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J.C. Penney and the Rest of the Story in Retail

Written By Brian Hicks

Posted February 21, 2008





consumer cartoon


As we have said before, never has the well being of so many depended on so few.

Because at over 70% of our GDP, it’s the borrow and spend U.S. consumer that seems to hold the keys now as whether or not the world descends into a global slowdown.

And while Wal-Mart sales did manage to surprise to the upside on Tuesday, the U.S. consumer still appears to be buckling.

The latest bit of information in that regard came today from J.C. Penney Co Inc. (NYSE:JCP). Unlike Wal-Mart, its fourth quarter profit fell 10 percent instead, as their shoppers spent less.

As a result, Penney CEO Myron E. Ullman said that his company was planning “for a difficult economic climate.”

Still, shares of the company managed to buck the trend lower, since the earnings decline wasn’t as bad as analysts had projected.

Nonetheless, here’s the skinny from the today’s conference call.

From Reuters by Nicole Maestri entitled: J.C. Penney Profit Falls Less Than Expected.

“J.C. Penney Co Inc reported a smaller-than-expected fall in quarterly profit on Thursday as the mid-tier department store operator offset falling sales with tight control on expenses, sending its shares higher.

But the retailer, which caters to middle-income shoppers who are grappling with the slumping housing market and high energy costs, said there is no clear indication the consumer environment will improve in 2008.

“The economic climate and retail environment have not shown any signs of near-term recovery,” CEO Myron “Mike” Ullman said on a conference call. “In fact, depending on the economic pundits you listen to, it may even get worse before it gets better.”

To offset the tough environment, Ullman said Penney is planning conservatively and has cut its store opening plans for the year.” (Emphasis mine)


The Other Side of the Story

Of course, you may be wondering why I highlighted that last sentence. I did so because to a large extent it is the other side of the story, one that goes beyond a mere pullback in consumer spending.

That because as consumers pull back from buying things off of the shelves, it has a ripple effect that bleeds over into commercial real estate.

And it’s simple really, since a consumer slowdown also means a drawn down in expansion plans for many businesses, just like J.C. Penney.

You can call it the domino effect if you will and it is beginning to take its toll now on commercial real estate.

In fact, according to a recent story by entitled, Retailers Taking Their Medicine and Turning Cautious Over Growth, there have been more closures and announcements of slowed expansions than they have seen in some time.

Their list includes following:

· Movie Gallery closing another 400 stores

· Charming Shoppes closing 150 stores and cutting expansion plans by 50%

· Starbucks closing 100 stores and slowing expansion plans by 34%

· Ann Taylor shuttering 117 stores and slowing store growth

· Boston Market evaluating its real estate opportunities

· Buffet Holdings sorting out its underperformers

· Sprint Nextel closing 125 stores and 4,000 distribution points

· Cost Plus World Market closing 18 stores

· Liz Claiborne closing 54 Sigrid Olsen stores

· New York & Company axing the Jasmine Sola brand and its 32 stores

· Ethan Allen closing 12 stores

· PacSun closing all of its 173 demo stores

· Talbots exiting its kids and men’s lines through closure of 78 stores

· Rite Aid exiting Nevada by closing 28 stores

· Macy’s closing nine stores

· Krispy Kreme expecting many franchisees to close stores

· Kirkland‘s Home likely closing 130 stores

· CompUSA’s remaining 103 stores being disposed of

· Rent-A-Center closing 280 stores

· Sofa Express closing 44 stores in bankruptcy

· 84 Lumber closing 12 stores

· Home Depot closings some call centers

· Levitz Furniture disposing of 76 stores in bankruptcy

· Pep Boys closing 31 stores

· Lifetime Brands closing 30 stores

· Big A Drugs liquidating its 21 stores

And that, of course, is the untold story these days behind that of the buckling consumer.

Now that is some list if you ask me.