TEACHING SHOPPERS A ‘NEW LANGUAGE’
Johnson’s plan received a warm reception at first. Investors began pushing Penney’s stock up after he announced the plan in late January: It rose nearly 25 percent to peak at $43 in the days after the plan was rolled out in February. Analysts used words like ‘‘visionary’’ and ‘‘revolutionary’’ to describe the plan.
The honeymoon didn’t last. After most of Penney’s coupons and sales disappeared, so did its customers. And the ads didn’t help: They were praised for being entertaining, but criticized for not explaining the new pricing.
Walter Loeb, a New York-based retail consultant, says Johnson acted in haste and sprang the changes on customers too soon. ‘‘The customer isn’t accustomed to such drastic change,’’ he says.
The first sign that things were falling apart came in May when rival Macy’s Inc. told analysts that sales were rising at its stores that share malls with Penney locations. A week later, Penney posted a $163 million quarterly loss. Revenue plunged 20 percent to $3.15 billion. The number of customers visiting stores fell 10 percent.
Wall Street didn’t like the changes any more than Main Street did. A day after it posted the loss, Penney’s stock fell nearly 20 percent — its biggest one-day decline in four decades — to $26.75. That same month, Standard & Poor’s Ratings Services lowered its credit rating to junk status.
Johnson asked investors to be patient and reiterated his confidence in his plan. But a few weeks later, Johnson fired Francis, who'd been in charge of marketing the new pricing. Johnson, who wakes up at 4 a.m. without an alarm clock, took over that responsibility and brought back the word ‘‘sale’’ in ads. But things kept getting worse.
So six months after he rolled out Penney’s plan, Johnson tweaked pricing. On Aug. 1 — just days before Penney posted another big loss on a second consecutive quarter of disappointing revenue — Johnson eliminated one tier of the pricing plan: the monthlong sales. He also brought back another taboo word: clearance.
Johnson says the original three-tier strategy was too confusing for customers. ‘‘We got too tricky,’’ Johnson told the Associated Press in an interview.
Johnson also vowed to better communicate Penney’s pricing to shoppers. As part of that, Penney rolled out ads that were in stark contrast to the spots it used to introduce the plan. For instance, a TV spot touted free haircuts for students during the back-to-school shopping period.
‘‘We thought, ‘Why are we trying to teach customers a new language to shop?’’ Johnson told The Associated Press. ‘‘We’re just trying to be straightforward.’’
But Johnson’s decision to get rid of monthlong sales hurt more than it helped. On Nov. 9, the company posted its third consecutive big quarterly loss and revenue decline. Johnson says one big factor that dragged sales down was the elimination of the monthlong sales, which he says confused shoppers who like to compare prices.
Johnson says Penney lost $20 million a week in sales associated with getting rid of the monthlong events for a total sales loss of $260 million for the quarter. Penney posted a net loss of 56 cents per share, or $123 million, in the quarter ended Oct. 27. Revenue dropped nearly 27 percent to $2.93 billion.
On the news, Standard & Poor’s dropped Penney’s credit rating deeper into junk status. And its stock has fallen six straight days since the earnings report by a total of 25 percent for that period, to close at about $16 on Friday. The stock is down 62 percent since January— its lowest price since March 2009 when the U.S. was in a recession.
Johnson, who says the company will now show the suggested price of clothing and other manufacturers on price tags alongside Penney’s price, doesn’t seem to be panicking. In a meeting with analysts following the release of the company’s results, he chalked Penney’s poor performance up to a learning experience.
‘‘This was another quarter of unbelievable learning for us at J.C. Penney,’’ he says. ‘‘Each quarter, we learn a lot, we adapt, we try to move forward.’’
THE STORE OF THE FUTURE
Some critics say Johnson’s plan is falling apart because he chose to overhaul pricing before working to improve Penney stores. Indeed, Penney stores have long been seen as unappealing and it’s merchandise as dowdy.
But Johnson says the focus on pricing was no mistake. One of the men he has admired most in his life was Steve Jobs, co-founder of Apple and his former boss. He says Jobs taught him the importance of doing things well ‘‘one at a time’’ and ‘‘not getting ahead of yourself.’’Continued...