Tuesday, June 19, 2012

J.C. Penney UPDATE ... More Turmoil

Warren Buffett said that if a manager with  a great reputation takes on the job of running a company with a lousy reputation, the reputation of the company is likely to remain intact.

That seems to be exactly what's going on at J.C. Penney these days. (For full disclosure, I don't think much of the company or its future prospects.)

Why then do I choose to write about the company? Well, it presents such an interesting private sector contrast with what usually happens in the government knows best public sector.

In the private sector, the customer always rules. It's MOM all the way.

In the public sector, the customer taxpayer often doesn't count. It's OPM all the way.

Please take a look at the recent J.C. Penney buckles under pressure  article and then today's updated J.C. Penney's pressure cooker  as well. These articles will supplement what was said in our May 16 post "J.C. Penney's Woes and the Need for a Cost Competitive America.}

The company had recently adopted an every single day pricing model, and its customers overwhelmingly rejected it. Since then they've tried to return to a more promotional model.

In any case, nothing seems to be working for them. Maybe they should look at their costs.

The simple and apparent fact is that costs are too high for the company to be able to charge market based prices and earn an acceptable profit on those sales. Hence, their costs are too high and, as a result, their prices are too high as well. Unless their costs change meaningfully to the downside, they don't have much of a future.

At least that's what their customers are telling them.

Summing Up

And that's why it's too bad market rules don't apply to our public sector government monopolies.

If government had to satisfy customers at acceptable pricing or close its doors, we'd see a lot more customer and cost focused action from our government officials and employees.

Instead we get monopolistic type behavior. And that leads to high costs and poor customer service. Lots of wasted taxpayer money and time, in other words.

Here's the important point. In both the case of J.C. Penney and the government monopoly, it's simply the system at work.

One involves free choice and one doesn't.

To remain in "business," one requires great value --- meaning low prices, high quality and great service --- and the other doesn't.

One therefore puts relentless pressure on its leaders to perform well and competitively, and the other doesn't.

Thanks. Bob.

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