The clock is ticking on two retailing legends.

The market didn't have a very fashionable showing last week, but J.C. Penney (NYS: JCP) and Sears Holdings (NAS: SHLD) were near the bottom of the barrel.

Shares of J.C. Penney slipped 21%, while Sears -- the parent company of Kmart as well as its namesake department store chain -- plunged 24% on the week.


Sears punched out after another disappointing quarterly report. The iconic retailer posted another sharp adjusted loss. Revenue slipped 6% to $8.9 billion, as comps slipped 1.6% at domestic Sears stores and a brutal 4.8% at Kmart.

Analysts were ready for the red ink. They don't see Sears turning a profit on an annual basis for at least another two years. They just didn't expect same-store sales to be so weak. After all, shouldn't Sears be a major beneficiary of the disarray at J.C. Penney?

It certainly didn't seem that was the case earlier this year. Both stocks were big winners early on. Investors gravitated to Sears as an asset play. J.C. Penney -- under cheap chic and geek chic guru Ron Johnson -- was seen as a prime turnaround situation.

Well, both stocks have been hit hard in recent months.

A Penney for your thoughts
As bad as things are at Sears, J.C. Penney has it worse. Comps have fallen sharply in each of the chain's first three quarters under Johnson's new model. Its most recent quarter was a doozy, as same-store sales plunged 26%. The downgrades have come in droves after analysts had a little time to digest the Nov. 9 report. Several firms have been talking down J.C. Penney, and even Fitch stepped up last week to lower the retailer's credit rating.

Perhaps the biggest shock at J.C. Penney is that online sales plunged 37%. This is mind blowing. Even Sears managed to grow its Sears.com sales by 20% in its latest quarter.

Shouldn't J.C. Penney's everyday low price strategy worked out well for the chain. Isn't the new "JCP" logo a nudge for shoppers to check out jcp.com?

Last week's ad circular for J.C. Penney read "Welcome back" on the cover. It was a play on words. It's a Veterans Day nod, as a soldier on the cover returns home to his family. However, the copy also welcomed back shoppers that hadn't checked out its stores since its February makeover. Going by the company's comps over the past three quarters that's a pretty sizable audience.

JCP stands for "Johnson Can't Produce"
It's a pretty safe bet that last year's golden boy of retail won't have his halo for too much longer. He inherited a chain that was stagnant, but he has somehow shifted into reverse and pushed hard on the accelerator.

Sears and J.C. Penney have become the two sorriest chains in the land of lost retailers, but they got there in entirely different ways.

Eddie Lampert -- a value investor with Johnson-sized aura when he stepped in and combined Sears and Kmart -- has been cutting costs to preserve the company's capital. Many argue that his reluctance to spruce up Kmart stores have doomed the chain. Johnson, on the other hand, wasn't afraid to shake things up. He took the bold step of moving away from coupons and sales, investing in a new store layout where popular brands pop up for a "store within a store" town hall theme.

In other words, Lampert has crushed Sears through his inability to invest in the chains. Johnson is destroying J.C. Penney by investing in the makeover.

The philosophies aren't working, and one has to imagine that things would have played out better if Lampert had J.C. Penney and Johnson had Sears.

It may be too late to fix the problems
There aren't too many chains that get a second chance, but it's not as if J.C. Penney's everyday low pricing approach is a bad one.

Johnson cut his teeth at Target (NYS: TGT) ; the discounter isn't the cheapest of the discount department stores, but it is the most stylish. Target uses exclusive product lines and its "cheap chic" aura to drive traffic. You can be hip even as you dive deeper into the closeout bin. The recently public Five Below (NAS: FIVE) attracts young shoppers to its stores where everything is priced at $5 or less. Expansion is a major reason for net sales soaring 40% in its first quarter as a public company, but comparable-store sales also rose by an impressive 8.6%. On the higher end, a coupon-free existence can succeed if a sense of urgency is created. Francesca's Holdings (NAS: FRAN) "deep but shallow" apparel-stocking philosophy means offering a limited amount of a lot of different items. Shoppers know that if they don't buy the outfit they like then that it may not be there when they come back.

It remains to be seen what Johnson will do with J.C. Penney. It's too late to make it "cheap chic" judging by the crowds that it will attract by offering free holiday family portraits this season to go along with its free children haircuts on Sundays. Sears will continue to meander, and eventually it will have to shutter Kmart stores and focus on a revival at its namesake franchise.

Investors should be smart enough to avoid either chain as investor, though waiting as a shopper for the going out of business sales makes sense.

More square than fair
The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the "3 Companies Ready to Rule Retail" in our special report. Uncovering these top picks is free today; just click here to read more.

The article Which Retailer Will Die First: Sears or J.C. Penney? originally appeared on Fool.com.

Longtime Fool contributor Rick Aristotle Munarriz has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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