The Problem With Business Hagiography and Selection Bias

Fortune, "Inside J.C. Penney's 'Cleanse'"

"Clearly the approach worked for iPhones. Would it work for mattress pads and pantyhose?

Johnson wasn't going to wait around for an answer. When a director asked when he planned to test the notion, Johnson scoffed. Never mind that other retailers had tried such pricing only to see customers vanish. He had made his decision. After all, his hero, Jobs, disdained tests and instead relied on his gut. At the same time, Johnson didn't seem particularly interested in how Penney operated, according to Ullman. The outgoing CEO noted in a regular update to the board that the new CEO had not asked a single question about how the business was running."

Current Distressed Universe

Public companies with distressed debt.

GENCO SHIPPING & TRADING LTD, 5s of 08/15/2015, 58 cents.
JAMES RIV COAL CO, 10s of 06/01/2018, 12.6 cents.
JAMES RIV COAL CO, 7.875s of 04/01/2019, 16 cents.
JAMES RIV COAL CO, 4.5s of 12/01/2015, 30 cents.
JAMES RIV COAL CO, 3.125s of 03/15/2018, 24 cents.
PENNEY J C INC, 7.125s of 11/15/2023, 65 cents.
PENNEY J C INC, 5.65s of 06/01/2020, 68 cents.
RADIOSHACK CORP, 6.75s of 05/15/2019, 60 cents.
USEC INC, 3s of 10/01/2014, 36 cents.
Verso Paper Holdings LLC, 11.375s of 08/01/2016, 69 cents.
Verso Paper Holdings LLC, 8.75s of 02/01/2019, 55 cents.

Best guess is that GNK, JRCC, JCP, RSH, and USU are all going to zero in the next few years. Verso was supposed to merge with NewPage, but the deal was contingent on Verso bondholders agreeing to an exchange offer that would basically give them a 50 percent haircut.

Paper: "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets"

JC Penney (JCP) has been in the news a lot regarding their new "simple" pricing model - which doesn't seem to be working well. (Apparently, it led to one of the fastest revenue declines ever for a department store. An article talks about why this might be the case:

"Gabaix and co-author David Laibson wrote a brilliant (if depressing) paper on shrouding and 'information suppression' that should be required reading for all consumers and executives considering a harebrained new pricing strategy."

The paper mentioned in the article above is "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets". Choice quote:

"We show that debiased consumers prefer to give their business to firms with high shrouded prices because these sophisticated consumers end up with a cross-subsidy from myopic customers [...for example, the] 'educated' customer, [anticipates] all of the marked up add-ons and therefore avoids buying them (e.g., she eats before arriving at the hotel, she brings a cell phone instead of relying on the hotel phone, etc.). The educated consumer substitutes away from the add-ons while reaping the benefits of the loss-leader room charge."

So, it's best to be a customer of a firm that has dumb customers, who subsidize you.