J.C. Penney (JCP) smells blood in the water with Sears (SHLD), so it's taking steps to put its long-time rival out of its misery.
Penney's is engaging in one simple act -- at long last, it's investing in its future.
That would seem pretty obvious to most companies, which spend x amount on capital expenditures every year to keep up with changing customer demands. But JCP hasn't been able to do that due to significant indebtedness, in are part caused by ex-CEO Ron Johnson's massively failed attempt at a makeover.
But now, two solid holiday seasons, clear evidence of market-share gains and a looming paydown of some $500 million in debt mean JCP can finally aggressively craft its future.
In short, Penney's is back on the offensive, and Sears -- which to me is the undisputed worst stock in the world -- should be quaking in its Craftsman boots.
Here are three areas JCP is investing in that I think will yield the biggest results this year (and hurt Sears the most):
JCP added 28 Sephora shops to J.C. Penney stores in 2015, bringing the total number to 518. JCP also plans to add Sephoras to some 60 more J.C. Penney stores this year, with more than half of those openings scheduled for April.
Sephora's addition to some less-than-top-tier J.C. Penney stores should attract customers who've historically looked for deals at Sears' embarrassing fragrance-and-cosmetics section. I think customers will also welcome Sephora's strong customer service.
JCP launched a pilot or program of selling appliances in 22 stores in early February.
In a stroke of brilliance, Penney's is putting demonstration models of appliances on the sales floor, but leaving the actual inventory with vendors. I can't tell you how lucrative that sales model is -- and I certainly don't have to tell JCP executives, who appear ready to expand this initiative to hundreds of more stores.
"It's early days, but we look forward to updating you and others in the near future with the results and what our plans would be going forward," J.C. Penney CEO Marvin Ellison said during an analyst call Friday.
Home appliances are one of the last businesses that Sears does relatively well, although increasingly less so than Home Depot (HD), Lowe's (LOW) and Best Buy (BBY) manage to do. Still, Sears proudly proclaims in its annual report: "We are the market leader in several of the key categories in which we do business, such as home appliances.
But with J.C Penney likely on the verge of significantly expanding its appliance offerings, that could really take a bite out of Sears. In fact, I wouldn't be surprised if JCP tests the sale of TVs and connected home gadgets at some point in 2016, which would be another dagger in Sears' heart.
J.C. Penney has by its own admission been behind the eight-ball online. The company hasn't offered enough of what people were searching for online, and it lagged in connecting its Web business to its physical stores.
That left the door open for Macy's (M) (and to a certain extent Sears) to take away sales, but those days are nearing an end. J.C. Penney began to test a "Buy Online, Pick Up In-Store the Same Day" model in a little more than 10% of its locations during the fourth quarter. Now, JCP plans to roll out this key capability to all of its more than 1,000 stores prior to the back-to-school season in late summer.
I suspect the company will go out with a strong marketing campaign to announce this availability, and I think the effort will raise the chance that a given consumer will shop at J.C. Penney instead of Sears.