Despite Great Ads, JCPenney A 'Total Train Wreck'

JCPenny-Building-AThe screeching sound emanating from JCPenney headquarters may be the noise of CEO Ron Johnson trying to stop a runaway train: The battered retailer disappointed investors with fourth-quarter sales falling 28% to $3.88 billion, and same store-sales plunging 31.7%. And its net loss swelled to $427 million for the quarter. 

Despite an alluring new ad campaign, launched during the Oscars and prepared under no less a luminary than consultant Sergio Zyman, “the company is utterly destabilized,” Howard Davidowitz, chairman of Davidowitz & Associates,  a consulting and investing company specializing in retail, tells Marketing Daily. “It’s a total train wreck. The company has handed its customers over to its competitors, especially Macy’s and Kohl’s, in record numbers. I’ve never seen such a staggering loss of customers -- it’s unfathomable.”

In a webcast, Johnson detailed impressive new marketing and merchandising initiatives, including its “Dear America” campaign, launched this week, and “Compare,” designed to woo back the value shoppers it alienated when the store decided to stop having sales last year. Johnson owned up to that move as a major error. 

“I made some big mistakes, and I take personal responsibility. I had a personal conviction that we should deliver everyday value as truth on the price tag,” he says. “We learned our shopper likes a sale, and at times, she wants a coupon.”

The trouble is that while new marketing beautifully showcases Johnson’s vision of the “new” JCP, including small shops selling appealing brands such as Sephora and Levi’s at full price, it doesn’t mesh with what’s currently in the stores. Johnson assured investors that it will soon, including the imminent in-store launch of Joe Fresh clothing, which he says has quickly become the best seller on its Web site, and a revamped home store, which will open in May. Calling that “perfect timing” with the reviving housing market, “home sales were once 20% of JCP’s business, and have fallen to 10%. With brands like Martha Stewart, Michael Graves, OXO and Keurig, we can change that.”

“The stores are certainly improved, aesthetically,” Davidowitz says. “But you can’t throw the baby out with the bathwater.”

Meanwhile, Target also posted numbers that were somewhat below expectations today, with fourth-quarter sales climbing 6.8% to $22.47 billion, and net income slipping 2% to $961 million, from $981 million in the prior year. Same-store sales inched up just 0.4%.

Taken with Walmart’s weak performance earlier this week, Davidowitz says that’s more evidence that economic pressure on the consumer is punishing the lower-end of the retail market. “People are poorer, between exploding gas prices and the payroll tax. And that is going to continue to hurt companies like Walmart, Target and the dollar stores.”

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2 comments about "Despite Great Ads, JCPenney A 'Total Train Wreck'".
  1. Paula Lynn from Who Else Unlimited , February 28, 2013 at 11:37 a.m.
    Penney's is worth less than nickels, dimes and quarters. It is a subliminal ring. Not even their Target copying ads is going to weather the storm that was brewing from the history of cheap stuff.
  2. Linda Dorman from Consultant , February 28, 2013 at 10:31 p.m.
    JCP always had a lot of coupons and discounts so they must have known that is what their customer wanted/expected. But basically JCP executed their strategy in the wrong order. It might have worked better if they had brought in new brands and then phased out coupons. Even the best ad campaign can't save poor marketing strategy execution.