After Sales Plunge in the First Quarter, J.C. Penney Getting Promotional Again
When former Apple (NASDAQ: AAPL) exec Ron Johnson was hired as CEO of struggling retailer J.C. Penney (NYSE: JCP), he outlined a strategy which spurned the company's previous highly promotional approach in favor of more straightforward pricing. To this end, the company implemented a three-level selling plan and scrapped its numerous sales and promotional events. The new approach was announced in January.
In the first leg of the strategy, JCP cut prices on all of its merchandise compared to last year's regular prices and called this "Every Day" low prices. Additionally, the company implemented sales that last a month, called "Monthly Value" discounts. J.C. Penney also holds sales on certain merchandise marked for clearance on the first and third Friday of each month. These sales, known as "Best Price" deals, coincide with when many consumers receive their paychecks.
At the time of the announcement, Johnson was firm in his conviction about the change in strategy at the retailer. "We have made the decision to change our pricing strategy, and we're going to stick to it," Johnson said in January. After a disastrous first-quarter, however, it now appears that J.C. Penney is looking to revert back to a more promotional stance. The company held a Memorial Day weekend sale and is reported to be planning a Black Friday event. In all, JCP has planned an additional five Friday sales this year, expanding its "Best Price Friday" program.
The catalyst for the move appears to be the company's disastrous first-quarter where total sales plunged 20% and same-store sales fell 19% helping drive a steep operating loss in the period. The results sent JCP shares down nearly 20% on May 16 and have raised questions about whether the brand is fundamentally broken. In light of the new information from the company about additional sales, it is clear that Johnson and his management team are feeling the pressure.
The company told Charles Grom, retail analyst at Deutsche Bank, that it would be holding five extra strategically timed "Best Price Friday" events this year, including one on Black Friday, according to the Wall Street Journal. The other special Friday sales may be held during the Christmas and back-to-school seasons, the Journal speculated. According to Grom, the change - occurring so soon after the implementation of the straightforward, three-tiered pricing approach - could backfire.
He described the move as "a change in strategy that is an admission the company's existing three-tiered pricing strategy has flaws--less than 120 days since Ron Johnson's new model took course," Grom said. "We believe the move could confuse its shopper base even more, with some Fridays now 'Best Price' and some others not."
In any event, investors continue to sell JCP shares amid the confusion and terrible operating environment at the company. On Wednesday, the stock fell another 3.53% to $27.02 amid a broad sell-off in retail. Shares have now lost more than 23% year-to-date.
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