Penney's Revitalization Plans Hit By Consumer Resistance

by , May 16, 2012, 10:20 AM
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It’s usually good news when you pick up steam faster than you expect but not always. Former Apple retail wunderkind and current JC Penney CEO Ron Johnson announced yesterday that the retailer’s plan to transform itself was “way ahead of schedule.” But it seems to have hit an oncoming locomotive called consumer resistance that is asserting its right of way on the same track.

BloombergBusinessweek’s hed on the story reads: “Penney has 1Q loss as new pricing repels shoppers.”

Back in February, you’ll recall, Johnson “got rid of most of Penney’s discounts and switched to a simpler pricing plan (offering everyday prices, monthlong special values and clearance prices), introduced cheerful catalogs and ads and added to the brands offered at the stores,” Stephanie Clifford reports in the New York Times. But shoppers seem to miss all the wheeling and dealing.

Executives repeatedly referred to coupons as ‘drugs’,” during the investors meeting in New York, report Dana Mattioli, Karen Talley and Nathalie Tadena of the Wall Street Journal, “and said the weaning of shoppers from their coupon addiction has hurt sales and store traffic more than anticipated.”

The new advertising campaign also has come under some fire and Johnson “admitted” that an “advertising blitz in the quarter had failed to communicate to consumers exactly what its new pricing policy meant, namely three price tiers with the highest one 30-50 per cent below prices last year,” writes the Financial Times Barney Jopson.

"I think they're trying to be too cute and entertaining," Ries and Ries president Laura Ries, tells the AP’s Anne D’Innocenzio. "I think a more direct message would work better."

(The protests of conservative group One Million Moms against the hiring of lesbian comedian Ellen Degeneres as spokeswoman for the brand, however, “had an unintended affect: customer's opinions of J.C. Penney actually rose with the griping, according to YouGov BrandIndex,” as Ashley Lutz reported earlier this month in BusinessInsider.)

Penney lost $163 in the quarter compared to a profit of $64 million a year ago. Analysts polled by Bloomberg anticipated a loss of 8 cents a share; instead, the company took a hit of 25 cents and, as many headline reported, scrapped its dividend, which analysts evidently did not see coming.

"The dividend cut makes you lose shareholder support,” Brian Sozzi, chief equities analyst for NBG Productions, tells Reuters Phil Wahba. “And it also makes you wonder, do they have the balance sheet to fund this massive transformation of the business over the next two to three years?"

Among other initiatives, Penney plans to will start remodeling stores this August “into what eventually will become homes for 100 separate shops,” the FT’s Jopson reminds us. “It announced additions to its line-up, including brands like Jonathan Adler and Michael Graves, on top of a previously announced deal with home goods icon Martha Stewart,” he writes.

“It is really hard,” Johnson said yesterday while announcing the results. “It’s hard for me, hard for the team, hard for everybody . . . But we are getting through it.”

He also prefers a nautical analogy rather than the rails. “It’s one big year we have to get through … We are trying to essentially convert the Titanic into 1,100 wave runners, and that is really hard to do,” he told analysts.

All was not glum in retailing yesterday, reports the Times’ Clifford. Abetted by the warm winter, Home Depot’s earnings zoomed 27% from the same quarter last year to $1.04 billion; Saks was up 13% and TJX Companies, which owns Marshalls and T. J. Maxx, says sales increased 11%.

And there’s still optimism that Penney will find a clear track down the road a piece, from without the company, as well.

"I am rooting for Ron Johnson to hit a home run. But it won't happen overnight,” says Ronald Friedman, the head of the retail group at accounting firm Marcus LLP tells D’Innocenzio. “This is a process. It will take between 12 to 18 months."

 And hedge fund manager William Ackman, the company’s biggest shareholder, tells Reuters he’s not worried, “Rather,” writes Wahba, “he said, ‘I'm excited.’”

In one sense, I suppose it’s kind of like the olden days, when it took a while for the mail train from Chicago to arrive with the goodies you ordered.

2 comments on "Penney's Revitalization Plans Hit By Consumer Resistance".

  1. Dan Ng from OU
    commented on: May 16, 2012 at 1:10 p.m.
    Re-branding is a very intricate yet complex issue. Consumers are smarter than ever and more knowledgeable nowadays. You don't expect change of consumers' perception overnight. Adding new design on the same old scheme with a twist on pricing strategy seems so deceiving.
  2. Ken Kueker from Billboard Connection
    commented on: May 17, 2012 at 11:46 a.m.
    I don't see it as deceiving...Pretty straight forward to me. In fact, as a consumer I love it. Amazing prices for items that would be twice as expensive at any other store. I do believe their advertising has not quite gotten that message across clearly enough.

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