The rise and fall of JCPenney

In 2007, JC Penneyy's stock hit $20 a share. By 2020, it was trading for less than 20 cents a share. At its peak in 1973, it was the number two department store in America, and JC Penney operated over 2,000 stores nationwide. How do one of America's most iconic retailers go from $20 billion in sales to bankruptcy? This video is the rise and fall of J. C. Penney. JC Penny. >> Oh, and by the way, thanks to Quo for sponsoring this video. More on them later. >> James Cash Penny, aka JC Penney, was born on a farm in Missouri back in 1875. He had a crazy upbringing. At age 8, his father made him to start paying for his own clothes. He learned early on that if you wanted something, you were going to have to work for it. After his father died suddenly, Penny moved west for his health and ended up in Wyoming where he started working for a small retail chain called the Golden Rule Store where they treated everybody by the golden rule do unto others that you'd want to have done to you. In 1902 at the age of 27, he'd saved up enough money and gotten the ability to get a loan to open his very own golden rule store in Kenmore, Wyoming, a small mining community. He followed the golden rule. treat customers, employees, and everybody else the way you'd want to be treated. Give them good value at fair prices. In a somewhat revolutionary move for the time, he gave employee profit sharing, and in some cases gave general managers ownership in the stores they were running. And you know how every retailer these days calls people partners or associates? Well, J. C. Penney was the first company to do that, calling their people associates rather than employees. By 1913, Penny's moves here had been successful. He was operating 34 stores. So he rebranded the whole thing around his name and his brand J Penney. It was a hit. By 1929 he had 1,400 stores and he was doing $190 million a year in sales which is about 3.5 billion in today's dollars. During the Great Depression a lot of retailers failed. But Penny, he stayed alive by cutting prices and giving customers good value for their money. By 1936 sales had grown to nearly $250 million with 1500 stores operating. And here's a fun fact I learned in researching this video. A man named Sam Walton who founded Walmart, well, he got his start in the retail business working at a JC Penney in De Moines, Iowa in 1940. And he would go on to found well the Walmart we know today. In these years, J Penney got big by being innovative. One of the first things they did was move away from being cashon in 1958. They moved away from basically cash only to operate store credit cards and they started to offer appliances, electronics. They wanted to compete with Sears. Then in the 1960s, car culture meant that the department store era was coming and it was coming in suburban malls. So like Sears and other leading retailers of the time, they flocked to these malls and that would prove to be something that later on would both kill and save the J. C. Penney chain. And so while many of their competitors stayed on Main Street, JC Penney moved out of the downtowns and started to occupy suburban malls, riding the wave of suburbanization in the United States. And even in 1963, they started to compete with Sears on the catalog business, launching their own version of the famous cataloges. When JC Penney, James Cash Penney, died in 1971 at the age of 95, he left behind a retail empire that was doing the equivalent of $35 billion a year in today's sales. J Penney was seemingly everywhere. By 1973, they had 253 stores. They were doing billions of dollars in sales, $5 billion alone from their catalog business. The catalog was a cultural phenomenon. It was called the big book. People would hover around it like they did the Sears catalog, waiting to see what was going to be on sale and available to order for each holiday season. Back to school shopping, big events, weddings. If you needed something, fixing out your house, right? You went to J Penney. It was that much of a fixture of American life. In 2006, revenue hit $20 billion that year. The stock price went up just like it, hitting $85 a share in 2007. But it was just at that moment that it seemed like J. C. Penney couldn't lose. That cracks would start to form and the end would start to come. But before we want to talk about today's video sponsor, Quo. When you study businesses over time, most problems don't come from one big mistake. They come from small systems that never get upgraded. Communication is one of the biggest examples of that. Mis calls, scattered text, and no shared visibility quietly turn into lost revenue. Today's video is sponsored by Quo, formerly Open Phone. 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Try it for free and get 20% off your first six months at qo.com/gurley20. Thanks to them for sponsoring today's video. At this time in the middle 2000s, you started to see J. C. Penney get attacked from all sides. The first of those was from the bottom. Walmart and Target were coming in with better supply chains, lower prices, and they were stealing value conscious customers. At the other end, you had upscale customers, people who would normally go to a Macy's or Nordstrom's. Those people were kept going to those stores and those guys would take away that end of the business from J C Penney. And as a direct assault, you had the whole idea of a retail store coming under attack. Amazon and e-commerce, they were coming fast and growing at double digit rates year after year. And like most retailers, J Penney had seen the challenge coming from the internet. In fact, they were doing pretty good with e-commerce. Their online business was doing a billion dollars a year by the middle 2000s. But it's hard when you're a specialist in real life retail to be good at digital as well. By the early 2010s, just poor execution meant that Amazon and even Macy's were outperforming J C Penneyy's in online sales. And while folks like Sears had shut down their cataloges in the 1990s, the J Penney Big Book lasted until 2009. Believe it or not, they were still printing out a big 100page catalog and mailing it to people back then. That wasn't that long ago. In 2008, the financial crisis and the Great Recession hit J. C. Penney really hard. Their customers were workingclass middle-class families and they were the ones hit the most by the Great Recession. Sales from 2006 to 2010 fell by over 10% per year. In 2010 would be the last year that the chain would show a profit. Investors saw this and in the early 2010s the stock crashed from $85 to $25. And it was clear investors saw it, everybody did, and things were going to have to change at J. C. Penney. Entering the picture is a guy named Bill Aman. He's an activist investor. These are guys that raise money from institutions, endowments, and that sort of thing. Then they go out into the stock market, they invest in shares that they think are undervalued, and they force management to make a change. And that's what Bill Aman wanted to do with J. C. Penney. His fund, Persing Square, had 11 billion under management. In 2010, Aman and his fund started buying shares at around $25 a share, eventually deploying over a billion dollars and owning a big chunk of the company, almost 20%. His thesis wasn't complicated. It was they owned real estate which was valuable, the brand was valuable and operations were poor and together they could all be turned around. So Aman got himself on the board and he immediately started looking for a rockstar CEO. Somebody could come in and turn the whole thing around, a Steve Jobs of retail to come in for J. C. Penney and he found that guy. He was working at Apple and the guy that he found was a man named Ron Johnson. And this guy had a pretty incredible resume. First and foremost, he had helped Target kind of create its brand niche where it was about sheep chic and that people had loved at that time. But the other thing he'd been famous for was coming in and figuring out the entire strategy for retail at Apple. If you're not familiar with Apple stores, they are a unicorn in retailing. They do about $5,600 in sales per square foot, which is the highest of any retail operation in the United States. And they had done it at the time by making Apple stores different than anything else you'd see in retail. They felt like destinations and experiences. They were radically different than everything else in the mall. Given this track record, it made sense. Let's go hire Ron Johnson to come in and come to J Penney. And he did in 2011, getting a $52.7 million signing bonus to come in and transform the chain. And in a cool move, Ron was so allin and confident about what he was going to do that he invested $50 million of his own money into J. C. Penney when he took the job. When Ron announced his transformation plan in January 2012, the stock jumped nearly 25% to over $43. Investors, well, they were excited. Ron's idea was to transform each individual JC Penney into a mini ball, a town square with coffee, and different shops aligned around this gathering place where you would come and do your shopping. And behind all of that was a radical rethink of the pricing scheme at J. C. Penney. And he called it fair and square. You get it? Town Square. fair and square. Yeah, very putty. Me, too. Here was Ron's logic, and he theorized that the consumers, they were tired of playing the department store game, which was to mark everything up and then give you coupons and discounts and run sales so you felt like you were getting a deal. In other words, it was just a big racket. Johnson wanted to end the charade. He wanted no more coupons, no more gimmicks, just low prices every day and giving you good value. It sounded logical. Why not cut the BS? We all hate BS, right? And that especially makes a ton of sense if you're the type of guy who can invest $50 million in a company when you take a job. But there was one problem and it's the same thing that make casinos work. People love playing the game, even if it means they're getting screwed a little bit. And JC Penney shoppers weren't like Apple customers, and they certainly weren't like Ron Johnson. The typical one was middle-aged female household owner and makes between 50 and $75,000 a year. These people weren't flying in on private jets or shopping at the Apple store. I'll tell you that. Much like Bed Bath and Beyond and other chains, these people were looking for some entertainment and they love the thrill of the hunt when you were walking inside of a J C Penney trying to find the deals. And they love seeing that you save $47 at the bottom of their receipts. And this was so true that 70% of JC Penney transactions involved a coupon or a discount. That's how much customers loved it. So without any testing, which will come back to bite them, by the way, Johnson removed all of this overnight. Gone were the sales, gone were the coupons, gone were the red tags. Here are your regular prices. Take it or leave it. Game is over. So when sales started tanking, Ron famously went and said, "Oh, you know what? Our customers just don't get it. They don't understand yet, and we need to educate them." Which is code for our customers aren't smart enough to get this. Which is not a good thing to say to your customers. So when reporters and analysts asked Ron why he didn't test any of this, his answer was, "Well, we didn't test anything at Apple." But that comparison was missing something kind of important, which is Apple controls one of the greatest software and hardware monopolies in the history of the universe. That's very different than when you're J. Penney and you're selling the same stuff everybody else is in a mall full of meto shops and products. And to show how in touch he was with the company, Johnson ran J C Penney from California and he would commute to Texas every week by private jet. You got to get out there and you got to talk to your customers and you got to understand what they want. And it's hard to do that when you're flying private at 35,000 ft. The reaction was immediate. In 2012, sales started to fall off a cliff. In Q4 2012, which included the holiday shopping season, same store sales were down nearly a third by 32%. Stock analysts called it the quote unquote worst retail quarter in history for any major company. In 2012, the stock was down over 50%. Revenue was down by 25% for the full year, and the company showed a net loss of over a billion dollars. JC Penneyy's rating in the American Consumer Satisfaction Index jumped to the lowest mark in history for any major retailer. In April 2013, the board had seen enough. And after 17 months, Ron Johnson, he was let go. The board brought in Mike Olman, who was his predecessor, to come in and clean up the mess, which is always a good sign. You were doing poorly before that you need a new CEO. Well, let's bring in the old guy who was also doing a bad job. Nice work. Bill Aman's J C Penney bet was in ruin after getting into a very public fight with the other directors. He sold all of his shares, lost about $500 million on the trade, and exited stage right. J. C. penny. It spent hundreds of millions of dollars rebuilding and renovating all of these stores. And the brand, well, it never recovered from this damage where all these loyal customers, much like my Bed Bath of Yan video that you can see right here, they left. And once the game was done, they never came back. So, if you've seen these videos that I do repeatedly, you're like, "Okay, cool. Well, they're going to go bankrupt, right? And they should disappear." But turns out there's still a lot of J. C. Penney stores even operating today. Well, how the hell did that happen? I'll tell you the rest of the story. From 2012 to 2019, things were so bad at J C Penney that they lost money every single year except for one year where they squeakaked by with a $1 million profit. Over the decade of the 2010s, the company had no fewer than four CEOs, each of whom came in, promised to make some changes, and then was shown the door. So, here you're at in the late 2019 era. J Penney has made all these huge mistakes, and there are massive headwinds coming after them. E-commerce is getting better. Amazon is getting better. Walmart is getting better. Target is getting better. All these folks are coming after the core J C Penney business. And well, you can see where this heads. Store closures accelerated from over a thousand stores left in 2012 down from thousands in the 1970s. They eventually finished the 2010s in 2019 were just over 800 stores. And then came a final blow. COVID in 2020. At the time in March 2020, all instore shopping was basically banned because of the pandemic. and J C Penney closed all of its doors temporarily. With $4 billion in debt and little cash on the balance sheet, they didn't have the runway to deal with CO like this. On May 15th, 2020, the company declared chapter 11 bankruptcy. And after 118 years, the company that was founded on the golden rule suddenly didn't have enough cash to pay its bills. The stock was delisted from the New York Stock Exchange after trading for over $85 a share during the Acan era just a few years earlier. It was now worth less than 20 cents a share. But look, Bed Bath and Beyond, Sears, all these guys, Toys R Us, they close their doors and they're gone forever after bankruptcy. Well, something entirely different would happen to J C Penney. You see, malls around the United States are typically owned by big companies. And they're often called REITs, real estate investment trusts that are traded publicly. And two of the largest ones, they step forward to buy J Penney for just over $800 million. So, why the hell would a mall operator come in and save a struggling chain with not much future? Well, it turned out they needed J. C. Penny to keep their malls going. See, J Penney when it had moved into the malls in the 1960s became an anchor tenant in these malls. And if those stores closed down and departed, well, that would be horrible for these mall owners. For example, many of the leases that they would have signed with other tenants in those malls would be able to be voided if J. Penney or other anchor tenants left because suddenly traffic would go way down without the big draws. So J Penney was suddenly needed as a tool to keep these malls going and emerged from bankruptcy in December 2020. a leaner, meaner, and operating machine. Under new CEO Mark Rosen, the company has gone back to basics, focusing on their working-class customers, providing quality, just dependability. And as of January 2025, JC Penney was merged into a conglomerate with a bunch of other kind of has been and once struggling retail chains like Brooks Brothers and Aeropl and stuff like that. And there's about eight or nine of them. Well, here's the funny thing. Almost all of them have been bankrupt at one time or another. And while this group called the Spark Group has over nine billion in revenue and 1,800 stores across all of their brands, it is interesting to think of the Charlie Munger quote, which is, >> you know, if you mix raisins with turds, they're still turds. >> And the company now known as Catalyst Brands. It'll be interesting to see if they can take all of these kind of has been brands and turn into something good in the future. As I think about JC Penney, kind of phrase I've talked about a lot on this channel is one from Mark Twain. It's the things that you believe with all your heart to be true that eventually turn out to be untrue that will come back to bite you and kill you in the end. Now, if I look back on the Ron Johnson era, he believes so much in this vision of transforming J. C. Penney into this town square kind of thing that he rolled it all out without doing any testing whatsoever. And one way to think about your business is it has to be a learning machine. You should be running little tests all the time to try to learn as much as possible. In this case, Ron skipped that step and went straight to the answer he believed in his heart. It ultimately turned out to be hugely wrong and cost him a lot of money, over 50 million, and got him fired. That's it for J. C. Penney. Let me know what you think in the comments below. And if you like the video, tell me you liked it. Makes me feel good about going for a walk in the winter in this drainage ditch. Catch you next time.

Try Quo free + 20% off 6 months: https://www.quo.com/girdley20 Quo is the modern business phone system for small businesses so you never miss a customer or leave revenue on the table. What happened to JCPenney? At its peak, JCPenney was the number two department store in America, operating more than 2,000 stores and generating billions in annual sales . The company helped pioneer suburban mall retail, launched one of the most iconic catalogs in American history, and built a brand rooted in the “Golden Rule.” Get the 2-minute cheat sheet for this video → https://girdley.com/youtube 👇 SUBSCRIBE for more business breakdowns https://www.youtube.com/@Michael-Girdley?sub_confirmation=1 ------------------------------------------------------------------ ► Get my weekly letter to business owners: essential insights to run, grow, and stay ahead in your business → https://links.girdley.com/newsletter-yt ► For sponsorships or inquiries please reach out to: Contact@girdley.com ► Do you have a hat I should wear in a video? Send it to us: Contact@girdley.com ► Free events on all things small business: https://links.girdley.com/lectures-yt ► Deep dives on businesses for sale: https://www.youtube.com/@AcquisitionsAnonymousPodcast ► Follow me on Twitter/X: https://x.com/girdley ------------------------------------------------------------------ This JCPenney documentary explores The rise and fall of JCPenney — from a $20 billion retail powerhouse to Chapter 11 bankruptcy. After decades of dominance, JCPenney began facing pressure from every direction. Walmart and Target attacked from below with lower prices and stronger supply chains. Macy’s and Nordstrom captured higher-end shoppers. Amazon and e-commerce reshaped consumer behavior. Revenue fell sharply during the financial crisis, and the stock collapsed from $85 to $25 . Then came the bold turnaround attempt. Activist investor Bill Ackman invested over $1 billion and recruited former Apple retail chief Ron Johnson, paying him a $52.7 million signing bonus to reinvent the brand . Johnson eliminated coupons, ended sales promotions, and introduced “fair and square” pricing — removing a strategy that 70% of transactions depended on . The result was catastrophic. Same-store sales plunged 32% during the holiday quarter . Revenue dropped 25% for the year, and the company posted a loss exceeding $1 billion . Johnson was fired after just 17 months. Ackman exited with massive losses. The brand never fully recovered. After years of losses, mounting debt, and store closures, JCPenney filed for Chapter 11 bankruptcy in 2020 . The stock, once trading at $85, fell below $0.20 . This business breakdown examines: – Why JCPenney succeeded for over a century – How mall dependency became both a strength and a weakness – Why the Ron Johnson strategy failed – The danger of ignoring customer psychology – What founders and CEOs can learn about testing before transformation The rise and fall of JCPenney is a case study in retail disruption, leadership overconfidence, and the risks of radical change without validation. For entrepreneurs, investors, and operators, this story is a reminder: bold vision without customer alignment can destroy even the strongest legacy brands.