J.C. Penney Could Become Shutdown Casualty

NEW YORK ( TheStreet) -- A government shutdown is depressing, no matter how you feel politically.

A government employee at our yoga class told my wife yesterday she may not be working today. This news didn't have my wife in any mood for a shopping spree, either.

She especially didn't want to spend any time today in a mall, with its pretense that everyone is happy. Especially not a mall with a J.C. Penney ( JCP), where shutdown fears are getting personal.

Penney is even giving billionaires the blues these days. Perry Capital is now following Bill Ackman's Pershing Square out of the stock, tail between its legs and deeply hurt in the pocket. The company has cut its Penney stake from 8.62% to 3.28%, according to its Securities and Exchange Commission filing, and it took a loss on that.

That's because the price of Penney stock is falling faster than thin-count sheets at a white sale, dropping below $9 a share yesterday. When trading opened today, the whole company was worth less than $2 billion, this for an outfit still on pace to have sales of at least $10 billion this fiscal year.

Even Penney's underwriter, Goldman Sachs, may be sitting on a loss. The company announced an offering of 84 million shares through Goldman, closing today, at an offering price of $9.45, which is over 50 cents higher than what the shares were recently selling for on the New York Stock Exchange.

Things could easily get worse for Goldman, because it issued a warning on the company's debt just last week, after arranging a $2.25 billion term loan for the company earlier this year. Goldman's defense is that its right hand is not allowed to know what its left hand is doing.

Penney Chief Executive Mike Ullman is now a retailer whose credibility is at zero. He went on CNBC last week insisting he didn't need to raise equity, and then the next day announced an equity offering.

Retailing is all about trust. Suppliers ship you goods on trust, trusting that you will pay the agreed-upon price. When trust is lost, supplies are pulled, shelves are laid bare, and retailers can die quickly.

Suppliers are now telling trade papers like Women's Wear Daily that they no longer trust J.C. Penney. Allen Schwartz, co-owner of apparel company A.B.S. by Allen Schwartz, decided not to renew his contract. Bodum USA, a housewares company, is suing Penney over its displays, after Ullman dropped former CEO Ron Johnson's "shops-in-shops" concept.

In theory, J.C. Penney should be a no-brainer buy. You almost never see retailers selling for 20% of their sales. Operating companies like Wal-Mart ( WMT) and Costco ( COST) typically sell for 50% of sales. At 20% of sales, that's like 60% off. If Penney can just get through Christmas intact, you figure, it should be able to double your money in six months.

But how can that happen when consumers around the country are watching the government shutdown and bracing for the fall-out. Even the bargain hunters are staying indoors. Do you want to go Christmas shopping today? I don't. Not even at 60% off.

A retailer without credibility is also a special case. Penney insists it's not going out of business, but the it's hard to believe anything coming out of Plano, Texas unless something changes.

The government shutdown, which is shutting consumer wallets even as I write, may be the last straw.

At the time of publication, the author was long Costco.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Dana Blankenhorn has been a business journalist since 1978, and a tech reporter since 1982. His specialty has been getting to the future ahead of the crowd, then leaving before success arrived. That meant covering the Internet in 1985, e-commerce in 1994, the Internet of Things in 2005, open source in 2005 and, since 2010, renewable energy. He has written for every medium from newspapers and magazines to Web sites, from books to blogs. He still seeks tomorrow from his Craftsman home in Atlanta.