The Death of Retail, Continued

The slow, painful death of traditional retailers is on full display this week.

Shares of J.C. Penney plummeted 17% yesterday after the company reported a fourth-quarter net loss of more than $550 million. Despite some fairly drastic attempts at a turnaround, J.C. Penney looks like it’s headed in the direction of fellow old-school retailer Sears.

To some degree, big retailers have always been high-end flea markets. Different brands display their wares using sub-let space. But J.C. Penney extended this idea as part of the turnaround effort, creating coffee bars and hair salons inside its store. Basically, JCP is becoming a mall-within-a-mall.

Get it?

No? That’s ok. Neither does anyone else, which is partly why JCP posted a 25.2% decline in comparable store sales…

Retail Sales

Of course, the more generic a retailer, the more likely it is that the company is going through tough times. It’s nearly impossible to compete with Target and Walmart on the discount side. For all the other stuff, Amazon and niche shops are stealing business left and right.

Best Buy is another embattled retailer suffering a similar fate. Amazon has clobbered the electronics big-box retailer over the past year, making Best Buy nothing more than a showroom for its rival’s online business. Best Buy has recently tried to keep its head above water with price match guarantees (which have helped in the short term, judging by today’s earnings release that just hit the wire).

However, I don’t see this strategy as a viable long-term solution. Gimmicks and coupons won’t drive bottom-line growth. And they won’t keep Amazon at bay forever.

You should remain skeptical of these two turnaround efforts moving forward. Despite the quick benefits of short-term fixes, they’ve already lost the war…

Greg Guenthner
for The Daily Reckoning

The Daily Reckoning