Since I bought shares of struggling retailer J.C. Penney Company, Inc. (NYSE:JCP) in March, I’ve been stopping into my local store periodically to judge the ongoing renovations. It’s one of the largest in the state, and has received nearly all of the mini-shop concepts.
The mini-shop concept
J.C. Penney Company, Inc. (NYSE:JCP)’s now former CEO Ron Johnson gets most of the credit for the mini-shop concept, but it was really his predecessor and current CEO Mike Ullman who started it, rolling out the first mini Sephora shops in 2007.
Johnson, however, wanted to take that strategy to the extreme. His plan called for a complete conversion of J.C. Penney Company, Inc. (NYSE:JCP)’s retail space into mini-shops.
There are obvious advantages to the strategy, such as the ability to highlight key brands and draw new customers into the store with novel shop concepts. However, it isn’t without its faults. Organizing by brand instead of clothing type can make the shopping experience more difficult.
At a remodeled store, customers must go from the Levi shop to the Arizona section to compare different kinds of jeans, rather than having the convenience of comparing different brands within a dedicated jeans section.
The new home shops
But the new home shops seem to lack that weakness. The Martha Stewart shop, for example, is dedicated to party supplies — invitations, hats, etc. The Bodiam shop is comprised of small kitchen appliances. Other home shops are organized by bedding, cutlery, luggage and so forth.
J.C. Penney Company, Inc. (NYSE:JCP) blew through roughly $1 billion during Johnson’s reign, and much of that money went into the remodeling process. It shows, as the new home shops are stuffed with attractive props — the luggage section, for example, features faux airport flight time monitors, while the actual bags are set atop large, steel luggage carts.
Overall, the displays made J.C. Penney’s home goods section look better than say Bed Bath & Beyond Inc. (NASDAQ:BBBY) — but perhaps too good. When I went to J.C. Penney on a mid-Saturday afternoon, the home shops were meticulous, as if no one had touched the merchandise since it had been set out.
That seemed fairly likely, given that (besides myself) I saw only two other customers in the home goods department. As a shareholder, I was glad to see that the rest of the store was fairly busy, but it left me a bit puzzled that, despite these incredible looking displays, no one was shopping.
The home goods market
As a dedicated seller of home goods, Bed Bath & Beyond Inc. (NASDAQ:BBBY) is a fairly good barometer of the market.
Year-to-date, shares of Bed Bath & Beyond Inc. (NASDAQ:BBBY) are up more than 20%. Unfortunately, the company isn’t particularly transparent — management, for example, doesn’t take analyst questions during earnings calls.
The company reported earnings in line with expectations back in April, but guidance was light. Still, shares have continued to rally over the last month. Analysts at Jefferies downgraded shares to Hold on Monday, and cut their price target to $71. Jefferies expects shares to struggle in the short-run.
But at the same time, if the housing market is truly rebounding — as many fund managers, traders and pundits have argued — a secondary play on home goods makes sense. Someone who buys their first home, or a larger home, is going to be in the market for any number of home goods, from rugs to towels to kitchenware and many other things.
Perhaps that’s why Bed Bath & Beyond Inc. (NASDAQ:BBBY) is one of the single largest holdings of the SPDR S&P Homebuilders ETF.
The Martha Stewart shops
Ron Johnson intended to make Martha Stewart’s brand the lynchpin of his home goods strategy. But after a legal dispute with Macy’s, goods branded with Martha Stewart’s name occupy only a small portion of the home goods section.
The sections given to Jonathan Adler and Bodiam were significantly larger than the section for Martha Stewart at my local J.C. Penney. Stewart’s section was perhaps just 50 square feet, dedicated strictly to party supplies.
Macy’s failed to block J.C. Penney from selling the other goods Martha Stewart had designed (kitchenware, bedding, bath), but they are sold under a J.C. Penney private label — the average shopper would have no idea Stewart was behind them.
Although Stewart’s company, Martha Stewart Living Omnimedia, Inc. (NYSE:MSO), remains exposed to the success of J.C. Penney’s home department, the inability of J.C. Penney to brand the goods under Stewart’s name limits any sort of buzz Johnson was hoping to attract originally.
Customers need to see the new layout
J.C. Penney’s home goods shops are visually stunning, despite the fact that the Martha Stewart Living Omnimedia, Inc. (NYSE:MSO) brand is hardly noticeable. In general, if the housing market in the US continues to rebound, major sellers of home goods should do well, as they benefit from a broad, secular trend.
However, it will be up to the retailer’s new management to execute and get shoppers back into the stores. Ultimately, if no one is in the store, all the flashy displays in the world won’t matter.
The article JC Penney’s New Home Shops Look Amazing originally appeared on Fool.com.
Salvatore “Sam” Mattera is long shares of J.C. Penney. The Motley Fool has no position in any of the stocks mentioned. Salvatore “Sam” is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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