Is JC Penney imploding?

As the department store energetically reinvents itself, customers reject its new pricing model, and the plunging stock price reflects their sour mood.

By May 17, 2012 2:56PM

JC Penney (JCP) reported this week that sales dropped 20% in the past quarter, a lower-than-expected result that caused the company's share price to suffer its worst single-day loss in 40 years.

Boosting sales has "been tougher than anticipated," conceded CEO Ron Johnson, brought on last year to "inject much-needed color, life, and enthusiasm into JC Penney's drab stores," says Abram Brown at Forbes.

The news in June 2011 that Johnson, the genius behind Apple's (AAPL) popular retail stores, would become CEO triggered a surge in JC Penney's stock price. So far, though, he has disappointed. Here, a guide to JC Penney's travails.

Why are sales falling? 
Customers are proving allergic to JC Penney's new pricing plan, implemented in January. Johnson switched the chain's focus from blockbuster sales and discount coupons to an "everyday low" pricing scheme, in which customers could more or less expect the same prices all year round.

"It seems many faithful Penney customers have stopped shopping [there] altogether," says Anne D'Innocenzio at The Associated Press. Johnson admits that customers without "a coupon in their pocket or in their hand" and an inadequate grasp of the new pricing model had less incentive to go to JC Penney.

Why don't customers like consistent low pricing? 
Johnson says that a recent advertising blitz "failed to communicate to consumers exactly what its new pricing policy meant," says Barney Jopson at Britain's Financial Times. One ad, called "Do the Math," uses a summer dress "to illustrate how its everyday lower price comes out to less for a shopper than a sale and a coupon," but the ad didn't catch on, says Phil Wahba at Reuters.

The widely criticized spots mimicked the "whimsical style" of retail giant Target (TGT) (where Johnson also worked), but sacrificed a clear message about prices in efforts to be cute, says D'Innocenzio.

Will JC Penney return to big bargains? 
Not according to Johnson. He envisions the entire overhaul taking at least four years, and says initial losses are to be expected. While the "new pricing strategy underscores how difficult it is for a company to change the way consumers behave," JC Penney and other retailers think it's imperative to wean customers off the deep discounts that have been par for the course since the recession began, says D'Innocenzio. 

Can JC Penney turn the ship around? 
It depends whom you ask. Some investors say "Johnson's ambitious ideas need time to gel," says Brown. And Johnson has more new initiatives up his sleeve, opening a line of boutique stores that will appear in each JC Penney beginning this August, says Roland Jones at MSNBC. The chain has also announced new collaborations with high-end designers Vivienne Tam, Betsey Johnson, and Michael Graves.

Best Opinion:  ForbesA.P.Financial Times, Reuters, MSNBC

More from The Week

May 17, 2012 10:21PM
"Johnson admits that customers without "a coupon in their pocket or in their hand" and an inadequate grasp of the new pricing model had less incentive to go to JC Penney."

Wrong, wrong, wrong, wrong, wrong, wrong, wrong, wrong, wrong, wrong. We grasp the "new pricing model" just fine. It's a model that attempts to rape customers by doubling the price on everything we buy. (ALL of my clothes that I previously bought at JCPenney doubled in price under the new pricing model.)

So sure, it's true our perceptions of the pricing model have stopped us from shopping there. But it's not our perceptions' fault, it's the pricing model.
May 18, 2012 9:52AM
When you start paying a CEO over $53,000,000 ( WOW, got writers cramp just putting in that amount ) for 2 ( TWO ) months work (?), that is the day I stop buying there!!! They have to sell ALOT of underwear to make up for that. Who in the hell is worth that kind of money???? It used to be that the average CEO made 10 times what the average worker made. Now it is over a thousand times!!! Guess I am missing something????
May 18, 2012 9:04AM
JCP has been systematically cutting its older workers, either through reassignment to the bottom of the pile or laid off or just not replaced after retiring or quitting.  Have you noticed the lack of registers and absence of customer service, catalog department or sales reps?  The new CEO is gutting the company to avoid even higher losses from alienating their customer base.  They won't last long and Johnson probably has his golden parachute agreement already signed and filed. 
May 17, 2012 4:43PM
I was a faithful shopper at Jcpenney because it use to be a place to get really nice work clothes and homegoods, without having to spend a fortune because they did have good sales, yet it still gave off a classy and nice atmosphere. With their new pricing "scheme" it comes across as only a slight step up from Sears (which we know has completey gone to crap) so not only is the environment trashy, but you feel like you aren't getting a good deal anymore.  They shouldn't have done this and I don't think it is a matter of getting use to it, I think it's the beginning of their downfall. They have racks that say things like "Best price $3" then in fine print they say "and up" so at first glance you think everything on the rack is $3, but when you look closely there is maybe one thing for that price and everything else is around $18, it makes you angry and fed up! I have now moved permanently to shopping at Kohls where I can still get nice things on sale in a decent environment.
May 17, 2012 4:43PM
I was in Penneys this past weekend.  The prices weren't bad but they had the uglest stock I have ever seen.  I'm not sure who they think would wear most of these clothes but I don't think it will be an average american shopper.  Give us some cute choices and we'll be back.
May 17, 2012 9:30PM
that's the problem!!! You don't bring a GENIUS behind APPLE stores to work in an apparel industry!!!  Have you seen the catalogs they send out each month?? Looks like a Nordstroms catalog on expensive paper and boxes signifying ICONS like on a computer??? Seriously???? Say they are saving money when the prices are HIGHER not lower & it cost money to put out that type of catalog instead of the paper advertisements they used to have!!  I agree @Sonny54!!!  Everyone I talked to loved Penney's and were advide shoppers. They all knew their prices, did their homework after the change & were not stupid to the fact the prices were higher by 3-5 dollars!!  It's nothing like "Whimsical Target" it's worse!!   Everyone I know boycotted.  Sorry Penney's you tried but, didn't work & still isn't working!!  If they don't get rid of that guy ~ it will be worse!! 
May 18, 2012 9:14AM
I hate how our store has gone from smaller racks where you can see the clothes to GIANT long racks stuffed with so much you can't see it.  Also, JCP you aren't trendy, stop trying.  Those of us who used to shop there liked the professional quality of the clothing, not trendy junk.  Our store recently put a GIANT makeup area right in the middle and now you can hardly move around the store.  The kids' departments are total junk now, I don't know what "Total Girl" brand is but it is horrlble.  How many pairs of cut off sweatpants shorts do you think I will buy?  Combine all that with the lack of registers and I'm shopping at Kohl's.
May 17, 2012 9:29PM
May 17, 2012 9:51PM
I really don't like the new JC Penney campaign and the way the store is set up. The quality of some of my favorite items is gone, there are less cashiers, and over zealous sales people on the floor. Why did you fix something that was not broken.
May 18, 2012 9:16AM
May 17, 2012 5:39PM
The Pennys in our town must think they are in Mexico. I live in a solid middle class town in California, but at our store the announcements are in Spanish first, then English and many of the signs are too. As if that wasn't bad enough, most of the stock now looks like it is from a Tijuana flea market too! I will drive to another town before I will shop at J.C. Penny!
May 17, 2012 4:27PM

A few reasons why I no longer like JCPenney and try to find ways to avoid shopping there.

1.  Their "everyday low prices" aren't even close to a bargain. This month I priced a 5 foot area rug for my home. Without a coupon the prices Pennys offered were no better than the big online rug stores (which charge no sales tax for most states). There were very few "monthly price" rugs available and I didn't want to wait until a rug I liked had its price lowered for a "Monthly Sale". I bought a rug on closeout from an online discount site for about 40% less than Penneys plus no shipping and no tax.

I used to buy all my area rugs from Penneys. I never will again unless they bring back the coupons. The prices stink.

2.I have not once been into a JCPenney store since they stopped sending out coupons. No coupon no incentive to go. These prices will be here next month and next month and next month....

3. Their quality has really really gone down hill!! I bought a set of "pure perfection" towels last year while they still offered coupons. The towels are 5 months old and the hems are starting to unravel. Crap crap crap!!! Why did they ever get rid of the JCPenney home collection towels??? These were award winning towels that held up very well. I used to buy all my towels from JCPenney...never again. I have since found a micro cotton line of towels from another department store that I love. Yes they cost more but the quality is incredible.

May 18, 2012 8:52AM
I bought blouses for work there and they were a good price and I loved them. They get washed about once a week. after about a month they had tiny holes in them. The material just fell apart. I agree that the quality of clothing has dropped. If I want cheap clothes that fall apart quickly when worn often I'll shop at the big box stores.
May 18, 2012 11:54AM
For me it hasn't been the pricing that has haulted me from shopping at JCP its the styles and merchandise.  I don't like what the JCP buyers are providing for us. I am not a teenager but I am also not an "old lady."  I want fashionable, stylish clothing, shoes, purses too but I don't want to look ridiculous in a tight shirt with giant ruffles and pants that show my butt crack when I bend over!  Or my other choices are old lady pants with elastic.  I miss the old JCP!
May 18, 2012 8:58AM
 I was hired for a temporary job with possible retention when this secret pricing strategy was being prepared for roll out. We were told to explain to anyone who asked that we were preparing for "an exciting new strategy" and to say nothing about what that was. The management at my store promised a month working twenty to twenty five hours per week but each night I was there (for an hour's drive one way) I and a couple of others got to work just 3 hours (the legal obligation) before being sent home. After a week of this, mgmt. were hateful, rude, and denigrating when I stated that I was scheduled for more hours and would prefer to work my full shift. During the three weeks I actually got to work, no one acknowledged us as team members. We were personas non-grata. I observed few customers and the store was a mess; a far cry from what I used to see in the past.  I would do anything I could to make the store appearance nicer and try to help whatever customers did come in but no one recognized this. There was drama between the management team. I often thought that if the company was this way from within then no wonder it is in trouble.    
May 17, 2012 5:17PM
We stopped shopping there several years ago because of the poor selection in the girls 7-16 department.  Everything was sequins, glitter, and screen prints of Hannah Montana.  The clothes looked trashy!  My youngest daughter was going into 7th grade and she said, "I don't want anything from here otherwise I'll look like a baby hooker on a budget." Now we shop at Old Navy, H & M, Wet Seal, Aeropostle and Kohls.  JCPenney needs to take a look at other stores and the styles and try to keep up with the times.
May 17, 2012 9:38PM
Unfortunately the new pricing  doesn't thrill me or any one in my family....The things I have tried to buy from Penny's ( things that I buy consistently ) have ALL been out of stock!!! Mr. Johnson thinks it will take  4 years for his "over haul" to come together?? At this point I don't think JC Penny will last.
May 17, 2012 9:30PM
I used to love Penney's.  I don't have a problem with everyday low pricing. Neither do I have a problem with Ellen as their spokesperson.  I just don't like their clothing anymore.  It seems to me that everyday low pricing = everyday low quality and unappealing apparel.
May 18, 2012 7:27AM
he says the customer doesnt get the new pricing??? flash we do, its just you dont understand the customer
May 18, 2012 8:47AM
what i'm finding is pricing is higher, there was a time i could go in fin something for 50% off use a coupon and penny's card and get out paying way less than the everyday discount
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