JC Penney Tries to Woo Back Core Customers

By Casey Quinlan  FEB 08, 2013 1:38 PM

JC Penney appears to be reevaluating its low everyday prices strategy, adding more promotional sales and signs to show how much customers are saving.

 


When Ron Johnson was chosen as CEO of JC Penney (NYSE:JCP) in June 2011, he shocked investors by announcing that he would permanently mark down prices 40% instead of attracting customers through a steady stream of sales and promotions. He called the new prices "fair and square," and he expected customers would prefer consistently low prices to the thrill of bargain hunting and self-satisfaction of coupon hoarding.

Customers, however, didn't buy it. Literally. JC Penney's promotions were the main draw for the retailer's frequent shoppers who love the thrill of the bargain hunt. As a result JC Penney's stock price has fallen 45% to $19.81 from $34.51 when Johnson took over. The company reported a net loss of $123 million or $0.56 per share in the fiscal third-quarter of 2012.

Now JC Penney appears to be reevaluating its strategy, adding more promotional sales and signs to show how much customers are saving by buying their favorite brands at the chain (see a sample of the new advertising messaging below). Adding sales will not be a cure-all, however, for what ails JC Penney. As JC Penney has said in press releases and quarterly reports, its performance is a “tale of two companies.” The pre-Ron Johnson company embraced sales, kept more inventory, and sold brands that appealed to older customers. The new JC Penney separates brands, keeps prices low, favors a minimal pared-down appearance, and most importantly, courts younger consumers.

As Johnson recently said in a CNBC interview, it is "even more important" to attract new customers, a message that wouldn't surprise JC Penney's loyal customers, who complain about the end of sales. The established customers' beef with JC Penney also expands to the company's elimination of its beloved catalog, thicker than a King James bible. This was the source of many clothing and home decor purchases by customers who have not necessarily warmed to making those purchases online. Johnson's efforts to declutter the store may have reduced the perception of variety as well. Johnson, who as the former Senior Vice President of Retail at Apple (NASDAQ:AAPL) was responsible for pioneering the famous "Genius Bar," wanted to make the stores cool, but that vision clashed with JC Penney customers. A store that was once full of options is now, in the eyes of some consumers, a barren store with limited brands.

Not all the blame should be placed on Johnson's shoulders, however. This sea change was apparent in 2007 before Johnson took a blow torch to sales and inventory. After all, Johnson was brought in to save JC Penney from itself as the retailer's total net sales continued to fall. From 2002 to 2006, JC Penney's total net sales grew each year, from $17.3 billion in 2002 to 19.9 billion in 2006. Then the recession hit, causing the retailer to keep its prices even more competitive than usual and reduce staffing during less busy hours of the day. The company brought in $19.86 billion in 2007 and net sales fell steadily in later years. In 2008, net sales fell to $18.4 billion and in 2009, sales fell further to 17.5 million. In 2012, net sales amounted to $17.26 billion.

As the recession took its toll, the retailer continued to expand, however. In JC Penney's 2009 annual report, the retailer added a flashy new Manhattan store, changed its wholesome family-centered advertising to court younger trend-savvy customers, and announced efforts to revamp the store's image. Johnson stepped in as CEO taking over from Myron Ullman to complete the strategy JC Penney had already dipped its toes in. That  change has sent many longtime JC Penney shoppers to Macy's (NYSE:M), Kohl's (NYSE:KSS) and Chico's (NYSE:CHS), including Maureen Wlodarczyk, Director of Operations at Cushman and Wakefield and resident of New Jersey.

Wlodarczyk says she shopped at the store for 30 years and bought everything from clothing to baby cribs from its now-deceased catalog. She no longer shops at JC Penney, however, because everything that once appealed to her -- the catalog, the sales and the brand names she valued -- are gone.

She now does most of her shopping online, shopping for home décor on Wayfair, Amazon (NASDAQ:AMZN), and Kohl's websites and buys her clothes at Macy's, Chico's, Lord & Taylor, Coldwater Creek (NASDAQ:CWTR) and Kohl's.

“Clothing (at JC Penney) is now of a much lower quality with less variety, and they have 'gutted' their own labels that I once valued such as their Worthington and American Living lines. They apparently bought the Liz Claiborne label and now that is no longer of the same quality either,” Wlodarczyk said in an email.

When she did visit her local store in New Jersey, the experience was disappointing. The store was undergoing construction, making it difficult for her to find clothes. Pricing was also an issue, as the cashier didn't realize what the appropriate price was.

“More than once, when I did try the new store layout and pricing, I had to point out to the cashier that the scanned price on my item was not the posted price,” Wlodarczyk says.

She later received an email blast from Ron Johnson asking for feedback about the new JC Penney model. Wldoarczyk wrote to the company but never received a response.

“I realize that the revamp is aimed at bringing in younger people and I understand the need to do that. What I can’t understand is how Mr. Johnson, who is supposedly such a savvy businessman, thought that taking a slash-and-burn approach with long-time loyal older customers would benefit the company.”

Karen Rose worked at JC Penney when sales were the dominant force pulling in customers. Now Rose, 55, works for as a receptionist for a hospital in Fredericksburg, Virginia.

“Customers used coupons all the time. If they did not have one with them they would ask at the register if there were any extras they could use,” Rose said in an interview, adding that there was never a time when the store wasn't running a sale or promotion. Sales associates were never told ahead of time when sales would be but they were told as soon as ads came out and flyers arrived in customers' mailboxes.

Rose used to shop at the store often but no longer does.

“I always found what I wanted at the store for myself or for my family. I miss not getting the flyers or the discounts,” Rose said. “It keeps me from shopping there. I would probably wander through if I got promos in the mail. Who knows? I might buy a blouse or pair of pants.”

In terms of wooing back former fans, it sounds like Johnson and his staff have a long way to go.

No positions in stocks mentioned.