It’s just about time for full-on panic at J.C. Penney

It’s been a long sad slog for J.C. Penney. In 2011, after more than a decade of (at best) mediocre performance, the company brought in Ron Johnson from Apple as its new CEO. In what some saw as a bold attempt at transformation — and others saw as a misguided Hail Mary pass — retail’s latest savior changed just about everything all at once, and to put it mildly, the results were disastrous. Sales plummeted by about a third, the stock tanked, and Johnson was eventually shown the door.

Former CEO Mike Ullman returned to stabilize the rapidly deteriorating situation — which he did. Then in August 2015, Home Depot’s Marvin Ellison was brought in as the new CEO. In the more than five years since the Ron Johnson debacle, Penney’s has tried many things to claw back lost market share, improve profitability and become more relevant for a new generation. Very little of it has gained any traction. The stock, which traded around $40 when Johnson joined — and in the $20s when he left — sunk to just above $2 after a hugely disappointing quarterly earning report and the announcement that Ellison was leaving to join Lowe’s.

This is bad. Very bad. And I will be the first to admit that I am a bit surprised.

While it is clear that Penney’s is in some ways the poster child for “the collapse of the middle” that I frequently speak about, there were reasons to believe that Penney’s was well positioned to regain meaningful market share.

First, under Johnson, the company essentially fired one-third of its customers through a series of bone-headed moves. While it is difficult to win back customers in an intensely competitive market, I thought a decent subset would return once the obvious blunders were fixed. For the most part, it hasn’t happened.

Second, Sears, its most similar on-the-mall competitor, has closed hundreds of stores in the past few years — surely Penney’s would pick up a fair share. But if it has, it’s not so obvious.

Third, in addition to continuing to expand its successful Sephora in-store shops, Penney’s has added new products and services (including home appliances and mattresses) to attract new customers, drive incremental traffic and improve store productivity. So where’s the beef?

Fourth, after being a laggard in e-commerce and omni-channel, Penney’s has taken steps to elevate these capabilities. Yet the growth hasn’t followed.

Lastly, the categories in which it competes have performed pretty solidly the past few quarters. Penney’s failure to grow revenue at least 3–4% means it is losing share.

So Penney’s now finds itself in a situation where it has been engaged in years of cost cutting and store closings. There is very little gas left in that particular tank. The problem is no longer fundamentally about cost position or store footprint; it is about customer relevance and revenue. Penney’s finds itself in a situation where competitors have ceded hundreds of millions of dollars of sales through store closings, yet apparently little has migrated to its benefit. Penney’s finds itself in the middle of the best year in recent retail industry history, yet is struggles to keep pace. And now its CEO elects to leave.

It simply won’t get any easier from here.

While the seemingly imminent demise of Sears will provide incremental market share opportunities, we should not lose sight of the fact that the moderate department store sector continues to decline with no end in sight. Sales of online apparel are expected to double within the next few years, which will continue to pressure the economics of brick-and-mortar retailers that don’t execute a well-harmonized multi-channel strategy. Younger shoppers will become increasingly important to the overall fortunes of just about any retailer, and Penney’s has done little to contemporize its brand. And while Penney’s may have a few stores to close, mass store shutterings are almost certain to accelerate its decline. The best barometer of success going forward is robust trade area growth, derived from stable to slightly positive comp store sales and strong double-digit e-commerce growth.

Given the bifurcation of retail and the death of boring, J.C. Penney is a long way from being a remarkable and compelling retailer. Yet the positive retail cycle we are in and the likely shuttering of hundreds of directly competitive stores over the next six to 18 months will give the more-than-100-year-old brand an unprecedented opportunity to grab share. If it cannot improve its performance dramatically over the next few quarters, the issue won’t be whether a transformation is ever possible; it will be whether the once-stored retailer will even be around at any reasonable scale much longer.

And if that doesn’t incite panic, I don’t know what will.

A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.

On June 15 I will be doing a keynote at The Shopper Insights & Retail Activation Conference in Chicago. For more on my speaking and workshops go here.