Slow horses for fast courses

Until recently, the United States has been viewed as a champion race-horse built perfectly for the capitalist race arena. Since 2008, the scene has changed. Led by the equivalent of a knackered old Dobbin, named Barack Obama, the United States is now desperately seeking refuge from any race-course, hoping to live out its days in some protected pasture, reinforced by hay supplements, well roped-off from roving predators.

Until recently, J C Penney was a major player in the US shopping mall stakes, a fine pedigree honed to the sales-discount-loving American public. Then the company hired a former Apple employee, Ron Johnson, as its new chief executive. With zero understanding of the shopping mall environment, Mr. Johnson knackered his new company by removing all the bullets from its six-gun. No sales discounts! No coupons! No customers! ‘Hey! Empty stores make the environment better for our work-force’ was Mr. Johnson’s reply to mounting criticism.

Have any of you dragged your way around a JC Penney’s store in recent months. A glutton for punishment, I have made periodic forays in order to chronicle decline and fall. Perhaps six people in the store, most of them, relying on canes or perambulators. Store workers with empty eyes, like those of death row inhabitants awaiting their last meal. No management in sight. This is the Titanic before its final descent, was the image that I took with me, as I raced across the mall to Macy’s to recover in the pure oxygen of a vibrant market-place.

In 2012, the first year of mr. Johnson’s ‘reforms’, J C Penney lost $4.3 billion of sales from the previous year, a 31.7 per cent decline in like-for-like sales. During the last quarter of 2012 alone, the company’s total revenue declined by 28 per cent and shopper numbers declined by 17 per cent. And that was the Christmas Quarter!

Well Mr. Johnson, unlike President Obama, has learned a lesson. He has now abandoned his disastrous pricing policy. Back to sales discounts! Back to coupons! Whether or nor the customers will return is the $64,000 question. The $1 billion question is whether Mr. Johnson will remain in charge. Unlike Barack Obama he does not have a four year tenure. And J C Penney’s biggest shareholder is Bill Ackman, whose hedge fund company, Pershing Square, owns 18 per cent of the company.

I suspect that Bill Ackman will respond much more ruthlessly in the case of J C Penney than did Obama-supporters in November 2012, when confronting a much more serious collapse of their nation’s wealth and prestige.

Hat Tip: Barney Jopson, ‘J C Penney drops key reform’, Financial Times, February 28, 2013

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