JC Penney Going for Broke / Luxury Conference in Boston, MA

Ron Johnson’s Original Turnaround Plan for JCP – Circa April 2012

The Gist:

Less than a year ago, I wrote about JCP’s “square pricing” strategy created under CEO, Ron Johnson. The pricing strategy was intended to help the retailer grow its business, however, latest indications show the company has recorded four consecutive quarters of decline.

In combating the consumer backlash, Mr. Johnson is rolling out some of the previously discontinued sales that JCP is known for. There is no indication as to how many sale campaigns the retailer will bring back, but JCP’s CEO has vowed not to return to levels where the company ran up to 600 sales promotions each year. Supposedly, the retailer is going to introduce a limited number of promotions that tie in with the core habits of its consumer set – shoppers who only buy when they need something and require high value.

It’s bad enough that most of JCP’s consumers have decided to shop at its competitors (Kohl’s, Target, Dillard’s, and Macy’s to name a few). What’s worse is that Wall Street investors have also lost confidence in the stock. After losing more than half of its value, Penney stock is now trading at around $19. The company will also find it hard to raise capital as its credit rating is in the realm of “junk status”.

There is still no light at the end of the tunnel for Ron Johnson’s (RJ) turnaround. Though I was very pessimistic (and correct) in my initial assessment in April, 2012, I wouldn’t quit on RJ just yet. You do know he turned Apple and Target’s retail performance around, right? The past is the best predictor of the future. I just might roll the dice on some JCP stock.

Question

Where do you need to be this month?

Harvard Business School

Answer

In Boston, at the Retail and Luxury Goods Conference, at Harvard Business School. It happens every year (this is the ninth) and is never a dull event. I had some of my best professional moments there. If you can’t make it, you can trust that I’ll take notes for you.

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JCPenney’s New Retail Strategy Expected to Hurt Performance

Article Link – Penney’s Pricing Strategy takes a Toll on Sales

Ron Johnson’s bet on JCP’s new retail strategy will not come without its costs. Analysts on Wall Street are expecting JCP’s revenues to drop by “seven percent this fiscal year”. This is worse than the previously forecasted two percent drop because analysts believe “shoppers accustomed to seeing big discounts [will] go to rivals like Macy’s Inc.”. Same-store sales are expected to drop nine percent – lower than the four percent drop that was originally anticipated.

Penney’s new strategy is simple – three tiers:

  • “Everyday” prices that are 40% lower than what they were charging a year ago;
  • Month-long sales on select items; and
  • Clearance events during the first and third Friday of each month (to coincide with employee payroll distributions)

Though the street expects dire consequences for JCP’s stock in the short term, it also believes that Ron Johnson’s plan will pan out in the longer term by eliminating “unprofitable promotions and [improving] its profit margins overall”.

If successful, this will be a major change in retailing because suddenly the promotional activity will decrease and other retailers will also have to find ways to attract customers… but this is going to take time.

– Walter Loeb, New York-based retail consultant

JCP is expected to offer more details on its performance when it reports its quarterly earnings results in May.

My View: This is a long-term bet, not a strategy that will yield postive returns in the next six to 12 months. Ron Johnson is not trying to change his strategy – he is trying to change the rules of the retail game. His bet is riding on a revamp of the entire retail experience.

Disclaimer: I do not own, or plan to buy any JCP stock in the next 48 hours.

Rant on How Your Crazy Ideas Define You

As we end the first month of 2012, thoughts of the progress I have made with blog and my other luxe pursuits baffle me. Here’s my summary of it all…

Sometimes you never know what will come of your crazy ideas. Before you know it, you have a brand. The brand isn’t really yours. It belongs to those who identify and personalize it in their hearts and minds.

Your brand is the befitting proxy for your beliefs, tastes, vision, and passions, whether or not you are physically present in the many conversations, transactions, and encounters people have with it.

Beyond all material success, the pursuit of an identity is the single most indomitable challenge some of us will ever undertake.

Here’s to pursuing the weird ideas that make us who we are. The worst that can happen is that you fail. Failures are necessary transit points to success. Even if you fail at something, you are closer to finding out just who you are.

Keep thinking, stay hungry, and embrace the beautiful struggle.

– Edmund Amoye Continue reading