What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing in today's video we're going to talk about one of the most dramatic declines in recent retail history. Since the rise of online retailer, amazon and big box walmart before that older department stores and retailers have declined even 20th century superpowers, like sears once admired not unlike amazon, is today have been reduced to penny stocks trading over the counter. But jcpenney was once one of the most admired american companies in the retail space. There was a time when you would find it difficult to find someone who had never shopped in one before jcpenney undeniably had, and even to this day has a deeply entrenched brand name.

That hundreds of millions of consumers recognize even hedge fund titan bill ackman believed in the company enough, as recently as 2013, to invest hundreds of millions of dollars of his fund's money. In this video we're going to talk about jcpenney's legacy and how, after more than a century of glory, it finally succumbed to the inevitable death of retail jcpenney was started by james cash penny in the early 20th century, penny was born in missouri and started his career Working a working-class job at a local retailer, he later started his own store in wyoming selling various dry goods. It was called the golden rule store. He founded it on the principle of the so-called golden rule and would later attribute his success to this principle.

His business venture was immediately successful, becoming one of the only suppliers of essential goods to customers in the mountain states. Within 10 years, penny had several dozen stores as the business expanded. He adopted the name jcpenney for all of his stores. Throughout the middle of the 20th century, jcpenney exploded, they issued their own credit card, expanded to all 50 states and started their own catalog to compete with sears.

They expanded their product line to include things like appliances, tools, auto shops and even experience based products like beauty, salons and restaurants. After 70 years in business, james cash penny died in 1971.. He left an estate worth 35 million dollars which, in today's dollars is more than half a billion. He left most of his fortunes to his wife, kids and various philanthropies, but his superpower franchise would keep growing for some time after his death in the 70s and 80s.

The retail space became more and more crowded specialty retailers that focused on single types of products such as outdoor and sports equipment, started challenging jcpenney's model of selling everything under the sun in the 80s jcpenney sold off many of its non-core. Businesses such as its automotive and appliance businesses in their place, they refocus on their core retail business. They started selling online as early as 1983.. Jcpenney also wanted to break into the higher end space of retail.

They secured some high-profile high-end fashion designers to sign on exclusive contracts with jcpenney up until that point, jcpenney was only known for mid-level merchandise. At that time, the retail space was becoming fiercely competitive. Old established stores like sears and jcpenney were being challenged by newer, more innovative stores like walmart and kmart. These new competitors appealed more to the younger generations who, with each passing year and decade, made up a larger portion of the population.

In fact, sam walton, the founder of walmart, even worked for jcpenney before starting his own competitor. The clean, modern, look and feel of the newer stores, along with the lower prices or more engaging shopping experiences, pulled customers away from jcpenney by the year 2000. Jcpenney was clearly past its peak and started liquidating its worst performing stores. The financial crisis of 2008 was a major permanent blow to jcpenney.

Shoppers found little reason to continue shopping at jcpenney when cheaper stores like walmart and target existed. The quality and perception of jcpenney had faded and they were unable to retain customers. After 2008, their profit margins shrunk to razor thin levels in 2013, their revenue tanked, bringing their net income into negative territory. The blue line shows their revenue each quarter since 2007, and the green line shows their net income.

You can explore financial charts like these on our new website at wallstreetmillennial.com. Retail is usually a business that can benefit tremendously from operating leverage. In other words, there are massive fixed costs in setting up supply chains, deals with designers, advertising campaigns etc, but after those fixed costs are paid for, each additional store contributes revenue. That largely goes straight to the bottom line.

The problem is that, when existing stores are closing, instead of new stores, opening the opposite happens where a franchise that was once profitable quickly becomes massively unprofitable. That is what happened with jcpenney, who crossed the line into unprofitability around 2011 when their earnings per share troughed at negative 2.66 in a single quarter around this time it was revealed that their workforce lacked focus and motivation. Cfo michael kramer admitted that up to a third of all company headquarters, internet bandwidth was in fact being used by employees watching youtube during work hours. Jcpenney then took enormous cost cutting measures, including laying off sixteen hundred employees.

This was able to stop the bleeding to some extent around that same time, bill ackman, the founder of pershing square, purchased. An 18 stake in jcpenney ackman is an activist investor who likes initiating changes in the companies i invest in. He thought that jcpenney was a company that still had brand value but was just mismanaged in lacks direction with the right leadership. He believed that jcpenney could reinvent itself and take back market share.

Ackman recruited ron johnson to become ceo of jcpenney ron johnson, designed the apple store, which is possibly the most successful store in retail history. Convincing johnson to come to jcpenney was seen as a major success for ackman and the company and jcpenney shares temporarily rebounded johnson, immediately overhauled the company's strategy. Up until that point, jcpenney had relied on steep discounting to retain customers. In reality, they only sold very few items at full price.

Instead, attracting customers by offering store-wide discounts, coupons and other pricing gimmicks to give customers the feeling that they are getting a bargain ron johnson thought that this model did not make sense and that it was better to just price merchandise at levels that they expected to sell Them at instead of listing a pair of pants at 50 and then eventually selling it for 20. After multiple discounts, they would instead list it at 20 to start and get rid of. The discounts. Johnson also started marking prices at whole numbers instead of numbers ending with 99 cents.

He hoped that this would simplify the store and refocus jcpenney's shopping experience, johnson decided to roll out these changes nationwide and it was a flop instead of attracting new customers and simplifying the shopping experience like he hoped getting rid of the deep discounts in coupons, lost customers, People just forgot about jcpenney when they stopped seeing their huge sales and couldn't justify paying full price for their merchandise, given the quality and fading brand perception. After just one and a half years, ron johnson was fired and replaced by mike ullman bill. Ackman also lost faith in the company's potential for a turnaround. In 2013, he sold his entire stake in jcpenney for a loss of hundreds of millions of dollars.

The new ceo returned to jcpenney's original model of promotional strategies and also refocused on reducing losses due to theft. In stores, but these measures ultimately failed to rejuvenate the company's dying brand throughout the 2010s, the most that jcpenney could do was cut its own cost as its revenues compressed year after year. They closed more stores and laid off more employees, as they liquidated their stores. The size of the company, as measured by their assets decreased and their shareholders equity shrank.

They were forced to take out more debt to finance their operations. In 2020, the coven 19 pandemic put the last nail in the coffin for the company in may. They filed for chapter 11 bankruptcy protection and closed hundreds of additional stores, their remaining assets were purchased by brookfield property partners in simon property group later that year, for less than one billion dollars and their stock was de-listed. Jcpenney has gone through more than its fair share of ups and downs throughout its 120 year history.

It was once a giant in retail, especially in certain areas of the us, but the rise of more attractive. Mid-Scale retailers reduced their brand perception and competitors like walmart, undercut them on price, although they were early to build. An ecommerce business amazon quickly proved to be too much to compete with the story of jcpenney shows that even the biggest success stories in business are bound to die eventually, as new generations forget their name and new competitors overtake them. Alright, guys that wraps it up.

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