Sideline

The reader will recall Walt Neppl's contemplating a lesson learned about expertise. "After spending our lives selling sheets and shoes," he told Don Seibert, "why did we ever think we could sell brown goods?" Indeed, the impetus behind Penney's returning to a soft goods emphasis was reflected in that statement. The company knew "sheets and shoes" and had from the very beginning. It did not know "brown goods" (hard goods, appliances) and was wise to abandon such trade to the Circuit Cities of the world.

But the "all everything" store had been a product of the 1960s, brown goods a necessary burden . In contrast, relearning the expertise lesson with the Eckerd Drug deal was just an embarrassment.

Despite its ownership of a few hundred Thrift Drugstores, drugstore retailing at Penney was a sideline, not a specialty. ^[1] In no way was drugstore retailing a reasonable target for a costly major acquisition. This was because of very different retailing natures. At JCPenney, basically, apparel and soft home items were sold. At a big drugstore chain, it was a matter of managing a zillion disparate SKUs (stockkeeping units) in the frontcosmetics to lightbulbs to crackers to antacidsand a managed-care-dependent prescription counter in the back. Apples, oranges, and bananas.

Yet JCPenney boughtand bought poorlythe Eckerd Corporation and its 2,800 stores. This hapless event was Jim Oesterreicher's doing and it eventually amounted to a financial millstone. Worse, from a remarkably lax and superficial due diligence to cosmetic bookkeeping that softened the downside of the acquisition, it was an odoriferous deal ^[2] that would cause many to ask, "This is JC Penney? "

Once, Jim Oesterreicher was about the last person on earth you would have associated with such a thing. So what had happened ? Well, here was an utterly decent man with modest talents who had worked very hard all his adult life, played it straight, and achieved successonly to have the rotten luck of landing in the chairman's suite without a compass. And, naturally, searching for a direction in that plush land of Oz was not the best way to maintain one's grip on nitty-gritty reality.

^[1] Of Penney's other sidelines over the years , only direct marketing insurance (sold in 2001) enjoyed any real success; and Penney developed it from an inexpensive start-up.

^[2] As this book's manuscript was approaching completion, the financial media reported another negative impact on Penney stock because of bad Eckerd news. The gap between same-store sales in Penney's drug unit and other drug retailers was widening in favor of the competition. Observers wondered if Eckerd would ever stabilize long enough for Penney chairman Allen Questrom to sell off the star-crossed division without taking too much of a hit.