How does JC Penney stop the bleeding?

St. Louis Post-DispatchApril 13, 2013 

Well, that didn't work. So now what?

After being in a free fall for more than a year, J.C. Penney is finally trying to stop the bleeding. Ron Johnson, the former Apple executive who promised to breathe new life into the American department store, was finally pushed out this week as chief executive. His bold pricing strategy, which basically eliminated sales and coupons, not only fell flat -- but, well, bombed.

Martin Sneider, a retail professor at Washington University in St. Louis, was skeptical from the start about Johnson's "fair and square" system of low everyday prices. After all, he has seen many other retailers in the past try to wean consumers off sales -- and fail miserably.

So what does J.C. Penney do now to get itself back on track?

At this point, Sneider said, the company needs to move fast. And it needs to do this: Bring back the promotions.

"My guess is there will be sales galore -- and lots of advertising urging customers to come back to the store," he said. "This is an

emergency situation."

After all, it appears J.C. Penney has lost about a third of its customers in the past year while this experiment has been playing out, Sneider noted. Sales plummeted 25 percent in the last fiscal year.

Myron Ullman, J.C. Penney's former CEO, was tapped earlier this week to come back to help right the ship. Sneider's guess is that Ullman will be an interim leader who will serve for a year or a little more to help stabilize the company. It's not unlike when Warren Buffett was brought in to help Salomon Brothers in the 1990s, he noted.

After bringing back sales, the next question will be what to keep and what to jettison from Johnson's overhaul. What about the 400 brands he kicked out of the department stores?

Johnson had thrown out many of the brands the company has sold for years in favor of more contemporary and upscale brands to infuse the stores with a fresher, more modern assortment.

"Ullman needs to go to Seventh Avenue and convince those brands that they belong in J.C. Penney because their customers have historically liked those brands," Sneider said.

And then there is the physical remodeling of stores into mini-boutiques, which is still in the midst of being rolled out. One of those stores-within-a-store concepts was Joe Fresh, which began hitting stores last month.

At a Des Peres, Mo., store, there's evidence of the next stage, which is under construction and will result in new home stores. The smell of sawdust is unmistakable, and huge white tarps separate the areas being remodeled.

Robin Lewis, an independent retail analyst, praises this store-within-a-store concept and said he hopes -- and expects -- that Ullman will stick with them.

"I can't imagine they are going to stop the conversion of those stores," he said. "What are they going to do -- have half of the store looking modern and the other looking like the 19th century?"

Lewis, who admits he originally bought into the "fair and square" pricing strategy, added that Johnson's "catastrophic misstep" was to put the new pricing into place before the stores had been transformed.

"Had he done that first, the consumer would have seen all of the added value," he said. "They would have experienced this wonderful new place." Instead, he alienated his core customer base, many of whom were older folks who were accustomed to their coupons and sales.

Still, Lewis acknowledged that it's not clear whether the pricing strategy would have worked if it had been enacted after the stores were remodeled. But it would have at least had a better shot, he ventured.

In the past few months, as Johnson felt pressure from Wall Street, he had begun to backtrack a bit on his pricing, bringing back some sales and $10-off coupons.

Some of his defenders say he wasn't given enough time, that the sales would have begun to turn around after the stores were completely remodeled.

"But it's the old story: Money talks," said Lewis.

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