Best Buy Co., Inc. (BBY) Is No J.C. Penney Company, Inc. (JCP)

What went wrong?
It is thus wrong to blame J.C. Penney Company, Inc. (NYSE:JCP)’s poor performance on the “shops.” It is true that the introduction of more branded shops may have hurt J.C. Penney’s performance indirectly. For example, it led the company to remove or scale back on popular private label brands like St. Johns Bay and Worthington, and the transformation entailed disruptive construction projects within most major J.C. Penney stores.

However, the main reason J.C. Penney Company, Inc. (NYSE:JCP) experienced a 25% sales decline in just one year was the company’s elimination of most coupons and discounts. This new pricing strategy alienated a large portion of its customer base, and management was slow to recognize the need to reintroduce coupons and frequent promotions.

So what?
What does this all mean for Best Buy Co., Inc. (NYSE:BBY)? In short, the analogy to J.C. Penney Company, Inc. (NYSE:JCP) is not very helpful. The main causes of J.C. Penney’s massive drop-off in sales last year had nothing to do with the store-within-a-store concept. In fact, some of the best-performing areas within J.C. Penney stores have been these “shops”; it’s the rest of the store that has been causing trouble.

That said, Best Buy Co., Inc. (NYSE:BBY) has its own problems. Revenue has been stagnant since the Great Recession, while EPS is on the decline due to falling gross margin and rising store expenses. As I noted earlier this month, it’s hard to justify Best Buy stock’s massive 2013 run-up. But it would be wrong to see the introduction of Samsung and Microsoft shops as some kind of death knell for Best Buy. Who knows? The new shops could be Best Buy’s last, best chance to become relevant again.

The article Best Buy Is No J.C. Penney originally appeared on Fool.com and is written by Adam Levine-Weinberg.

Fool contributor Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Google. It owns shares of Microsoft.

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