WEBVTT 00:00:00.000 --> 00:00:02.480 Welcome back to the Deep Dive. I want to start 00:00:02.480 --> 00:00:04.580 today by asking you to close your eyes for a 00:00:04.580 --> 00:00:06.759 second. Unless you're driving, please don't do 00:00:06.759 --> 00:00:09.460 that. But try to conjure up a smell. A smell. 00:00:09.660 --> 00:00:11.539 All right, I'm with you. I'm thinking of a mix 00:00:11.539 --> 00:00:15.259 of industrial floor wax, the starch on a new 00:00:15.259 --> 00:00:18.760 pair of stiff denim jeans, maybe a faint whiff 00:00:18.760 --> 00:00:22.660 of popcorn from a kiosk 50 yards away. Ah, and 00:00:22.660 --> 00:00:25.510 the air conditioning. You can't forget that distinct 00:00:25.510 --> 00:00:28.410 sort of recycled air scent. Yes, exactly. You 00:00:28.410 --> 00:00:30.710 are describing the sensory profile of the American 00:00:30.710 --> 00:00:34.130 mall. Without a doubt. I am. But specifically, 00:00:34.310 --> 00:00:36.689 I'm describing the anchor, the big box at the 00:00:36.689 --> 00:00:38.329 end of the hall, the place where you got your 00:00:38.329 --> 00:00:40.090 back -to -school clothes, your dad got his work 00:00:40.090 --> 00:00:43.789 socks, and maybe, just maybe, your mom got a 00:00:43.789 --> 00:00:45.590 portrait taken with a backdrop that looked like 00:00:45.590 --> 00:00:48.090 a fake library. We are definitely talking about 00:00:48.090 --> 00:00:50.789 JCPenney. We are, of course, talking about JCPenney. 00:00:50.810 --> 00:00:53.810 Name that. for better or worse, is practically 00:00:53.810 --> 00:00:55.829 tattooed on the psyche of the American middle 00:00:55.829 --> 00:00:58.210 class. It really is. And here's the thing. If 00:00:58.210 --> 00:01:00.670 you just look at the headlines or just, you know, 00:01:00.670 --> 00:01:03.689 the general vibe of retail over the last 20 years, 00:01:03.869 --> 00:01:06.469 this company should be dead. It should be a ghost. 00:01:07.090 --> 00:01:09.370 Statistically, yes. It should have gone the way 00:01:09.370 --> 00:01:12.489 of Montgomery Ward or Sears or any number of 00:01:12.489 --> 00:01:14.549 those regional department stores that just couldn't 00:01:14.549 --> 00:01:16.790 figure out the Internet. Right. But it's not 00:01:16.790 --> 00:01:20.930 dead. It is 2026. And JCPenney is still here. 00:01:22.120 --> 00:01:25.180 But the version of it that exists today, I mean, 00:01:25.200 --> 00:01:27.280 it's not the store your grandma shopped in. Not 00:01:27.280 --> 00:01:30.099 even close. It has morphed into something so 00:01:30.099 --> 00:01:34.239 strange, so complex, and so, I think, indicative 00:01:34.239 --> 00:01:37.200 of where the global economy is right now. I mean, 00:01:37.219 --> 00:01:40.939 as of last year, 2025, it's part of this massive 00:01:40.939 --> 00:01:43.439 entity called Catalyst Brands. Which is a sentence 00:01:43.439 --> 00:01:45.370 that would have made... Absolutely zero sense 00:01:45.370 --> 00:01:48.010 to the founder in 1902. Not a lick of sense. 00:01:48.209 --> 00:01:49.670 We're talking about a joint venture involving 00:01:49.670 --> 00:01:52.849 Shane, the ultra -fast fashion giant. The algorithm 00:01:52.849 --> 00:01:55.689 company that sells clothes. Yes. Authentic Brands 00:01:55.689 --> 00:01:57.909 Group and the literal owners of the malls themselves. 00:01:58.329 --> 00:02:00.390 It's like a retail Frankenstein's monster. It 00:02:00.390 --> 00:02:02.909 is a fascinating mutation for sure. So our mission 00:02:02.909 --> 00:02:06.069 today is to figure out how we got here. How does 00:02:06.069 --> 00:02:09.389 a company start in a mining town in Wyoming based 00:02:09.389 --> 00:02:12.580 on the... literal golden rule from the Bible. 00:02:12.719 --> 00:02:15.060 Which is an incredible origin story in itself. 00:02:15.400 --> 00:02:18.360 And end up as a property owned asset in a global 00:02:18.360 --> 00:02:21.699 conglomerate that is heavily tied to algorithmic 00:02:21.699 --> 00:02:24.139 fast fashion. I think to understand that, you 00:02:24.139 --> 00:02:26.060 have to look at the arc of the American consumer. 00:02:26.639 --> 00:02:30.500 Because JCPenney's history is basically a mirror 00:02:30.500 --> 00:02:32.560 held up to the American middle class. That's 00:02:32.560 --> 00:02:33.919 a great way to put it. When the middle class 00:02:33.919 --> 00:02:36.240 was booming, Penny's was booming. When the middle 00:02:36.240 --> 00:02:38.460 class got squeezed, Penny's got squeezed. And 00:02:38.460 --> 00:02:40.439 when the middle class started having a major 00:02:40.439 --> 00:02:43.000 identity crisis. Well, Penny's hired an Apple 00:02:43.000 --> 00:02:44.900 executive and went completely off the rails. 00:02:45.099 --> 00:02:46.800 Oh, we are definitely going to spend some time 00:02:46.800 --> 00:02:49.219 on the Ron Johnson era. That is a master class 00:02:49.219 --> 00:02:51.639 in how to completely alienate your most loyal 00:02:51.639 --> 00:02:54.759 customers. It really is. But let's rewind. Let's 00:02:54.759 --> 00:02:57.199 go all the way back. Yeah. 1902. The turn of 00:02:57.199 --> 00:02:59.639 the century. A different world. We have this 00:02:59.639 --> 00:03:02.180 guy, James Cash Penny. And first off, I have 00:03:02.180 --> 00:03:05.300 to ask, Cash is his actual middle name. It is. 00:03:05.780 --> 00:03:08.560 A bit of destiny there, maybe. He was born in 00:03:08.560 --> 00:03:12.000 Hamilton, Missouri. Honestly, he wasn't a guy 00:03:12.000 --> 00:03:14.300 who looked like a future retail mogul. He was 00:03:14.300 --> 00:03:17.719 a very strictly religious man. Very, very principled. 00:03:17.719 --> 00:03:20.199 Right. And the reason he ended up out West wasn't 00:03:20.199 --> 00:03:22.360 because he was, you know, chasing gold or glory. 00:03:22.460 --> 00:03:24.639 It was because his lungs were bad. The classic 00:03:24.639 --> 00:03:26.719 go West for the air prescription from the doctor. 00:03:27.080 --> 00:03:29.539 Exactly that. His doctor told him the Missouri 00:03:29.539 --> 00:03:31.759 humidity was going to kill him, so he needed 00:03:31.759 --> 00:03:35.080 the dry air of Colorado. So he moves, he bounces 00:03:35.080 --> 00:03:37.979 around a bit, works a few odd jobs, and eventually 00:03:37.979 --> 00:03:41.379 lands a clerk position with these two guys, Thomas 00:03:41.379 --> 00:03:44.800 Callahan and Guy Johnson. And their store had 00:03:44.800 --> 00:03:47.080 a very memorable name. They owned a chain of 00:03:47.080 --> 00:03:50.120 stores called The Golden Rule. Which sounds incredibly 00:03:50.120 --> 00:03:51.960 quaint to us now, maybe even a little cheesy. 00:03:52.280 --> 00:03:54.240 It does, but you have to understand the context 00:03:54.240 --> 00:03:56.180 of retail, especially in the... you know, the 00:03:56.180 --> 00:03:58.520 Wild West at the time. It was predatory. Also, 00:03:58.639 --> 00:04:01.039 there was no standardized pricing. If you walked 00:04:01.039 --> 00:04:02.560 into a store and the clerk thought you looked 00:04:02.560 --> 00:04:04.780 like you had money, the price went up. If you 00:04:04.780 --> 00:04:07.919 needed credit, the interest rates were frankly. 00:04:08.810 --> 00:04:11.050 He was serious. So it was a haggle culture. It 00:04:11.050 --> 00:04:13.389 was a haggle culture and very much a buyer beware 00:04:13.389 --> 00:04:16.170 culture. Callahan and Johnson ran their store 00:04:16.170 --> 00:04:18.509 differently. They had fixed prices. They sold 00:04:18.509 --> 00:04:21.529 honest goods. They believed in treating the customer 00:04:21.529 --> 00:04:23.629 the way you want to be treated. Hence the golden 00:04:23.629 --> 00:04:27.589 rule. Hence the name. And Penny being this deeply 00:04:27.589 --> 00:04:30.800 principled guy. He just vibed with that immediately. 00:04:31.160 --> 00:04:33.779 It fit his whole worldview. Perfectly. And he 00:04:33.779 --> 00:04:38.120 worked harder than anyone else. So in 1902, the 00:04:38.120 --> 00:04:40.259 owners make him a proposition. They're opening 00:04:40.259 --> 00:04:43.180 a new store in Kemmerer, Wyoming. I looked up 00:04:43.180 --> 00:04:45.899 Kemmerer. Even today, it's tiny. In 1902, it 00:04:45.899 --> 00:04:47.480 must have been just a mining camp. That's all 00:04:47.480 --> 00:04:50.399 it was. It was rough. Coal miners, sheep herders. 00:04:50.920 --> 00:04:53.060 Not exactly the fashion capital of the world. 00:04:53.180 --> 00:04:55.829 No. But Penny sees an opportunity. He takes his 00:04:55.829 --> 00:04:58.329 entire life savings, which wasn't much, and he 00:04:58.329 --> 00:05:00.589 takes out a loan to buy a one -third partnership 00:05:00.589 --> 00:05:03.149 in this new store. Okay, this partnership detail 00:05:03.149 --> 00:05:05.449 is really key, right? This isn't just him being 00:05:05.449 --> 00:05:07.649 a manager. He has skin in the game. That is the 00:05:07.649 --> 00:05:10.290 secret sauce. That is the whole innovation. Most 00:05:10.290 --> 00:05:13.209 chain stores at the time, like Woolworth's, were 00:05:13.209 --> 00:05:16.089 centralized. The guy running the local store 00:05:16.089 --> 00:05:18.790 was just an employee on a salary. So he might 00:05:18.790 --> 00:05:21.569 not care as much. Right. Penny believed that 00:05:21.569 --> 00:05:23.230 if the manager actually owned a piece of the 00:05:23.230 --> 00:05:25.449 store, they would work harder, they wouldn't 00:05:25.449 --> 00:05:27.949 steal, and they would know their customers intimately 00:05:27.949 --> 00:05:30.269 because their own livelihood depended on it. 00:05:30.389 --> 00:05:32.670 So he opens the doors. It's called the Golden 00:05:32.670 --> 00:05:36.410 Rule. It's cash only, no credit. Which was a 00:05:36.410 --> 00:05:39.189 huge, huge risk in a mining town where almost 00:05:39.189 --> 00:05:43.439 everyone lived on credit until payday. His prices 00:05:43.439 --> 00:05:45.660 were lower because he didn't have to cover the 00:05:45.660 --> 00:05:47.939 cost of bad debts from other customers. That's 00:05:47.939 --> 00:05:49.860 right. And people flocked to it. They made, I 00:05:49.860 --> 00:05:53.040 think it was $29 ,000 in the first year. Which 00:05:53.040 --> 00:05:55.319 is, what, in today's money, almost a million 00:05:55.319 --> 00:05:57.379 dollars? In that ballpark, yeah. It was a massive 00:05:57.379 --> 00:05:59.500 success for a tiny store in the middle of nowhere. 00:05:59.759 --> 00:06:02.500 So the model works. The model absolutely works. 00:06:02.720 --> 00:06:04.779 And as Penny bought out his original partners 00:06:04.779 --> 00:06:08.019 in 1907 and started expanding, he kept that golden 00:06:08.019 --> 00:06:10.360 rule partnership model. He'd find a bright young 00:06:10.360 --> 00:06:12.769 clerk. Usually a man in those days, let's be 00:06:12.769 --> 00:06:15.050 honest. Of course. He'd train them up and then 00:06:15.050 --> 00:06:17.230 say, okay, you're ready. Go open a store in Utah. 00:06:17.740 --> 00:06:19.459 I'll put up two thirds of the money. You put 00:06:19.459 --> 00:06:21.660 up one third and you are the partner. It's almost 00:06:21.660 --> 00:06:24.160 like a biological cell dividing. It's a franchise 00:06:24.160 --> 00:06:26.399 model before franchising was really a thing. 00:06:26.519 --> 00:06:28.920 It was viral growth before that term existed. 00:06:29.079 --> 00:06:33.139 And the growth was just staggering. By 1912, 00:06:33.240 --> 00:06:35.279 there were 34 stores in the Rocky Mountains. 00:06:35.540 --> 00:06:38.959 In 1913, they incorporate as the J .C. Penny 00:06:38.959 --> 00:06:40.800 Company. And they move the headquarters, right? 00:06:40.980 --> 00:06:43.519 Right. First to Salt Lake City in 1909 to be 00:06:43.519 --> 00:06:46.379 near the banks and railroads. Then a huge leap 00:06:46.379 --> 00:06:49.410 to New York. city in 1914. Why New York? To be 00:06:49.410 --> 00:06:52.050 near the manufacturers. It just simplified buying 00:06:52.050 --> 00:06:55.189 and shipping. It cut out so many middlemen and 00:06:55.189 --> 00:06:57.350 the numbers just explode from there. Give me 00:06:57.350 --> 00:07:01.649 the stats. It's vertical. 1917, 175 stores, 1924. 00:07:02.230 --> 00:07:05.569 The 500th store opens in Penny's hometown of 00:07:05.569 --> 00:07:07.610 Hamilton, Missouri. A nice little homecoming 00:07:07.610 --> 00:07:11.189 for him. And then just four years later, 1928, 00:07:11.410 --> 00:07:14.819 the 1000th store. A thousand stores in about 00:07:14.819 --> 00:07:17.519 25 years. Imagine the logistics of that in the 00:07:17.519 --> 00:07:21.839 1920s. No computers, no internet. Just telegraphs 00:07:21.839 --> 00:07:23.740 and ledgers and trains. It was a masterpiece 00:07:23.740 --> 00:07:26.959 of logistics. Gross business hit $190 million 00:07:26.959 --> 00:07:30.279 in 1928. Adjusted for inflation, that's well 00:07:30.279 --> 00:07:33.550 over $3 billion. This was a juggernaut. I want 00:07:33.550 --> 00:07:35.329 to pause on a detail from the outline that really 00:07:35.329 --> 00:07:37.810 blew my mind. There's a connection between J 00:07:37.810 --> 00:07:40.170 .C. Penney and another retail empire that comes 00:07:40.170 --> 00:07:42.610 much later. Ah, the Sam Walton connection. Yes. 00:07:42.670 --> 00:07:45.129 Before Sam Walton founded Walmart, before he 00:07:45.129 --> 00:07:48.250 became the richest man in America, he was a Penney 00:07:48.250 --> 00:07:51.569 associate. That's right. 1940, Des Moines, Iowa. 00:07:52.069 --> 00:07:53.850 Fresh out of college with an economics degree, 00:07:53.990 --> 00:07:56.050 a young Sam Walton gets a job as a management 00:07:56.050 --> 00:07:58.910 trainee at J .C. Penney for about $75 a month. 00:07:59.170 --> 00:08:00.990 Was he any good at it? By all accounts, he was 00:08:00.990 --> 00:08:03.189 a terrible clerk. He absolutely hated the paperwork. 00:08:03.410 --> 00:08:05.189 His manager said his books were always a mess. 00:08:05.350 --> 00:08:07.790 But and this is the Walton part. He was a genius 00:08:07.790 --> 00:08:10.379 at selling. He was a people person. He loved 00:08:10.379 --> 00:08:12.339 the customers. He would go out on the sidewalk 00:08:12.339 --> 00:08:14.959 to bring people in. He could sell anything to 00:08:14.959 --> 00:08:17.600 anyone. He just had that charisma. It's fascinating 00:08:17.600 --> 00:08:20.139 to think about him walking those aisles, you 00:08:20.139 --> 00:08:22.639 know, learning the systems, seeing how a big 00:08:22.639 --> 00:08:24.740 retailer operates from the inside. He absorbed 00:08:24.740 --> 00:08:27.439 the efficiency. He absorbed the concept of customer 00:08:27.439 --> 00:08:30.279 service that Penny's was built on. But he also 00:08:30.279 --> 00:08:32.340 saw the inefficiencies. He saw the bureaucracy 00:08:32.340 --> 00:08:35.279 that was starting to creep into this now massive 00:08:35.279 --> 00:08:37.860 company. So he learned what to do and what not 00:08:37.860 --> 00:08:40.600 to do. In a way. Yes. You could argue that Walmart 00:08:40.600 --> 00:08:43.019 was built on the lessons Sam Walton learned at 00:08:43.019 --> 00:08:45.620 Penny's. He took that golden rule concept of 00:08:45.620 --> 00:08:47.720 customer service, stripped away all the department 00:08:47.720 --> 00:08:50.799 store frills, and then just weaponized the supply 00:08:50.799 --> 00:08:54.500 chain. So JCPenney inadvertently trained the 00:08:54.500 --> 00:08:56.159 guy who would eventually become their biggest 00:08:56.159 --> 00:08:58.919 nightmare. In a manner of speaking, yes. The 00:08:58.919 --> 00:09:02.080 student became the master or maybe the disruptor. 00:09:02.120 --> 00:09:03.759 Okay, let's move forward in time. Let's go to 00:09:03.759 --> 00:09:07.409 the post -war era, the 1950s and 60s. This is 00:09:07.409 --> 00:09:09.769 really when the JCPenney that most of us would 00:09:09.769 --> 00:09:12.750 recognize starts to form. The modern era begins 00:09:12.750 --> 00:09:16.049 here. The logo becomes iconic. They start doing 00:09:16.049 --> 00:09:19.029 national advertising in big magazines like Life. 00:09:19.210 --> 00:09:22.750 They issue their first JCPenney credit card in 00:09:22.750 --> 00:09:25.850 1959. Which was a huge departure from the cash 00:09:25.850 --> 00:09:28.850 -only roots. A massive change. But the biggest 00:09:28.850 --> 00:09:31.509 shift of all is in real estate. The mall age. 00:09:31.730 --> 00:09:34.070 This is the second great era of the company. 00:09:34.570 --> 00:09:36.750 Before this, Penny's was a main street store 00:09:36.750 --> 00:09:39.370 you went downtown to shop. But in the late 50s 00:09:39.370 --> 00:09:41.750 and early 60s, America moves to the suburbs. 00:09:41.950 --> 00:09:44.730 The car culture takes over. The car is king and 00:09:44.730 --> 00:09:47.070 retail has to follow the people. So they opened 00:09:47.070 --> 00:09:49.809 their first full line shopping center store in 00:09:49.809 --> 00:09:53.580 1961 in New Jersey. Audubon, New Jersey. And 00:09:53.580 --> 00:09:56.360 that term full line is a piece of industry jargon 00:09:56.360 --> 00:09:58.080 we should probably unpack because it meant something 00:09:58.080 --> 00:10:00.360 very specific and very important to the consumer. 00:10:00.580 --> 00:10:02.480 It basically means they started selling everything, 00:10:02.679 --> 00:10:05.179 right? Not just clothes. Literally everything. 00:10:05.360 --> 00:10:07.879 Up until this point, Penny's was mostly soft 00:10:07.879 --> 00:10:11.360 goods, clothes, shoes, towels, fabrics. But to 00:10:11.360 --> 00:10:13.679 be a true mall anchor, they needed to compete 00:10:13.679 --> 00:10:16.279 head to head with Sears. The other giant of the 00:10:16.279 --> 00:10:18.899 era. And Sears sold the heavy stuff. So Penny's 00:10:18.899 --> 00:10:20.960 brought in the heavy stuff. So give me the inventory 00:10:20.960 --> 00:10:22.399 list. What are we talking about? Okay, you've 00:10:22.399 --> 00:10:26.259 got major appliances, refrigerators, stoves, 00:10:26.259 --> 00:10:29.139 washing machines, all private label or through 00:10:29.139 --> 00:10:31.340 partnerships with big names like General Electric. 00:10:31.659 --> 00:10:36.789 Okay. You've got sporting goods, tools. Lawn 00:10:36.789 --> 00:10:39.269 and garden equipment. And cars. I saw a note 00:10:39.269 --> 00:10:41.769 about auto centers. Auto centers. This was huge. 00:10:41.870 --> 00:10:44.190 You could pull your Ford Country Squire station 00:10:44.190 --> 00:10:46.870 wagon into the JCPenney Auto Center, get new 00:10:46.870 --> 00:10:49.750 tires, get an oil change, buy a new battery. 00:10:49.809 --> 00:10:51.909 And while that was happening, you'd go inside 00:10:51.909 --> 00:10:54.269 and buy a suit for church and a new blender for 00:10:54.269 --> 00:10:56.190 the kitchen. A one -stop shop for the suburban 00:10:56.190 --> 00:10:59.129 family. And firearms. Let's not forget the firearms. 00:10:59.389 --> 00:11:01.830 Right. You mentioned this. Up until the mid-'80s, 00:11:01.830 --> 00:11:04.429 it was totally normal for department stores like 00:11:04.429 --> 00:11:07.350 Penny's and Sears to sell rifles and shotguns. 00:11:07.370 --> 00:11:09.590 Absolutely. You could buy a JCPenney -branded 00:11:09.590 --> 00:11:11.450 shotgun right next to the socks and underwear. 00:11:11.710 --> 00:11:14.730 That is just, it's so hard to process in 2026. 00:11:15.049 --> 00:11:17.070 A different world. It was the American general 00:11:17.070 --> 00:11:19.690 store concept, scaled up to the size of an aircraft 00:11:19.690 --> 00:11:22.009 hangar and dropped in the middle of a sea of 00:11:22.009 --> 00:11:24.590 asphalt. They also tried to get into the discount 00:11:24.590 --> 00:11:27.639 game around this time, didn't they? I saw something 00:11:27.639 --> 00:11:29.460 in our notes about a store called The Treasury. 00:11:29.679 --> 00:11:33.100 Right. 1962 is a legendary year in retail history. 00:11:33.360 --> 00:11:36.059 It's the year that Walmart, Kmart, and Target 00:11:36.059 --> 00:11:38.159 were all founded. All in the same year. Wow. 00:11:38.279 --> 00:11:42.240 All in 62. JCPenney saw this wave coming. They 00:11:42.240 --> 00:11:44.360 were smart enough to realize that discount was 00:11:44.360 --> 00:11:47.019 going to be a huge sector. So they tried to get 00:11:47.019 --> 00:11:50.360 in on it by acquiring a small chain and rebranding 00:11:50.360 --> 00:11:53.350 it as The Treasury. Why have I never heard of 00:11:53.350 --> 00:11:55.190 the Treasury? Because it failed. It struggled 00:11:55.190 --> 00:11:58.070 along for about 20 years and they finally shut 00:11:58.070 --> 00:12:01.110 it down in the early 80s. So why did it fail 00:12:01.110 --> 00:12:06.009 when Target and Walmart became these global behemoths? 00:12:06.210 --> 00:12:08.629 I think it's the classic innovator's dilemma. 00:12:09.179 --> 00:12:11.559 JCPenney was a department store. They had a certain 00:12:11.559 --> 00:12:13.639 cost structure, a certain culture built around 00:12:13.639 --> 00:12:16.360 service and presentation. Trying to run a bare 00:12:16.360 --> 00:12:18.720 -bones, low -margin discount operation inside 00:12:18.720 --> 00:12:21.340 a culture built on, you know, quality and service. 00:12:21.480 --> 00:12:24.379 It clashed. It clashed. They couldn't get the 00:12:24.379 --> 00:12:26.539 costs down low enough to really compete with 00:12:26.539 --> 00:12:28.820 Kmart on price. And they never developed the 00:12:28.820 --> 00:12:31.139 cheap chic factor that made Target so successful. 00:12:31.360 --> 00:12:33.580 It was the stuck in the middle problem. A theme 00:12:33.580 --> 00:12:35.399 that is going to come up again and again with 00:12:35.399 --> 00:12:37.419 this company. It's a defining theme of their 00:12:37.419 --> 00:12:39.879 entire modern history. Speaking of being stuck 00:12:39.879 --> 00:12:43.539 or rather stuck together. Yeah. We have to talk 00:12:43.539 --> 00:12:46.730 about the 1964 Alaska earthquake. This story 00:12:46.730 --> 00:12:49.610 is incredible. Oh, this is such a defining moment 00:12:49.610 --> 00:12:52.230 for the brand's soul, for that golden rule DNA. 00:12:52.470 --> 00:12:57.730 So 1964, a massive 9 .2 magnitude earthquake 00:12:57.730 --> 00:13:01.649 hits Anchorage. The penny store there is just, 00:13:01.830 --> 00:13:05.110 it's wrecked. The building partially collapsed. 00:13:05.309 --> 00:13:07.649 I believe one person, an employee, was actually 00:13:07.649 --> 00:13:09.409 killed in the collapse. It was a tragedy. The 00:13:09.409 --> 00:13:12.529 structural damage was total. So any normal corporation 00:13:12.529 --> 00:13:14.470 looking at a spreadsheet would say. They'd say, 00:13:14.490 --> 00:13:16.700 OK, take the insurance money. Cut our losses 00:13:16.700 --> 00:13:18.860 and leave. It's Alaska. It's expensive to operate 00:13:18.860 --> 00:13:20.940 there anyway. But they didn't do that. They did 00:13:20.940 --> 00:13:23.240 the opposite. They doubled down. They rebuilt 00:13:23.240 --> 00:13:25.879 the store bigger and better than before. And 00:13:25.879 --> 00:13:27.360 they did something else. They built a parking 00:13:27.360 --> 00:13:30.019 garage attached to it, which was the first public 00:13:30.019 --> 00:13:32.580 parking garage in the entire city of Anchorage. 00:13:32.970 --> 00:13:34.929 That feels like such a community pillar kind 00:13:34.929 --> 00:13:37.629 of move. It's more than just retail. It's solidified 00:13:37.629 --> 00:13:39.909 their loyalty in that region for generations. 00:13:40.149 --> 00:13:42.529 It wasn't just a store. It was a partner in the 00:13:42.529 --> 00:13:45.269 rebuilding of the city. That's the golden rule 00:13:45.269 --> 00:13:48.490 in action, but at a corporate scale. That's a 00:13:48.490 --> 00:13:51.490 great story. So moving into the 70s, the founder, 00:13:51.629 --> 00:13:56.070 James Cash Penny, dies in 1971. He was 95. A 00:13:56.070 --> 00:13:58.509 long life. And the company honored him by closing 00:13:58.509 --> 00:14:00.470 all the stores for his funeral. It was truly 00:14:00.470 --> 00:14:03.870 the end of the patriarch. And it's almost poetic 00:14:03.870 --> 00:14:06.549 that the company hits its peak store count right 00:14:06.549 --> 00:14:12.049 after he's gone. 1973. 2 ,053 stores. That is 00:14:12.049 --> 00:14:14.389 total saturation. You could not go anywhere in 00:14:14.389 --> 00:14:16.570 America without being near a penny's. But then, 00:14:16.690 --> 00:14:21.090 the 1974 recession hits. The oil crisis. And 00:14:21.090 --> 00:14:22.970 the stock gets hammered. It drops by two -thirds. 00:14:23.269 --> 00:14:25.820 Yeah. Inflation was rampant. People stopped buying 00:14:25.820 --> 00:14:28.799 new refrigerators and new lawnmowers. And the 00:14:28.799 --> 00:14:30.720 executives in New York started to look at the 00:14:30.720 --> 00:14:33.120 books and say, wait a minute, these hard goods, 00:14:33.299 --> 00:14:36.200 the appliances, the auto parts, the paint, they 00:14:36.200 --> 00:14:38.039 take up a lot of space, they're expensive to 00:14:38.039 --> 00:14:40.799 ship, and the margins are razor thin. Where is 00:14:40.799 --> 00:14:43.139 a pair of jeans or a blouse? High margin, easy 00:14:43.139 --> 00:14:46.179 to ship, high turnover, takes up way less square 00:14:46.179 --> 00:14:49.580 footage. So this crisis forces a reckoning. It 00:14:49.580 --> 00:14:52.590 sets up the next big pivot for the company. The 00:14:52.590 --> 00:14:55.490 1980s identity crisis. It does. They decide to 00:14:55.490 --> 00:14:57.570 stop being the everything store. This was the 00:14:57.570 --> 00:15:01.049 1983 shift, a massive strategic gamble. They 00:15:01.049 --> 00:15:03.730 spent over a billion dollars remodeling hundreds 00:15:03.730 --> 00:15:06.509 of stores to get rid of the automotive centers, 00:15:06.710 --> 00:15:09.070 the paint, the hardware, the lawnmowers. They 00:15:09.070 --> 00:15:10.629 wanted it to be a fashion destination. They were 00:15:10.629 --> 00:15:13.590 saying, we are not Sears. We are something else. 00:15:13.629 --> 00:15:16.090 Exactly. We are not a hardware store with clothes. 00:15:16.190 --> 00:15:19.419 We are a department store for apparel. And to 00:15:19.419 --> 00:15:21.279 prove it, they did something that was considered 00:15:21.279 --> 00:15:24.100 absolute heresy in the fashion world at the time. 00:15:24.139 --> 00:15:26.879 They signed a deal with Halston. Halston. The 00:15:26.879 --> 00:15:29.600 guy who dressed Jackie Kennedy. The guy who was 00:15:29.600 --> 00:15:32.519 a fixture at Studio 54 with Andy Warhol and Liza 00:15:32.519 --> 00:15:34.399 Minnelli. The king of American high fashion. 00:15:34.519 --> 00:15:37.379 The king. And JCPenney, the middle American department 00:15:37.379 --> 00:15:41.179 store, signs him to a six -year, $1 billion deal 00:15:41.179 --> 00:15:44.759 to create an exclusive line called Halston III. 00:15:45.320 --> 00:15:48.169 Today, we see this all the time. Target does 00:15:48.169 --> 00:15:50.710 it with designers. Yeah. H &M does it with Versace. 00:15:51.009 --> 00:15:54.110 But in 1983. It was nuclear. The high fashion 00:15:54.110 --> 00:15:56.870 world was absolutely horrified. They saw it as 00:15:56.870 --> 00:15:59.610 Halston cheapening his brand, selling his soul. 00:15:59.789 --> 00:16:02.450 Backlash was real. Oh, it was immediate. Vicious. 00:16:02.529 --> 00:16:04.830 The high end department store Bergdorf Goodman, 00:16:04.889 --> 00:16:07.110 which carried Halston's main couture line, was 00:16:07.110 --> 00:16:09.289 so offended that they dropped him. They put out 00:16:09.289 --> 00:16:12.309 a statement saying, we cannot sell the same designer 00:16:12.309 --> 00:16:15.590 that is being sold at JCPenney. Wow. The snobbery 00:16:15.590 --> 00:16:18.409 was just off the charts. It completely destroyed 00:16:18.409 --> 00:16:20.649 Halston's high -end business. And the real tragedy 00:16:20.649 --> 00:16:22.269 of it all is that the line didn't even work at 00:16:22.269 --> 00:16:25.230 Penny's. Why not? Was this stuff ugly? No. By 00:16:25.230 --> 00:16:27.649 all accounts, the designs were great. But the 00:16:27.649 --> 00:16:30.649 JCPenney customer in 1983 wasn't ready for it. 00:16:30.750 --> 00:16:33.009 They walked in looking for sturdy school clothes 00:16:33.009 --> 00:16:35.669 and affordable workwear, and here was this slick, 00:16:35.850 --> 00:16:38.649 minimalist Halston stuff that felt too fancy, 00:16:38.789 --> 00:16:41.919 too expensive, or just. Not for them. It was 00:16:41.919 --> 00:16:44.720 a brand disconnect. A total disconnect. And on 00:16:44.720 --> 00:16:47.179 the flip side, the wealthy people who wanted 00:16:47.179 --> 00:16:49.159 the Halston name were never, ever going to be 00:16:49.159 --> 00:16:51.879 caught dead walking into a JCPenney to buy it. 00:16:51.960 --> 00:16:54.299 So they alienated the snobs and confused their 00:16:54.299 --> 00:16:56.919 regulars. Precisely. The worst of both worlds. 00:16:56.980 --> 00:16:59.059 The line was discontinued after just a year. 00:16:59.620 --> 00:17:01.759 Halston's career never really recovered. It was 00:17:01.759 --> 00:17:03.519 a disaster. But you could argue it was ahead 00:17:03.519 --> 00:17:06.380 of its time. That's the huge but in this story. 00:17:06.519 --> 00:17:08.759 It was the right idea, just at the wrong time. 00:17:09.369 --> 00:17:11.890 Two decades later, Isaac Mizrahi goes to Target 00:17:11.890 --> 00:17:14.470 and it's a smash hit. Penny's was visionary, 00:17:14.630 --> 00:17:16.490 but they paid the price for being the first one 00:17:16.490 --> 00:17:18.990 through the wall. So the big fashion gamble didn't 00:17:18.990 --> 00:17:22.410 quite save them. What do they try next? In the 00:17:22.410 --> 00:17:24.569 90s, they take a detour that I had honestly completely 00:17:24.569 --> 00:17:27.690 forgotten about until I read these notes. Drugstores. 00:17:27.789 --> 00:17:31.269 The great diversification. The acquisition spree. 00:17:31.410 --> 00:17:33.490 They bought thrift drug. And they bought curd 00:17:33.490 --> 00:17:36.970 drug. Phase drug. And then the whale. Eckerd. 00:17:37.130 --> 00:17:40.720 In 1996. For a while there, JCPenney was one 00:17:40.720 --> 00:17:42.920 of the largest pharmacy operators in the entire 00:17:42.920 --> 00:17:45.000 United States. What was the logic behind that? 00:17:45.079 --> 00:17:47.220 If they don't buy a dress, they'll definitely 00:17:47.220 --> 00:17:49.740 buy their insulin. That's basically it. It was 00:17:49.740 --> 00:17:52.380 about demographics and frequency. The department 00:17:52.380 --> 00:17:54.799 store business is very cyclical. You shop for 00:17:54.799 --> 00:17:57.799 back to school in August, for Christmas in December, 00:17:58.099 --> 00:18:00.839 maybe for Easter. A few big trips a year. Right. 00:18:01.349 --> 00:18:03.809 But you need toothpaste and prescriptions every 00:18:03.809 --> 00:18:05.730 single month. They wanted to smooth out those 00:18:05.730 --> 00:18:08.230 revenue bumps. They also looked at the aging 00:18:08.230 --> 00:18:10.690 boomer population and thought health care is 00:18:10.690 --> 00:18:13.029 the future. It makes sense on a PowerPoint slide. 00:18:13.269 --> 00:18:16.170 It does. But execution is everything. Running 00:18:16.170 --> 00:18:18.789 a national pharmacy chain is fundamentally different 00:18:18.789 --> 00:18:21.329 from running a fashion retailer. The supply chains 00:18:21.329 --> 00:18:23.470 are different. The government regulations are 00:18:23.470 --> 00:18:25.670 different. The labor models are different. So 00:18:25.670 --> 00:18:28.470 management was split. They were distracted. Completely 00:18:28.470 --> 00:18:30.849 distracted. The department store started to look 00:18:30.849 --> 00:18:33.670 a little shabby and neglected because all the 00:18:33.670 --> 00:18:35.869 corporate attention was focused on integrating 00:18:35.869 --> 00:18:38.490 these massive drugstore chains. And were the 00:18:38.490 --> 00:18:41.210 drugstores even doing well? Not as well as competitors 00:18:41.210 --> 00:18:43.589 like Walgreens or CVS, who did only that. They 00:18:43.589 --> 00:18:47.289 were masters of that business. So by 2004, Penny's 00:18:47.289 --> 00:18:50.430 board realizes we aren't good at this. We've 00:18:50.430 --> 00:18:53.259 lost our focus. So they sold it all off. They 00:18:53.259 --> 00:18:55.700 sold the Eckerd division to CVS and Rite Aid, 00:18:55.819 --> 00:18:58.140 took the cash, and retreated back to the mall. 00:18:58.319 --> 00:19:01.279 It feels like they spent 20 years trying to be 00:19:01.279 --> 00:19:04.259 something else. A high fashion house, a health 00:19:04.259 --> 00:19:06.500 care company, only to come to the conclusion 00:19:06.500 --> 00:19:09.359 that they were just a department store. And by 00:19:09.359 --> 00:19:11.440 the time they came back to focus on that department 00:19:11.440 --> 00:19:13.640 store, the world had changed again. It's the 00:19:13.640 --> 00:19:16.579 mid -2000s. Right. The middle class that Penny's 00:19:16.579 --> 00:19:19.240 had always relied on was shrinking. Wages were 00:19:19.240 --> 00:19:21.759 stagnating. And the competition was just brutal. 00:19:22.059 --> 00:19:24.339 You had Walmart and Target eating their lunch 00:19:24.339 --> 00:19:26.740 from the bottom. And you had Macy's and Nordstrom 00:19:26.740 --> 00:19:28.619 eating it from the top. Penny's was stuck in 00:19:28.619 --> 00:19:30.640 that mushy middle again. The most dangerous place 00:19:30.640 --> 00:19:32.220 to be in retail. And, of course, the Internet 00:19:32.220 --> 00:19:34.420 is starting to become a serious threat. Amazon 00:19:34.420 --> 00:19:39.089 is rising. Amazon is on the ascent. But. They 00:19:39.089 --> 00:19:42.130 did have one big win in the 2000s, something 00:19:42.130 --> 00:19:44.069 that brought a lot of people back into the stores. 00:19:44.329 --> 00:19:48.309 Sephora. The Sephora deal in 2006. A huge win. 00:19:48.549 --> 00:19:50.609 Absolutely brilliant. They strike a deal to put 00:19:50.609 --> 00:19:53.529 Sephora stores within a store. This brought in 00:19:53.529 --> 00:19:55.930 a whole new customer. It brought in young women 00:19:55.930 --> 00:19:58.609 who probably wouldn't have been caught dead in 00:19:58.609 --> 00:20:00.549 the polyester pants section, but they would come 00:20:00.549 --> 00:20:03.230 in for Fenty Beauty or Urban Decay. It was an 00:20:03.230 --> 00:20:05.190 injection of cool. It gave people a reason to 00:20:05.190 --> 00:20:07.960 go to Penny's. It did. And it arguably kept them 00:20:07.960 --> 00:20:10.700 alive for another decade. But the board of directors, 00:20:10.880 --> 00:20:12.920 you know, they weren't satisfied. The core business 00:20:12.920 --> 00:20:15.539 was still struggling. The stock was stagnant. 00:20:15.579 --> 00:20:18.359 The store felt dated. They wanted a revolution. 00:20:18.720 --> 00:20:21.619 And in 2011, they hired a revolutionary. Or, 00:20:21.779 --> 00:20:24.319 maybe more like a Jacobin who brought out the 00:20:24.319 --> 00:20:26.779 guillotine. They hired Ron Johnson. The man from 00:20:26.779 --> 00:20:29.759 Apple. The man who built the Apple store. The 00:20:29.759 --> 00:20:33.869 genius bar. The glass cubes, the sleek, minimalist 00:20:33.869 --> 00:20:37.509 aesthetic. He was the golden boy of retail. He 00:20:37.509 --> 00:20:39.609 could do no wrong. And the board basically handed 00:20:39.609 --> 00:20:42.210 him the keys and said, take this dusty, cluttered 00:20:42.210 --> 00:20:44.670 department store and turn it into Apple. He tried. 00:20:44.789 --> 00:20:46.809 Oh boy, did he try. He came in with a machete. 00:20:46.809 --> 00:20:49.210 He came in and he looked at JCPenney's entire 00:20:49.210 --> 00:20:53.109 business model and he just hated it. Specifically, 00:20:53.190 --> 00:20:56.829 he hated the coupons. Explain this to me. Because 00:20:56.829 --> 00:21:00.930 my most vivid memory of JCPenney. is my mom having 00:21:00.930 --> 00:21:02.910 a stack of their coupons the size of a phone 00:21:02.910 --> 00:21:05.089 book. That was the drug. That was the entire 00:21:05.089 --> 00:21:07.349 business model. JCPenney and most department 00:21:07.349 --> 00:21:09.569 stores operated on what's called a high -low 00:21:09.569 --> 00:21:11.990 pricing model. Right. They would price a shirt 00:21:11.990 --> 00:21:15.930 at, say, $50, but nobody ever paid $50. Then 00:21:15.930 --> 00:21:18.230 they would have a sale and mark it down to $30, 00:21:18.369 --> 00:21:19.670 and then they would send you a coupon in the 00:21:19.670 --> 00:21:21.890 mail for an extra $10 off. So you'd buy this 00:21:21.890 --> 00:21:23.910 shirt for $20, and you'd feel like a financial 00:21:23.910 --> 00:21:27.029 genius. I saved $30. It's the thrill of the hunt. 00:21:27.150 --> 00:21:30.400 It's pure psychology. gamification. Ron Johnson 00:21:30.400 --> 00:21:32.640 looked at that and said, this is dishonest. It's 00:21:32.640 --> 00:21:35.319 inefficient. It's tacky. He wanted transparent 00:21:35.319 --> 00:21:37.980 pricing. He wanted fair and square pricing. That 00:21:37.980 --> 00:21:41.119 was the slogan. Just price the shirt at $20 every 00:21:41.119 --> 00:21:44.079 day. No coupons, no sales, just the right price 00:21:44.079 --> 00:21:47.019 all the time. Which intellectually is sound. 00:21:47.039 --> 00:21:49.599 It's logical. It is perfectly logical. And it 00:21:49.599 --> 00:21:51.640 was a complete and utter catastrophe. Because 00:21:51.640 --> 00:21:53.900 shoppers aren't logical creatures. Shoppers are 00:21:53.900 --> 00:21:57.089 emotional creatures. When he took away the coupons, 00:21:57.089 --> 00:21:59.329 he took away the dopamine hit of getting a deal. 00:22:00.029 --> 00:22:02.109 Customers would walk in, see that same shirt 00:22:02.109 --> 00:22:05.200 for $20, and their brain would say, wait. This 00:22:05.200 --> 00:22:08.359 shirt is usually marked $50. If it's only $20, 00:22:08.420 --> 00:22:11.000 it must be cheap quality. Or they just miss the 00:22:11.000 --> 00:22:13.359 feeling of winning. They miss the game. It's 00:22:13.359 --> 00:22:15.440 like telling a gambler, we're just going to give 00:22:15.440 --> 00:22:17.480 you the mathematical average of your winnings 00:22:17.480 --> 00:22:19.579 every week, but you can't pull the slot machine 00:22:19.579 --> 00:22:22.180 handle anymore. You take the fun out of it. So 00:22:22.180 --> 00:22:24.759 they just stop coming. They stop coming in droves. 00:22:25.059 --> 00:22:28.440 Sales plummeted. We're talking a 25 % drop in 00:22:28.440 --> 00:22:32.539 revenue in a single year. That is unheard of 00:22:32.539 --> 00:22:35.180 for a company of this size. It was a death spiral. 00:22:35.480 --> 00:22:37.180 And he was trying to change the store layout, 00:22:37.319 --> 00:22:39.660 too, wasn't he? Oh, yeah. He wanted to create 00:22:39.660 --> 00:22:41.920 town squares. He wanted little boutiques for 00:22:41.920 --> 00:22:44.920 different brands. He wanted coffee bars and hangout 00:22:44.920 --> 00:22:47.740 spots. He wanted to get rid of the central checkout 00:22:47.740 --> 00:22:50.019 counters and have employees roaming around with 00:22:50.019 --> 00:22:52.799 iPads to check you out. Just like the Apple store. 00:22:52.920 --> 00:22:55.960 Exactly. But buying a sweater isn't like buying 00:22:55.960 --> 00:22:59.089 an iPad. You don't need a genius to explain the 00:22:59.089 --> 00:23:01.130 features of a sweater to you. You just want to 00:23:01.130 --> 00:23:04.309 find your size, pay, and leave. The customers 00:23:04.309 --> 00:23:07.069 were confused. The employees were demoralized. 00:23:07.230 --> 00:23:10.109 It was a culture clash of epic proportions. So 00:23:10.109 --> 00:23:12.789 how long did he last? It wasn't long. At 17 months, 00:23:13.049 --> 00:23:16.529 he was fired in April 2013. But the damage was 00:23:16.529 --> 00:23:18.660 done. He had burned through the company's cash 00:23:18.660 --> 00:23:21.599 reserves. He had completely alienated the core 00:23:21.599 --> 00:23:24.420 customer, that older mom who lived for her coupons. 00:23:24.519 --> 00:23:26.720 And once you break a customer's habit, it's very, 00:23:26.839 --> 00:23:29.160 very hard to get them back. And while all this 00:23:29.160 --> 00:23:31.740 chaos was happening in the physical stores, there 00:23:31.740 --> 00:23:33.599 was something shady going on behind the scenes 00:23:33.599 --> 00:23:36.410 online, right? The spam dexing scandal. Oh, this 00:23:36.410 --> 00:23:39.250 is a legendary cautionary tale for any digital 00:23:39.250 --> 00:23:42.910 marketer. In early 2011, the New York Times publishes 00:23:42.910 --> 00:23:45.750 this expose. They found that JCPenney's website 00:23:45.750 --> 00:23:48.269 was ranking number one on Google for basically 00:23:48.269 --> 00:23:50.549 everything. Like what kind of terms? Generic 00:23:50.549 --> 00:23:53.710 terms. Dresses, bedding, furniture, skinny jeans. 00:23:53.910 --> 00:23:56.250 These are terms that are usually impossible for 00:23:56.250 --> 00:23:58.269 one single site to dominate because they're so 00:23:58.269 --> 00:24:00.490 competitive. So how are they doing it? They were 00:24:00.490 --> 00:24:03.059 cheating. They had hired an SEO firm that was 00:24:03.059 --> 00:24:05.960 using black hat techniques. They placed thousands 00:24:05.960 --> 00:24:08.960 of paid links to JCPenney .com on completely 00:24:08.960 --> 00:24:11.819 unrelated garbage websites. We're talking about 00:24:11.819 --> 00:24:15.039 links buried in the text of sites about dog training, 00:24:15.180 --> 00:24:18.480 online gambling, obscure music fan pages. And 00:24:18.480 --> 00:24:21.519 these links tricked Google's algorithm. They 00:24:21.519 --> 00:24:23.779 tricked the algorithm into thinking that JCPenney 00:24:23.779 --> 00:24:26.039 was the most authoritative and popular site on 00:24:26.039 --> 00:24:29.319 the web for all these topics. Google, they noticed. 00:24:29.720 --> 00:24:32.059 Google takes this kind of thing personally. When 00:24:32.059 --> 00:24:34.240 the story broke, Google dropped the hammer. They 00:24:34.240 --> 00:24:37.960 applied a manual penalty. And overnight, JCPenney 00:24:37.960 --> 00:24:40.920 basically disappeared from search results. If 00:24:40.920 --> 00:24:43.619 you typed in JCPenney dresses, you couldn't even 00:24:43.619 --> 00:24:45.619 find their own website. They were digitally erased? 00:24:45.960 --> 00:24:48.380 They were sent to digital Siberia at the exact 00:24:48.380 --> 00:24:51.319 moment they needed online sales to save them 00:24:51.319 --> 00:24:53.359 from the Ron Johnson disaster in the stores. 00:24:53.660 --> 00:24:56.359 It was a brutal one -two punch that really broke 00:24:56.359 --> 00:24:59.240 the company's back. So Johnson is fired. They 00:24:59.240 --> 00:25:01.339 bring back the old CEO, Mike Ullman, just to 00:25:01.339 --> 00:25:04.079 try and stabilize the ship. But from 2015 to 00:25:04.079 --> 00:25:06.519 2019, it just feels like a slow bleed. It was. 00:25:06.619 --> 00:25:08.960 They were saddled with billions in debt from 00:25:08.960 --> 00:25:11.200 the Johnson era. They were closing stores in 00:25:11.200 --> 00:25:14.079 waves. They tried these desperate pivots, like 00:25:14.079 --> 00:25:17.000 bringing back appliances again in 2016, trying 00:25:17.000 --> 00:25:19.660 to target millennials buying homes. How'd that 00:25:19.660 --> 00:25:22.119 go? They dumped them again in 2019. It lasted 00:25:22.119 --> 00:25:24.119 less than three years. It was just flailing. 00:25:24.180 --> 00:25:26.359 They even did a pop -up shop in Manhattan called 00:25:26.359 --> 00:25:28.519 Jacques Penn. Please tell me that was a joke. 00:25:28.809 --> 00:25:30.750 It was an attempt at self -deprecating humor. 00:25:30.990 --> 00:25:33.630 People had been calling it Jacques Pen as a joke 00:25:33.630 --> 00:25:36.170 for years to make it sound fancy. So they tried 00:25:36.170 --> 00:25:38.569 to lean into it. They had Nicole Richie host 00:25:38.569 --> 00:25:41.849 a launch party in Soho. Did it work? It was cute, 00:25:41.930 --> 00:25:43.769 I guess, but it didn't solve the fundamental 00:25:43.769 --> 00:25:45.869 problem that they had four billion dollars in 00:25:45.869 --> 00:25:47.950 debt and nobody was buying their clothes. And 00:25:47.950 --> 00:25:51.769 then the ultimate indignity. The stock price 00:25:51.769 --> 00:25:55.859 drops below a dollar. December 2018, the penny 00:25:55.859 --> 00:25:58.539 stock joke became literal. It was a sign that 00:25:58.539 --> 00:26:01.259 Wall Street had given up. Then comes 2020, the 00:26:01.259 --> 00:26:04.160 final nail in the coffin, or so we all thought. 00:26:04.380 --> 00:26:08.380 COVID -19, the global pandemic. For a retailer 00:26:08.380 --> 00:26:10.579 that was already on life support, having to shut 00:26:10.579 --> 00:26:12.799 all your doors for months on end should have 00:26:12.799 --> 00:26:15.740 been the final fatal blow. Revenue went to zero 00:26:15.740 --> 00:26:18.140 overnight. And right before they file for bankruptcy, 00:26:18.400 --> 00:26:20.180 there's this headline about executive bonuses 00:26:20.180 --> 00:26:23.380 that just looked awful. This made people so furious. 00:26:23.420 --> 00:26:26.019 Just days before filing for Chapter 11 bankruptcy 00:26:26.019 --> 00:26:29.440 in May 2020, the company paid out nearly $10 00:26:29.440 --> 00:26:32.519 million in bonuses to the top executives. The 00:26:32.519 --> 00:26:35.700 CEO at the time, Jill Soltow, got $4 .5 million. 00:26:36.039 --> 00:26:38.339 While they are furloughing tens of thousands 00:26:38.339 --> 00:26:41.579 of store employees with no pay. Exactly. The 00:26:41.579 --> 00:26:43.599 corporate logic is that these are retention bonuses. 00:26:44.269 --> 00:26:46.230 If the captain jumps ship in the middle of the 00:26:46.230 --> 00:26:49.390 storm, the ship sinks faster. You need to pay 00:26:49.390 --> 00:26:51.690 the leadership to stay and guide the company 00:26:51.690 --> 00:26:54.349 through the complex bankruptcy process so there 00:26:54.349 --> 00:26:56.549 is something left on the other side. But the 00:26:56.549 --> 00:26:58.789 optics are terrible. The optics are just brutal. 00:26:58.970 --> 00:27:01.309 To the average person, it looks like looting 00:27:01.309 --> 00:27:03.309 the vault before the building burns down. So 00:27:03.309 --> 00:27:07.130 they file. May 15, 2020. They get delisted from 00:27:07.130 --> 00:27:09.869 the New York Stock Exchange after 91 years. It 00:27:09.869 --> 00:27:11.329 really looks like liquidation is inevitable. 00:27:11.609 --> 00:27:14.799 But then... The landlord step in. This is the 00:27:14.799 --> 00:27:17.700 most important and strangest part of the modern 00:27:17.700 --> 00:27:21.299 story. Simon Property Group and Brookfield Property 00:27:21.299 --> 00:27:23.519 Partners. These are the two biggest mall owners 00:27:23.519 --> 00:27:26.140 in America. And they buy JCPenney out of bankruptcy. 00:27:26.140 --> 00:27:29.440 They do. For about $800 million in cash and debt 00:27:29.440 --> 00:27:32.339 assumption. So why? Why would a landlord want 00:27:32.339 --> 00:27:35.819 to own a failing department store? Do they just 00:27:35.819 --> 00:27:39.069 really love Arizona jeans that much? No. They 00:27:39.069 --> 00:27:41.809 love their leases. You have to understand a crucial 00:27:41.809 --> 00:27:44.549 piece of real estate law called the co -tenancy 00:27:44.549 --> 00:27:47.470 clause. Okay, unpack that for us. In a typical 00:27:47.470 --> 00:27:50.549 mall lease, the smaller stores like The Gap or 00:27:50.549 --> 00:27:53.069 Bath & Body Works or the Pretzel Stand, they 00:27:53.069 --> 00:27:55.170 often have a clause in their contract that says, 00:27:55.269 --> 00:27:58.910 if an anchor tenant, which is JCPenney, closes 00:27:58.910 --> 00:28:01.589 or leaves, I'm allowed to break my lease or pay 00:28:01.589 --> 00:28:05.809 significantly reduced rent. Ah. I see. So if 00:28:05.809 --> 00:28:08.710 JCPenney goes dark? It triggers a domino effect, 00:28:08.930 --> 00:28:11.529 a death spiral for the mall. If Penny's closes, 00:28:11.849 --> 00:28:13.990 the mall owners don't just lose Penny's rent. 00:28:14.150 --> 00:28:16.450 They could lose the rent from 50 other stores 00:28:16.450 --> 00:28:18.549 or they have to lower everyone's rent drastically. 00:28:18.910 --> 00:28:21.569 The value of the mall property itself completely 00:28:21.569 --> 00:28:24.529 collapses. So they bought JCPenney not to make 00:28:24.529 --> 00:28:27.710 money selling clothes, but to prevent their entire 00:28:27.710 --> 00:28:30.410 real estate empire from imploding. It was a defensive 00:28:30.410 --> 00:28:32.750 acquisition. They effectively paid $800 million 00:28:32.750 --> 00:28:35.069 just to keep the lights on so that the rest of 00:28:35.069 --> 00:28:37.150 them all wouldn't die. It's real estate arbitrage 00:28:37.150 --> 00:28:40.170 masquerading as retail. That is deeply cynical, 00:28:40.230 --> 00:28:43.279 but also kind of brilliant. From a business perspective, 00:28:43.559 --> 00:28:46.539 it's genius. And look, it saved nearly 60 ,000 00:28:46.539 --> 00:28:48.420 jobs. So it was a good outcome for the workers. 00:28:48.819 --> 00:28:51.279 But it fundamentally changed what the company 00:28:51.279 --> 00:28:54.059 is. It is now a tenant owned by its landlord. 00:28:54.299 --> 00:28:56.819 The incentives are completely different. Which 00:28:56.819 --> 00:28:58.799 brings us to the present day of our source material. 00:28:59.039 --> 00:29:02.880 The post -bankruptcy era. Right. 2025 and 2026. 00:29:03.339 --> 00:29:06.720 The catalyst brands era. This is where the landlords 00:29:06.720 --> 00:29:08.519 are getting creative. They realize that just 00:29:08.519 --> 00:29:10.599 keeping the lights on isn't a long -term strategy. 00:29:10.700 --> 00:29:13.380 They need to actually drive traffic. So they 00:29:13.380 --> 00:29:15.640 formed this massive new joint venture called 00:29:15.640 --> 00:29:18.900 Catalyst Brands. And this combines JCPenney with 00:29:18.900 --> 00:29:21.400 another group called the Spark Group. Exactly. 00:29:21.519 --> 00:29:24.119 Spark is another joint venture owned by the same 00:29:24.119 --> 00:29:26.400 people that owns the intellectual property for 00:29:26.400 --> 00:29:29.119 brands like Forever 21, Aeropostale, Brooks Brothers, 00:29:29.359 --> 00:29:32.240 and even Reebok. And the really wildcard partner 00:29:32.240 --> 00:29:36.440 in all of this is Shane. The Chinese fast fashion 00:29:36.440 --> 00:29:38.839 app, the biggest fashion retailer in the world 00:29:38.839 --> 00:29:41.160 by sheer volume. So what's the play here? The 00:29:41.160 --> 00:29:43.920 play is Synergy. Sheen is a digital monster, 00:29:44.079 --> 00:29:47.220 but they have a physical world problem. Returns 00:29:47.220 --> 00:29:49.779 are a nightmare for them, and they have no physical 00:29:49.779 --> 00:29:52.700 presence to let people see and touch the product. 00:29:53.000 --> 00:29:56.480 And JCPenney has. JCPenney has over 600 huge 00:29:56.480 --> 00:29:59.740 boxes with loading docks, parking lots, and existing 00:29:59.740 --> 00:30:03.670 staff all across America. I see the vision. JCPenney 00:30:03.670 --> 00:30:05.670 becomes the physical interface for the digital 00:30:05.670 --> 00:30:08.690 giants. That's it exactly. You walk into a JCPenney 00:30:08.690 --> 00:30:12.329 in 2026 and you see a Forever 21 shop in shop. 00:30:12.589 --> 00:30:15.289 You see a dedicated return desk for your sheen 00:30:15.289 --> 00:30:18.430 haul. You see a Reebok concept shop. The department 00:30:18.430 --> 00:30:21.430 store is becoming a brand platform. It's less 00:30:21.430 --> 00:30:23.650 about a curated selection by JCPenney buyers 00:30:23.650 --> 00:30:25.650 and more about renting out square footage to 00:30:25.650 --> 00:30:27.490 whoever has the heat at the moment. It's a logistics 00:30:27.490 --> 00:30:30.549 hub with fitting rooms. And in a way, it finally 00:30:30.549 --> 00:30:33.069 solves the Ron Johnson problem. You don't need 00:30:33.069 --> 00:30:35.750 to make the JCPenney brand itself cool. You just 00:30:35.750 --> 00:30:37.390 need to fill it with brands that are cool or 00:30:37.390 --> 00:30:40.329 at least popular and use that massive real estate 00:30:40.329 --> 00:30:43.160 footprint as a strategic asset. Before we wrap 00:30:43.160 --> 00:30:45.200 this all up, I want to touch on the one thing 00:30:45.200 --> 00:30:47.400 that has remained weirdly constant through all 00:30:47.400 --> 00:30:51.519 this chaos. The private brands. Because when 00:30:51.519 --> 00:30:53.779 I think of pennies, I don't really think of Sheen. 00:30:53.799 --> 00:30:56.779 I think of St. John's Bay. The unsung heroes. 00:30:57.470 --> 00:31:00.170 The private label strategy is arguably why the 00:31:00.170 --> 00:31:02.089 stores survived this long in the first place. 00:31:02.269 --> 00:31:04.670 They have huge margins because there's no middleman. 00:31:04.789 --> 00:31:07.450 I saw in the notes their oldest private brand 00:31:07.450 --> 00:31:10.970 is Big Mac Workwear. Launched in 1922, it's over 00:31:10.970 --> 00:31:14.490 100 years old, still going. It was created because 00:31:14.490 --> 00:31:17.049 suppliers in the early days often wouldn't sell 00:31:17.049 --> 00:31:19.049 to them. So Penny said, fine, we'll make our 00:31:19.049 --> 00:31:21.690 own. And for my generation, it was the Arizona 00:31:21.690 --> 00:31:24.869 jean company. The 90s powerhouse. If you couldn't 00:31:24.869 --> 00:31:28.569 afford Levi's or Guess, you wore Arizona. And 00:31:28.569 --> 00:31:30.410 you know what? They were good jeans. They really 00:31:30.410 --> 00:31:33.170 were. These brands, Worthington for women's workwear, 00:31:33.470 --> 00:31:36.269 Stafford for men's suits, Ambriel for lingerie, 00:31:36.349 --> 00:31:38.309 they have more brand loyalty than the store itself 00:31:38.309 --> 00:31:40.829 sometimes. It's funny. The store keeps changing 00:31:40.829 --> 00:31:43.250 its entire corporate identity, but the socks 00:31:43.250 --> 00:31:45.009 remain the same. And maybe that's the lesson. 00:31:45.130 --> 00:31:47.490 The stuff that's reliable and unglamorous is 00:31:47.490 --> 00:31:50.259 what endures. So let's bring it home. We have 00:31:50.259 --> 00:31:53.200 traveled from a tiny cash -only store in a Wyoming 00:31:53.200 --> 00:31:56.799 mining town in 1902 to a landlord -owned global 00:31:56.799 --> 00:32:00.839 brand conglomerate in 2026. What is the big takeaway 00:32:00.839 --> 00:32:03.880 here? I think the takeaway is resilience through 00:32:03.880 --> 00:32:06.940 mutation. JCPenney survived the Great Depression. 00:32:07.079 --> 00:32:09.539 It survived the rise of Walmart. It survived 00:32:09.539 --> 00:32:11.880 the retail apocalypse and the death of the mall. 00:32:12.079 --> 00:32:15.119 It survived Ron Johnson. It survived a global 00:32:15.119 --> 00:32:17.759 pandemic and bankruptcy. It's the cockroach of 00:32:17.759 --> 00:32:19.599 American retail. And I mean that with the utmost 00:32:19.599 --> 00:32:22.240 respect. It is. But the cost of that survival 00:32:22.240 --> 00:32:25.200 was arguably its original soul. The Golden Rule 00:32:25.200 --> 00:32:27.880 Partnership model of 1902 was about people. It 00:32:27.880 --> 00:32:29.859 was about community managers building a local 00:32:29.859 --> 00:32:33.440 business. The Catalyst Brands model of 2026 is 00:32:33.440 --> 00:32:35.940 about assets. It's about leveraging square footage 00:32:35.940 --> 00:32:38.460 and data and logistics. It feels like the end 00:32:38.460 --> 00:32:40.799 of the merchant prince era and the complete triumph 00:32:40.799 --> 00:32:43.500 of the asset manager. That is exactly it. James 00:32:43.500 --> 00:32:45.539 Cashpenny was a merchant. The people who own 00:32:45.539 --> 00:32:48.079 it now are real estate investors. The store no 00:32:48.079 --> 00:32:50.319 longer exists to serve the community in the way 00:32:50.319 --> 00:32:52.839 he envisioned. It exists to serve the portfolio 00:32:52.839 --> 00:32:55.259 of the Real Estate Investment Trust. So here 00:32:55.259 --> 00:32:57.880 is the thought I want to leave you with. The 00:32:57.880 --> 00:33:00.119 next time you walk into a mall, if you still 00:33:00.119 --> 00:33:02.640 do that, and you see that red square JCPenney 00:33:02.640 --> 00:33:06.930 logo, Ask yourself, am I walking into a store 00:33:06.930 --> 00:33:10.109 or am I just walking into a load -bearing wall 00:33:10.109 --> 00:33:12.410 for the global financial system? And if you buy 00:33:12.410 --> 00:33:14.849 a pair of socks while you're in there, does it 00:33:14.849 --> 00:33:17.210 even matter which one it is? Deep questions for 00:33:17.210 --> 00:33:19.769 a department store deep dive. Thanks for unpacking 00:33:19.769 --> 00:33:21.869 this with us today. My pleasure. We'll see you 00:33:21.869 --> 00:33:22.289 on the next one.