NEW YORK (Real Money) -- Yesterday, I got a behind-the-scenes look at J.C. Penney's (JCP) holiday plans from a store manager and veteran employee of the company. As this was happening, one thought came to mind: "Whoa, this is fun." It is fascinating to see how a merchant views a store as opposed to how a stock analyst does -- though I must admit, there are oodles of parallels.
I can tell you that J.C. Penney is bringing the heat this holiday season. The company is much better-merchandised than it was before in key areas -- such as holiday apparel and home -- than I had previously thought following the third-quarter earnings call. That ultimately got me thinking: If J.C. Penney is back, what does that mean for Macy's (M) and Sears (SHLD) on the other end of the shopping mall?
Here is a brief look at the battles that are about to shape up for the holiday season.
Coach vs. Michael Kors
Coach (COH) is already showing vastly improved holiday-display windows as compared with the emotionless windows of last year. Heck, even the company's merchandise is not so extremely boring in full-price stores.
The problem is that, for Michael Kors (KORS) , stores are just popping with color and bling across categories. Further, Michael Kors has taken over the sales floor of Macy's (the company now sells winter headbands) to such a degree that Coach's new merchandising efforts are getting drowned out. Although I am not a huge fan of playing the handbag space this season, given increased impetus by the companies to discount -- and that includes department stores -- I would have to say that Michael Kors is likely to emerge as a winner over a Coach as the latter tries to make a comeback.
Nike vs. Under Armour
I have no idea how Nike (NKE) is creating this consistent stream of product innovation that has been appearing on the sales floors of Dick's Sporting Goods (DKS) , Macy's and J.C. Penney, and at Nike's own full-price stores for the better of a year. But Nike is on a product roll, and I very much like what the company is bringing to the table in lightweight jackets and, of course, in sneakers (Lebron, Jordan, Kobe).
I don't think Under Armour (UA) products are going to fall out of favor as a gift item among those shopping for gym goers. But at the moment I believe Nike is the one to own, given its dominance of sales floors and its host of new products at premium price points.
J.C. Penney vs. Sears
I think people have to stop lumping these two companies together. While both are highly leveraged department-store retailers, Sears is fundamentally broken and J.C. Penney is not. For this holiday season, J.C. Penney is well stocked in key basic apparel such as jeans and fleece. Sears -- and fellow Sears Holding subsidiary Kmart -- are not as well stocked.
Moreover, J.C. Penney has re-merchandised a good portion of its stores, featuring improved layouts for Nike athletic wear (positioned by the escalator in many cases), home decorations, cookware and holiday apparel. On that last item, there are more red seasonal dresses in the assortment now than there were last year.
I am just not seeing this stuff at Sears. Those stores look tired from top to bottom. Also, don't forget: Home Depot (HD) , Lowe's (LOW) and Best Buy (BBY) are selling more appliances than they had been doing a year ago due to remodels of their home departments, which have freed up more floor space.
Sears is likely to have a very poor holiday season, and will probably need to raise more cash in early 2015 -- of the kind that's penalizing to shareholders, and through the addition of stores to its real estate investment trust.
At the time of publication, the author held no positions in any of the stocks mentioned.
(Editor's note: This article was originally published on Real Money Nov. 25 at 1 p.m. EST.)