I accompanied her to Best Buy, a place I rarely shopped, except for the occasional television purchase of my own or a holiday gift card “cash in”. I had always preferred Circuit City but since that wasn’t an option in 2012, Best Buy it was despite its imminent date with bankruptcy. Oh you forgot? Best Buy was going bankrupt in 2012, Amazon had the gravestone and everything was prepared at the cemetery with stock approaching $10 at one point. Everyone knew it it. Best Buy was Amazon’s showroom!!!
I couldn’t say I disagreed at the time. I rarely went there and I watched CNBC everyday, hearing the same narrative. Best Buy was getting “Amazoned”, it was only a matter of time, you know how the chorus went.
Funny thing happened when we went in the store though. There were people shopping there. The store had been redesigned, looking fresh and bright, a new appliance section offered high-end stoves and such at what I knew to be very good prices.
During out visit a salesman approached my mother. This guy had the audacity to be helpful and actually “downsold” us to a different model television then the one we were eyeing which would have cost us more.
“This TV is just as good, you’ll never know the difference.” The nerve of that guy.
Later that day I brought up Best Buy’s ticker (BBY) to see what the price was. There’s no way I was among the first to notice this change, it must have been off death watch. It was 14 and change. I was interested but i figured the fine folks on TV all day must know more than me, who am I after all? These guys do this for a living and they say Best Buy is going extinct. Who was I to think different?
Well, w know how that turned out. I could have caught a triple in short order in Best Buy…..just from walking into a store. Surely it can’t be that easy.
That brings us to J.C. Penney, the beleaguered retailer with the visionary CEO that was going to revolutionize retail. Fair and square pricing, store within a store, it was a GAME CHANGER remember? Remember!?!?
in short order the “visionary” CEO went blind and the egotistical hedgie that got him hired was running for the exit. It turns out Penney was going bankrupt, they just couldn’t make it. Hmmm, why not actually go in a store and take a look?
I ventured over to the JCP closest to us. Located in a mall that recently had a Sears go out of biz, I thought, “surely this will be among the first to close the doors.” This was about September of last year. I saw first hand the merchandise that Ron Johnson had dumped into the stores.
We’re talking $80 crock pots and $20 luggage tags (we later bought one for $2.50 on clearance). This was not the typical fair of the J.C. Penney that I had known growing up or that my mother still had a credit card for.
Over the weeks and months that followed I became convinced (and still am) that Penney’s wasn’t going to go out of business. As the ridiculously overpriced merchandise made its way out the door, more appropriate merchandise made its way in. Albeit slowly.
I went to Penney’s at 1 A.M., on Black Friday, I went Tuesday’s at Noon, I took my daughters, chatting up friendly salespeople and pulling information on traffic and inventory from them while they tickled my daughter’s feet.
I took a marker in the store and placed a small ‘X” on an electric griddle that was being pushed for much of the holiday season. I came back to see if the stock had been sold. We even took our Christmas photo at the J.C. Penney’s portrait studio (we were shareholders at that point, need to support the cause after all honey)
I guess you would call that work, but with each analyst over reaction to a clearance tag (they actually marked up merchandise during Christmas to mark it down) my resolved deepened.
I also grew angry at some of the apparent joy that some analysts were taking in watching the demise of a 100-yr old institution with hundreds of thousands of employees. Like real angry.
With Sears in trouble, could mall operators and suppliers AFFORD to let JCP go under? It didn’t add up yet some were so happy to short JCP once their buddy dumped it after nearly running it into the ground. Maybe railroads and retailers are distinctively different business models, just spitballing here.
With a cost basis around 6, I did well in the winter and Spring and I declared victory around 9 on numerous occasions. Never hesitating to buy it back lower, but always wary to take profits.
My resolve was only shaken once. Put buyers came out in full force in the Spring, they were betting on prices to drop below $4 share. I had nice gains, why take the risk? I trimmed our position heavily and even bought some of the same puts the “smart money” was in on. I mean somebody must have known something right? No, not really.
I returned to the store and felt sick. It was even better then my last visit. Recently, I visited and I would say the staff, merchandise and feel is about a 150- degree change from the fall. I had added back to my long around $8.50 and bought a bunch of $10 calls for Jan. 2016.(figuring it would be far above the $11.60 implied value ($1.60/call) or actually be going bankrupt by then
Today we get JCP’s latest earnings release. I’m not expecting great things as far as huge spike. Technically, the chart looks strong, short interest is down though still present but it will take some great news to get it above and hold 10-15% higher from here I wouldn’t mind a selloff and would add if nothing materially changes my opinion on the conference call. Mike Ullman, please don’t disappoint. You’re back-to-school is going well, don’t be afraid to say it…OVER AND OVER AND OVER AGAIN. Please and thank you.
It did not take a financial wizard to take advantage of J.C. Penney now or in the future. It involved actually going to the store and making very easy observations while getting a grasp on the reality that possibly, possibly folks on TV in New York don’t really have a grasp on what’s going on in the suburbs or middle America.
For the record I don’t blame the pundits that said JCP was going bankrupt. The analysts, that’s a different story. They should really feel shameful about endangering so many jobs based on hunches. But for most, there’s a lot of time to fill on air and when put on the spot why would you stick your neck out having not been to a store in years? And that, my friends, is sometimes the only edge you need and a lesson I didn’t need to learn twice.