-per-share to come in between $4.40-$4.50. Sears and J.C. Penney can only dream about such potential.

Macy's also plans on saving $100 million per year beginning in 2014. This will be done by reducing its number of regions from eight to seven, cutting down its number of districts from 69 to 60, eliminating the district planner role for the soft home category, and realigning/combining/reducing stores.

It's clear that Macy's has outperformed Sears and J.C. Penney, but the latter two aren't giving up just yet.

J.C. Penney's online presence
J.C. Penney recently reported that it was happy with its holiday performance and that customers have continued to respond to its store and online offerings. This could mean many things, including that sales improved. However, be sure to read between the lines if sales do increase for J.C. Penney. One, its year-over-year comparisons compare current results to a time when Johnson ran the company and J.C. Penney stores resembled ghost towns. Two, sales can be driven by consistent and steep promotions which hurt margins and the bottom line.

As far as customers responding well online, currently sports a global traffic ranking of 1,066 and a domestic traffic ranking of 326. Over the past three months, the site's bounce rate (a visitor views one page and leaves) has increased by 9% to 25.30%. The site's overall bounce rate is low, which is good, but a 9% increase is poor. Also over the past three months, pageviews per user have slipped 1.79% to 7.66 and time-on-site has climbed 2% to 5:60. These results are mixed, and they don't indicate any significant improvements or weakened performance. These results likely indicate that J.C. Penney's online performance has been ho-hum. However, nothing is guaranteed based on traffic numbers.

Sears' transformation
Sears is attempting to transform from a physical department store into an omni-channel company. Sears is investing heavily in its "Shop Your Way" loyalty program by enhancing membership benefits and developing relationships with customers via social media and digital platforms.

For the nine-week period ended January 6, 69% of Sears' sales stemmed from Shop Your Way compared to 58% of sales in the year-ago period. Sounds like a win, but Shop Your Way investments also increased $69 million over the same time frame. This impacts margins, and Sears can't succeed without delivering profits.

As far as comps go, for the quarter-to-date through January 6, Sears suffered a 7.4% decline. Kmart, Sears Domestic, and Sears Canada also suffered declines of 5.7%, 9.2%, and 4.4%, respectively.

Investors vs. gamblers
If you're looking to invest in a well-run operation where management had the foresight to invest in growing technological trends in order to right the ship, then you should consider Macy's. Macy's upper management has consistently proven that they're ahead of the game, and this should continue to lead to success for the company as well as investors.

Sears is making a desperate attempt to go the same route as Macy's in regard to the omni-channel approach, but it's likely too little, too late.

J.C. Penney has lost its core customer, which was actually the case well before Johnson showed up. If current CEO Myron Ullman couldn't straighten out J.C. Penney before, why should investors believe he's capable of doing it now? Consider investing in the person who defeated him, Macy's CEO Terry J. Lundgren. Please conduct your own research prior to making any investment decisions.

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