Hope for J.C. Penney
Things are looking grim for J.C. Penney.
The company’s stock began the year at a price of about $20 per share and recently traded around $13.
Earlier this month J.C. Penney reported that it lost $586 million in its fiscal second quarter with sales falling a disconcerting 12%.
And hedge fund manager Bill Ackman dumped his 39 million shares just this week, giving up hope for a rebound. He took quite a loss in the process; he purchased the shares for about $25 each and sold them for less than $13. This is a classic buy high, sell low approach.
At this point few people have much hope for the retail giant.
But I do.
J.C. Penney is a brand that totally lost its way under CEO Ron Johnson. Business school professors will be talking about the astonishing story for many years.
From J.C. Penney we can learn answers to important questions like this:
– What happens when you abruptly try to reposition a brand?
– What is the impact of a huge reduction in discounts?
– What do customers do when you insult them?
Ron Johnson is pursuing other interests and J.C. Penney is focusing again on its core customers. I suspect many of them will come back. Brand equity is powerful and lasting. J.C. Penney remains a relevant brand for many. When the selection and pricing are right, they will return.
It won’t be quick. The problem with retail is that buyers have to make decisions far in advance and resetting stores takes time. J.C. Penney can’t shift gears overnight. Over time, however, the company will rebound.
Look for the brand to surprise people in 2014.
Tim,
As soon as JC Penney announced its plan to go “every day low pricing,” I could hardly believe it, Was there no institutional memory of what happened when Sears tried this? I worked at Sears for 31 years in the research and consumer research departments. I cannot recall specifically when this happened, but we (Sears) tried to go EDLP and it was a disaster. (Mid-1980s?) It clearly proved that you cannot change your model from High/Low-Sales to EDLP. Your core customers like it the way it is and will not accept the change, regardless of how reasonable the change might be. (I still remember the tv ads at the time, showing a hand-held label maker smoking, it was being so overworked.)
Jane–Interesting to hear Sears tried the same thing with similar results. EDLP is so appealing, at least in theory. It just doesn’t match how people actually make decisions!
Tim
Tim,
Interesting points you’ve made, I’m extremely excited to see how the brands turn around in 2014.
If you have a chance could you check out this inforgraphic and give your opinion about it? I’d really like to hear your thoughts.
https://www.ironwoodfinance.com/working-capital-loans-for-small-business/
Interesting point of view, I wonder if refocusing on their loyal customer base is a recipe for success? More than half of JCPenny’s customers are over the age of 55 and only 20% have household incomes over $100k (nearly 30% below $35k). I can see why they tried to reposition, not a lot of life left (pardon the crude pun) in this current loyal customer base. Kohl’s is on the other end of the spectrum in both age and income, so we’re not just talking about high end retailers who serve the more profitable market segments.
I would add to your list of questions: What happens when a brand loses relevancy? (exhibit a: Montgomery Wards, Sears, K-mart…JCPenny?)
Source on the customer stats: https://www.businessweek.com/articles/2013-04-10/j-dot-c-dot-penneys-shoppers-are-older-poorer-than-you-thought
Jake—Well said. I agree that long term JCP needs to connect with younger consumers; there was a reason for the big repositioning effort under Johnson. In the short run they should be able to win back their (aging) core shoppers and get a nice jump in revenue off a low base.
Tim