JC Penney makeover still bloody painful
The retailer's struggles continue, and it must act fast to stop the hemorrhaging.
By Susan Aluise
"Genius is an infinite capacity for giving pains," Oscar Wilde wrote. That just about sums up how J.C. Penney (JCP) shareholders are starting to feel about CEO Ron Johnson's strategy to transform the struggling 110-year-old retailer by fusing competitors' merchandising and pricing strategies with the vibe of Apple's (AAPL) Genius Bar.
Just six months into Penney's extreme makeover, one thing is abundantly clear: Ron Johnson's experiment is not going well.
Last week's sudden departure of JCP president Michael Francis, the highly regarded former Target (TGT) executive charged with drawing up a new merchandising and pricing strategy to compete with Wal-Mart (WMT) and others, is just the latest tremor to shake the retailer since it unveiled its new strategy on Jan. 25.
In a tersely worded statement, the company said little more than that Johnson is assuming Francis' duties and will not seek a replacement.
However, Johnson was more candid about the changing of the JCP guard in an interview with Women's Wear Daily's David Moin: "The marketing I largely left" to Francis, Johnson told the fashion industry newspaper. "The fact that it hasn't resonated -- I had to get involved."
Francis' departure was the company's second high-profile executive exit in the past 70 days. CFO Michael Dastugue, a 21-year JCP veteran who had held the CFO job for only 15 months, left the company in mid-April.
So last month, it fell to his interim replacement, COO Mike Kramer, to help Johnson explain JCP's colossal first-quarter earnings miss. The company reported a $163 million loss, compared with a $64 million profit for the same quarter last year -- more than double the loss analysts had expected. The top line was ugly, too. The $3.2 billion revenue is 20% lower than last year's.
And it gets worse: Same-store sales during the quarter fell by nearly 19%. Its margins and store traffic also fell markedly.
After hitting a 52-week high of $43.13 two weeks after Johnson unveiled the new strategy, shares have hemorrhaged half their value. JCP currently is trading around $21.50, having dropped 4% since news of Francis' exit broke last Tuesday. Another pain for investors: JCP suspended its dividend.
Penney's performance was hardly what Johnson had in mind when he and Francis launched the extreme makeover at a posh party in Manhattan in January. That makeover included taking a page from Target's playbook by launching new budget collections from designers like Nanette Lepore (whose real brand graces the racks at Neiman Marcus) and featuring Martha Stewart's home collection.
Penney stores would also be revamped to look like the retail stores Johnson launched at Apple, including a variation on the tech retailer's Genius Bar concept.
But at the core of Johnson's transformation strategy was JCP's new three-pronged Fair and Square pricing scheme: everyday regular prices, "monthlong values" and "best prices" available on the first and third Fridays of every month. JCP customers traditionally have been attracted to the retailer's many sales and coupons. Johnson believes they need to be "weaned off" of those old habits and retrained to buy products at everyday prices.
JCP planned to pony up $80 million a month to advertise the new pricing scheme, the centerpiece of which were TV ads featuring comedian and talk show host Ellen DeGeneres. But many customers found the ads confusing, and the absence of sales and coupons were a good reason to shop elsewhere.
The company has since reintroduced the once-taboo word "sale" into its vocabulary, replacing "monthlong values."
Johnson remains committed to his strategy, attributing the early disappointments to a failure to "communicate pricing strategy to customers."
But here's the thing: Customers loved the sales and the coupons. Johnson admits they "were a drug" that drove traffic. But that hasn't dampened his determination to force JCP shoppers to give up their coupon addiction and go cold turkey.
Forcing change is an epic achievement, if you can accomplish it. The task is far easier if you've cornered the market on a hot tech toy like an iPod or iPad. Johnson had that advantage when he was in the fast and frenzied process of launching Apple Stores. He doesn't have that edge at Penney.
It's only logical that shareholders are getting more than a little antsy about Johnson, who was paid a whopping $53 million last year simply on the promise of turning the company around, as InvestorPlace editor Jeff Reeves discusses here.
Trying to make consumers "realize" that what they want to buy and how they want to buy it is wrong and is, at best, like herding cats. Shareholders will be better served if Penney's "genius" hits pause on his new mantra and replays that time-tested retail motto "the customer is always right."
But until that happens, I'd avoid JCP and all the pains that go with it.
As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.
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I worked at a suburban JCP back in the 80's for approx. 6 yrs. Their current strategy, while couched in terms like "new" and "modern" and "like Apple..." is just hype. The core of the company's thinking has not really changed. Look what they are doing....they want the younger shoppers but go with Martha for home goods...Here is a for instance....way back when they had an extremely successful candy department...there would be lines out the door around the holidays for candy, roasted nuts, etc.. one day the store manager stopped by to ask the employees what they thought of a stocking a brand of well-known high end chocolates, marked up significantly of course. The employees honestly stated the chocolates wouldn't sell. Didn't matter...they spent thousands revamping an entire section of the department to market chocolates that they liked the "idea" of selling, but priced themselves too high for what the average consumer would purchase. Once the crap sat on the shelves for months and finally got reduced in price, it sold. Follow that same strategy for clothing...get someone hip like Mary Kate and Ashley to sell their line in JCP and you MIGHT get the younger women to shop...hire someone genuinely into fashion to redesign the damn dressing rooms and floor plans...get Katie Holmes, who has great fashion sense, to do the kids departments with a Suri brand! WHY would you choose Ellen Degeneres for your spokesperson??? Get Channing Tatum to endorse a young men's fashion line and get his posters up everywhere in the men's dept. The WOMEN buy their men's clothes!!! JCP is still stuck in the 50's and they can't decide who they want their customer to be. Dump all the men CEO's, COO's, etc...and move up some of the women within the ranks who have been trying to make their male upper management see reason for 50 years with no success.
i can't speak to the other issues as for as quality of the apparel, name brands they stopped carrying etc... for the most part i purchase arizona men's jeans and usually i can only get a couple years of wear on them before they start ripping, but that is the norm anymore. i remember when i was in HS back in the 90's i had jeans i wore through HS and college and only had to get rid of them when i started putting on a couple extra pounds. jeans these days don't hold up like that anymore!
Cancelled my JCP card, and have no reason to buy there anymore. First the prices are not fair and square and they no longer carry the standard brands that I purchased. They lose me as a customer. Even if they bring back the coupons, if they don't bring back the tried and true brands what difference does it make.
JCP you messed up, big time.
I was a JCP shopper for nearly all of my adult life and my mother use to shop there with me when I was a child. We LOVED it! The merchandise was upscale enough to look like you were getting something from expensive stores, while at the same time affordable for the working family. When the buyers for the company started replacing the "good" stuff with "cheap" WalMart type of stuff, I quit going. If I want Wal-Mart, I'll go to Wal-Mart and not pay the "good store" price. Then they did away with the catalogs, sales and coupons. It's no longer a treat for me to shop there. I have a news flash for the Bd. of Directors....YOU don't DICTATE how I'm going to spend my money--esp. if you want me to spend it with your company! Suggestion: Fire Johnson...after all.. there's a REASON he's no longer at Apple--esp. if he were all that fabulous!!! No one lets the "golden goose" get away....
I had been a long time shopper of JCP but after the "the new pricing" strategy, I have not bothered to shop there. I have looked online at their new changes but I am not interested. I don't mind using coupons of any sort and resent the notion that I need to be weaned off of that concept. What a lot of these failing stores need, is to be more in touch with the real consumers that shop their stores. CEOs are out of touch with how useful coupons and discounts are to the average American family. Obviously, they don't know as much as they think they do about the spending habits of mainstream America.
Life is so lonely .I am a older and single man at present .I need a woman who can love me back .I also uploaded my hot photos on..... Boomermingle...... under the name of DM1129..It’s the largest and best club for seeking CEOs, seniors, successful people, users over 50.. Please Check it out!I’m serious.
Home Depot and Chysler? If JCP wants to get back on track they need to look at who is shopping at their stores which for the most part is not anyone under 40 years of age. JCP like SEARS are destined for failure given their lack of direction, merchandising and ability to attract shoppers in all
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