For JC Penney, the Right Direction May Be … Reverse

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JC Penney has its old CEO, Mike Ullman, in charge of the company again. Abundant sales and coupons have returned, as have brands that disappeared for a spell. In many ways, the JC Penney of old is back. Whether this is a good thing for the company remains to be seen.

About month ago, within days of Ron Johnson being fired as CEO and Mike Ullman retaking his former position at the helm of JC Penney, Ullman quoted in the Wall Street Journal saying that there were no plans to bring back the old JC Penney. “I wouldn’t recommend that we go back to the way J.C. Penney was when I left,” he said. “Things change.”

Still, JC Penney has essentially done a huge about-face in recent weeks, and it’s understandable why: The short-lived Johnson era, with its no-coupons stand and new focus on hip boutique brands, alienated customers and damaged sales badly. For the three-month span ending May 4, JC Penney reportedly lost $289 million, with sales decreasing 16.4% compared to a year ago — which was itself an awful period for the retailer. To bring back customers, JC Penney has been bringing back its traditional, pre-Johnson pricing and discount strategies. This week, jcpenney.com was littered with old-school discounts—for instance, 50% to 60% off patio furniture, and 30% to 40% off clothing with the St. John’s Bay label, the retailer’s exclusive brand that disappeared during the Johnson era and was brought back in March.

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Of course, there are those who view such discounts are straight-up frauds, based on artificially inflated list prices. Johnson himself would be in this camp. In January 2012, Johnson, the retail superstar who had helped turn Target and the Apple Store into huge success stories, promised to get rid of such “fake” prices and summarily slashed original prices by 40% or more. Shoppers weren’t crazy about the newly cheap list prices—because their arrival prompted the end of sales and coupons—and so in recent weeks the retailer has brought back “fake” prices in a big way. A side table that was priced at $150 in early 2013 was suddenly listed at $245—and will periodically go “on sale” for $150.

The consumer site MousePrint.org recently rounded up before-and-after prices for several JC Penney items as further proof of the return of fake pricing: A woman’s halter “tankini” was listed at $25 in January, and then in May, the same product featured an original price of $38, next to a “sale” price of $26.60; a six piece towel set listed at $30 last fall suddenly turned into a $55 towel set at some point over the last few weeks. On the JC Penney Facebook page, some shoppers have been voicing support for the return of markdowns and coupons, while others have grumbled that the pricing schemes insult their intelligence. One commenter reported seeing before-and-after prices on an item in a store:

Looked at a comforter that had a price change. Pulled off the “new” tag to see the “old” price. It was $70 now it’s $140. It’s not magically worth double overnight.

And yet this kind of inflated pricing was standard practice at JC Penney for years. When Johnson announced his dramatic overhaul to the business, he mentioned that less than 1% of store revenues came from items at full price. The takeaway for JC Penney shoppers today is that they should once more walk into stores with the mentality that nothing should ever be purchased at full price.

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It’s not just JC Penney’s pricing that could have shoppers feeling déjà vu. Johnson called his no-sale, no-coupon policy “fair and square” pricing, and he introduced a new square-shaped “JCP” logo to match. Recently, though, the retailer seems to be downplaying the square logo and placing emphasis on a new logo that looks a lot like the old logo, with the full name “jcpenney” spelled out and no square in sight.

The changes are all part of JC Penney’s latest effort to reinvent itself, apparently not with another bold makeover but by looking to what’s worked in the past. “We’re quite a ways away from seeing a potential turnaround,” Lisle Davies, of the retail-consulting firm Grayson told the Dallas Business Journal. “A significant amount of damage has been done. It’s going to take time to see if the J.C. Penney consumer is going to come back, but she’s not going to come back tomorrow.”

That comment is especially interesting because JC Penney has already begun thanking consumers for coming back. After airing an ad apologizing to JC Penney customers in early May, the retailer has since moved on with a new commercial “declaring victory,” in the words of AdAge, for the return of its loyal shoppers. “We’re happy to say you’ve come back to us,” the ad’s narrator states. “Thank you.”

So have shoppers really “come back”? Well, some have indeed. Bloomberg News reported earlier this week:

Research suggests the retailer has had a “significant” increase in sales and traffic early this month, helped by newspaper advertising and aggressive coupon promotions, Cleveland Research analysts led by Jeff Stinson said today in a note.

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Apparently, many of the consumers who hated “fair and square” pricing returned to JC Penney stores once the discounts and coupons—and inflated list prices—came back. From the company’s standpoint, however, there’s one big problem with bringing back the JC Penney of old: For years, it was viewed as a failing business model. The main reason Johnson was given such broad leeway to remake the company was because it was struggling so mightily.

Everything is relative, of course. JC Penney store sales were so pathetic during the Johnson era that, as the Wall Street Journal put it, “even a return to the bad old days of 2011 would be an improvement.”

2 comments
philipmasiello
philipmasiello

The Three Reasons J.C. Penney will not survive

J.C. Penney will not survive for very long because of the following 3 reasons. First, a retailer cannot lose as many customers as they have and expect to win them back anytime soon.  It takes four times as long to get a customer back as it does to lose them and four times as many marketing dollars.  Second, a solid e-commerce strategy has never been developed and the company is so far behind that any effort in that direction is futile. And last, the number of unprofitable real estate far outnumbers the profitable stores, which only gets worse every day.

When J.C. Penney released their first quarter earnings last week, the stock priced seemed to increase slightly with investors reacting to any positive news.  But looking at the whole picture of what J.C. Penney has become, it is hard to see anything good.

The retailer stated  "For the first quarter of fiscal year 2013, J.C. Penney anticipates total sales of approximately $2.635 billion, a decrease of approximately 16.4% from $3.152 billion in the same period last year, and a comparable-store sales decrease of approximately 16.6% for the quarter compared to the same period last year. The sales decline in the first quarter is partially attributable to construction activities in connection with the transformation of the home departments in 505 stores. The company noted that results for the quarter also reflect its prior pricing and marketing strategies, which are being changed under new leadership."

What J.C. Penney is not talking about is the real number of lost customers which some estimates put as high as 1.5 million customers.  That is one of two true measures of how bad things are.  The second is the 35% loss in e-commerce sales since last year.  Customers online and offline are clearly dissatisfied and the perception of J.C. Penney is negative. 

I have founded both brick and mortar and e-commerce retail over my career and can tell you with certainty that losing customers at that rate is leads to a death spiral.

J.C. Penney's has over 1,000 stores in the U.S. with a large amount of them unprofitable.  The double digit loss of sales they have experienced over the last year has only compounded this problem.  Closing stores is inevitable, which is going to lead to more lost customers and more store closings.  Ultimately, the company will close or be sold because there is no real reason customers should come back to J.C. Penney.  There is no core competency that they possess that their competitors do not.

I think Ron Johnson was more of a lucky man than a smart one and absolutely full of himself.  Let’s face the facts. He EXECUTED Steve Jobs vision for the Apple stores.  He did not come up with the idea.  He EXECUTED the Target vision that was already in place.  He did not develop the concept.  Having the reins of JCP, he tried to run a staid retailer like a startup.  The only issue is that in a startup, the customers are new and you can get them to understand and buy into your concept through marketing and execution.  Here, he tried to change the customers to his idea of how to run a store.  Marketing 101 – develop concepts that appeal to the needs of the customer, never try to change a customer.  It doesn’t work. 

It is time for management to develop an exit strategy, quickly.

jjjjmonkey
jjjjmonkey

@philipmasiello Unfortunately those outside of retailer may not understand one of your main points, and I would like to emphasize it for those who may not want to listen.  It is so hard to get back customers that have abandoned a store or a brand.  It is not just about putting the coupons and promotions  back in play and all of a sudden people will come running back.  

As a comment to the author of this article, I think calling Ron Johnson a retail superstar at this point is not a good representation of the facts.  I think it is a serious exaggeration. No doubt a good opportunist, but the retail market has changed since he was at Target.  That is one of the first things he should have been addressing in his turnaround strategy.