J.C. Penney to Change Prices Amid Revamp
J.C. Penney Co. (JCP) Chief Executive Officer Ron Johnson today laid out his plans to revive the retailer, starting with an overhaul of pricing and store layouts.
The retailer is introducing a three-tier price model and will scale back sales to 12 a year, Johnson told analysts today in New York at his first public presentation heading the Plano, Texas-based company. Each month, J.C. Penney will offer discounted prices on seasonal products, such as back-to-school items, and will also have so-called “best prices” promotions on the first and third Friday every month, he said.
Investors are looking to Johnson, who built Apple Inc.’s (AAPL) retail operation, to revitalize a department-store chain that has suffered as the housing slump and persistent unemployment cut spending by its target middle-income shoppers. Johnson said the pricing plan may help triple sales.
“Johnson needs to make J.C. Penney a destination, which it hasn’t been in decades,” Craig Johnson, president of Customer Growth Partners in New Canaan, Connecticut, said today in an interview. “He did that for Apple, but now he must do that for a tired mall anchor. His background at Apple might serve him well, but merchandising a department store is much more challenging.”
The shares, which jumped the most in a decade the day Johnson’s hiring was announced in June, fell 1 percent to $34.27 at the close in New York and rose 8.8 percent in 2011.
J.C. Penney will spend $80 million a month to promote monthlong sales events and will feature Ellen Degeneres in television advertisements. The chain will also reconstruct store layouts and change the colors and presentation on a monthly basis to promote sales. The company had 590 promotional events last year, Johnson said.
The new pricing and promotions will begin Feb. 1, the company said in a statement today. The retailer will divide entire locations into as many as 100 small shops inside stores, adding new brands each month including Martha Stewart and Nanette Lepore. The company expects to have 30 new and revamped brands this year. In the center of each store will be a so- called Town Square featuring services.
“We have to have better pricing,” Ron Johnson said today in an interview with Bloomberg Television. ”We have to improve our products and presentation.”
J.C. Penney’s same-store sales growth trailed the average rate for 17 retailers in 11 of 12 months last year, according to data compiled by Bloomberg. Net income has declined for the past three years.
The company cut its fourth-quarter profit forecast earlier this month, citing lower-than-expected sales and additional markdowns.
“No one said it was going to be easy,” President Michael Francis said today in an interview. “But we also have to remember that for half of America this is a still a brand that they admire, respect, visit and have an affinity for. So we’re not starting at zero. What we’re doing is really taking the tarnish off the brass if you will.”
Francis came to J.C. Penney in October from Target Corp. (TGT5), where former executive Johnson helped introduce designers such as Michael Graves to give that retailer its “cheap chic” reputation. Johnson has also brought in former Apple executives as chief operating officer and chief talent officer. His first strategic move was an agreement with Martha Stewart to sell home and lifestyle merchandise.
Stewart said Johnson’s acumen in reinventing brands and merchandising convinced her to sign on.
“Ron is a total genius when it comes to dissecting an industry,” Stewart said in an interview at the presentation today.
Both Johnson and Francis talked about restoring luster and theater to department stores. Johnson recalled the excitement of trips to the Dayton’s store near his home growing up, before department stores “got lost in the retail landscape.”
Mervyns LLC, a California-based department store chain, filed for bankruptcy protection and closed its stores in 2008 after six decades in business. Mervin Morris, founder of that chain, attended today’s event and said he believed that Johnson could steer J.C. Penney through the changes in the industry and revive the retailer.
“I’m betting on the jockey, not the horse,” Morris said. “Ron Johnson is the jockey and I’ll bet he’s going to make it happen.”
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