JC Penny is run by the HR department rather than the business folks these days.

They started as mail order after discounters were all but illegal in the U.S. Then, after the paradigm shift in thought in the U.S. they went in to retail with a similar thought. The only problem is that, instead of adapting or creating successful outlet models, they dropped what they did best and focused on poorly made products and have sold them at above the typical markup rate.

HooMooMaHCheez will make a great screen name for someone familiar.

The concepts of EBITDA and Gross Profit exist because sometimes you have to understand the profitability of the underlying business.  They exist in the first place because net incomes can be misleadingly high or low depending on other things which are going on in the books.  It's is entirely possible to make a ton of money in a year and show no income just like it is possible to make no money and show a ton of income.  

If Amazon stopped investing this year and just let their existing business ride, their income would go up dramatically over the next few years on the simple fact of depreciation dropping off.  Would that suddenly make them that much better of a business to halt growth and just start taking profits?  If it would, then why would any company bother to grow since you could just make more money by stopping in your tracks.

We joke about this at my shop regarding how much more money we'd make short term if we stopped buying new equipment and expanding accounts receivable by growing our business with our customers.  We'd generate a ton of cash right up until we closed our doors.  Brilliant!

You have this whole thing flipped around in your head.  The point of very point of looking at EBITDA is to cut through the bullshit and see how the underlying business is REALLY doing, not to obfuscate it.



What's a huge risk with somebody else's money?  It's a huge risk to invest into growing the company with shareholder dollars?  Why else would a company issue stock to raise money?

You aren't connecting the dots here.  Their underlying business IS profitable, that's why they are pouring all the cash generated from that business back into growing it and generating a large depreciation bite each year.

What sense would it make to dial back capital investment and start taking profits in a segment of retail that is less than 7% of all retail and growing at double digits per year?

Maybe I missed your point here and if so please explain what your point is.



I'm not sure you even know what you are talking about.  Gross profit and gross sales aren't the same thing.

What's wrong with Sears and JCPenney?

Sears was mismanaged. They were losing market share and customers. They had missed their mark in offshoring production of Craftsman tools to China and lowering quality to save money.
They had another misstep when they agreed to the purchase by K-Mart... a company that was just emerging from bankruptcy. K-Mart was doing better post bankruptcy than pre bankruptcy but they were still suffering having to close several dozen stores and shutter some of their automotive repair areas. Sears had another misstep in splitting their Craftsman tool line to add their "Evolv" tool line which did not carry the lifetime guarantee. Another misstep placed Craftsman tools in K-Mart. This removed incentive for customers to visit Sears when they could go to K-Mart to replace a broken tool. (Not sure if that was allowable or if K-Mart referred the person to Sears...) Add in the increased competition with JCPenney (for the competition that they were able to muster), Macy's, Kohl's, and several more stores that were chipping away at Sear's customer base. So they are where they are now because management refused to acknowledge or was unable to respond to increased competition, bad cost cutting measures, alienating their customer base, and a lousy economy.

But still... when you have a post bankruptcy K-Mart wanting to buy Sears and combine to become something like the #9 retailer in the US there's a problem. Especially considering that K-Mart was #14 and Sears was #11 in rankings of retailers. (Using numbers from 2008 including SEC filings and analyzing corporate portfolios... not saying I'm an expert at all. It was for an accounting class.)


JCPenney on the other hand put themselves into an unwinnable position. They had so many discounts running on such a persistent basis that their customer became accustomed to them and began to expect them. When a new CEO stepped in and stopped the endless cycle of sales, JCP's customers went elsewhere. After seeing that the sales were what brought the customers in, JCP restarted the sales but it was too late. The customers had found other suppliers for their needs.

This is most companies.



 

Sporting goods is typically narrow margins and low volume so it's one of the first things to go when money get's tight. I'd say you got the cause and effect in reverse order.

They sell cheap chinese crap less efficiently than walmart or amazon.

Poor management, specifically failure to adapt to and embrace emerging technologies.

Amazon makes no money.

http://www.nasdaq.com/article/why-amazon-has-no-profits-and-why-it-works-cm387525

Unfortunately this.  Too many people in fear of being blamed for something rather than trying to win the game.



 

JC Penny's stopped being JC Penny's.

Sears and Roebuck stopped being Sears and Roebuck.

They both left their core business model in the 70's and tried to become something they weren't.

They both had every opportunity to become "Walmart".

You know why?

Online retail is ultra competitive since thousands upon thousands of vendors are all competing for the same market share. Since cost is generally king in online sales, margins are razor-thin to stay competitive. The only way to survive in that environment is through volume. Since Amazon does more volume than anyone, they can absorb the hit from online sales tax. Many other vendors, not so much.

Then guess who's most likely to pick up all that new market share?

Sales Tax -- Didn't Sears & JCPenney have to collect that pretty much everywhere because of their "physical" locations being in every state?

Amazon had a pretty good run with giving a 5-10% discount because of Sales Tax...  And then the whole not making money part helped their sales too.

*sigh*
I feel bad for everyone that thinks "amazon isn't doing well".   Maybe you all whouls actually read about the company before playing jr. Detective and making assumptions based on earnings in the stock market?
Amazon doesn't make profit.   They, like a shrewd company, reinvest everything and pays off the investors.

http://www.investopedia.com/stock-analysis/031414/amazon-never-makes-money-no-one-cares-amzn-aapl-wag-azo.aspx

The Sears and JC Penny's catalogs stopped being popular when people started buying toilet paper.

Didn't I just post that.  

DO you shop regularly at either... Theres your answer

I knew the answer to that question when I asked it.  As expected, you are posting the mere tip of the iceberg.  I stand by what I said before in that you haven't actually checked the numbers.

The articles posted by KA3B and Madcap72 have the bigger picture.  I would encourage you to read it.  It pretty much explains everything and if you read that and still think they are doing poorly, I don't know what to tell you.

LOL, when interviewing or debating, never ask a question that you don't already know the answer to.

Blows my mind how many people can't look past a very narrow set of numbers that don't show the whole picture. And while we're at it, lets toss in the multitude of business expense tax breaks a company can claim when reinvesting into the business.

Sears only opened it's first retail store in 1925, after being in business since 1892.
Sears stopped the Big Book catalog sales in 1993.
Just think if they had transitioned to on-line sales then.
Amazon.com didn't get started until 1995.
Sears didn't get around to the internet until 1997-8.

someone moved their cheese and they didnt adjust

Both got out of catalog sales years ago and got rid of / retired of all the people who knew how to make that business model work.  And they got rid of their big catalog distribution centers, which would work very well for internet sales product distribution.

So when the internet business model appeared shortly afterwards, neither were in position to be able to recreate what they had just gotten rid of.

Shit, you might of I was tired as fuck...





But hey, clearly it needs to get posted multiple times.



 

Where is my cheese?



 

when did Sears stop selling guns? way way back?  most of the ones by me were really old and are now in a bad area. some closed a few are still open, except for the holidays they are usually dead.

the year before last I think it was their black friday prices on TV's were more than the week prior to the sale.

IMHO, Sear's problems are two-fold:  miss-management and poor C.S.

Miss-management:  Sear's has been unable to react to an ever-changing retail environment.  It doesn't help that K-mart is probably bleeding them dry.  In my area (Middle TN), they closed perhaps their largest store in the area located in one of the busiest shopping areas (Cool Springs) to keep one located in the Murfreesboro area open.  The store that remained open had perhaps half of the retail space not to mention a fraction of the foot traffic as the closed location.

Poor C.S.:  Customer Service can make or break you in the current retail environment.  They lost me as a future customer when I had a battery to fail within their warranty period.  They made it abundantly clear that the problem was mine and they were going do nothing to help me.  So, I took my business [and will take any future] business to their competitors.

James

Interesting. I see the opposite future for Amazon. We'll see who's right soon enough, I suspect.

 

Bingo.

"Amazon is going to suffer the same fate, but much faster. They're not
profitable, even with their dominance. What's that say? They've not got
long to make it, and I doubt they will. I already see problems with
their business model that will not be cured by just sticking around."






Wow, it's almost like...





They are doing it on purpose...

Truth. As in paying off early investor Nick Hanauer, making him a billionaire to join with Bloomturd and Sinegal (Costco) to help fund the anti-gun I-594 in WA state.

 

I agree with the latter because of the former.

You can make the balance sheet say whatever you want at the quarter or year end.  You can't fake FCF.

Alibaba has a high ass stock price and everyone who buys into that is going to get a giant cock shoved up their ass. Chinese companies continue to have accounting scandals, yet no one will ask the hard questions about Alibaba.

No no no don't you see, separating operating costs from the net of the entire organization is obfuscation intended to fool people like us.  Gross margin is meaningless.  Just because their cost of goods sold is going down doesn't mean they're doing anything right, because because NET INCOME.

It's all about that net, about that net



No gross income.

Nope.

 

This entirely.

I don't know if anyone has mentioned it but yeah, a definent Kodak moment.

In Sears' case, there was plenty of greed. Just the wrong kind. Lots of upper management squeezing the stores for profit in stupid ways, then jumping ship with bonuses and golden parachutes.

I was in store-level management; we were given unrealistic targets to make bonuses, then when we made those goals - they moved the goalposts. And we never got our bonuses. Or, we got told, "Sorry there's no cash to pay bonuses; here's some stock options (that aren't vested yet and would be worthless if they were)."

Upper management? Big fat checks.

Managers at my level were expected to work a minimum of 60 hours a week. But, since we were salaried, we weren't eligible for overtime. HR policies were so onerous, I had to call all the way to Hoffman Estates to get permission to fire an employee who was a no-call no-show for over a week. They were so afraid of losing money due to a wrongful termination, they wouldn't let managers in the stores trim deadwood to replace them with functional employees.

Sears fell apart because they relied on their house brands which other than paint, tools (of old) and Kenmore appliances, were shitty products.  They even tried to sell electronic junk in the 80s and 90s.  Their prices ended up higher than Walmart and they had no selection.  They did not innovate and the stores appeared stuck in the 70s when you walked in.  

Walmart killed the general stores like Sears, Kmart, etc. because of they exercised their SELLING power by way of controlling the purchasing of the goods from the manufacturer.

They both failed to "Gunnery Sgt Highway" the business model.

woodsie, since I got the message “Too many quote blocks. You are limited to 5 quote blocks per post.”  I can’t quote your whole post, so I’ll address it piece meal.

Wow.  Just wow.

First:



Huh?  EBITDA is earnings before interest, taxes, depreciation and amortization, which is a way of ignoring major expenses to the company.  Gross Profit is the result of Gross Sales net of COGS, that is, ignoring little things like your salary, benefits, O/H & a lot more.  How does ignoring expenses give you any idea of "the profitability of the underlying business?  It doesn't.  As I said, it's just one more way for an employee to get a bonus based on something other than net profit.

If you have things in your statements that are "misleadingly high or low" & you lack the ability to analyze them & have to resort to simplistic ratios to figure out the simple items, you shouldn't be anywhere near a management position.

  and

Well done.  You've taken something I didn't say & used it against me.  Killed two birds...

My point is that Amazon is taking huge amounts of other people’s money & investing it while they are turning somewhat profitable businesses into no-margin (hence no-profit, since I have to spell it all out to you) commodity businesses.  Spelling that out further they include books, hardware, you-name-it, therefore all of Amazon's product line.



You sure did & that's the beauty of it from your stand point.  You can nicely misconstrue my entire commentary & make yourself look like a real forward thinker.



As I said "Wow.  Just wow."  I used a really exotic technique known as introducing a different idea to the discussion.
------------------------------
I suspect that you’ve never worked in a commodity business.  By definition a commodity business is a very high volume, very low margin business.  Look at the old high tech companies like HP, IBM, etc.  They are rapidly transitioning their businesses & products into commodities.  They don’t have a clue as to how to do it since they have spent most of their lives as high margin businesses.  They will have a very difficult time for a long time & they have a lot of hard lessons to learn.  Amazon is rapidly pushing itself down that path & they don’t have a clue what they’re doing to themselves & their investors.  There is a very good chance that Amazon will be sitting on all of that capital investment without any customers since they’ve destroyed their profitability right out of the gate.

I only have time to address some of your off beat ideas but let's hear some more of that creative thinking.  Ever heard of the term "creative accounting?"  That's what you're advocating & engaging in, let alone the great political message of a true company self-serving politician.

I predict that you will go far using the ideas that you've mentioned here.  

So what makes you an expert on it vs some random dude on he net, and know more about the entire thing than Amazons I'm assuming huge team of lawyers, finance, and economists?  



 

Wal-Mart, Target, the internet (both Amazon and ebay), brain dead management (Sears in particular), spotty locations (again Sears and Kmart), changing shopping patterns, ill-advised acquisitions (Sears buying Kmart; two drunks holding each other up), the list goes on and on.

Amazon in not mail order.  Amazon in internet.  It also has a crazy man with deep pockets running it.  Bezos doesn't care if he makes money or not.

More company's need to do this and be less like this guy.



Don't get me wrong i know there in it to make money but, the issue now days is the people with the money are no longer investing it like they used to and its causing market stagnation....