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Reinventing Might Be Risky for J.C. Penney

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In its recent annual filing, J.C. Penney (NYSE: JCP  ) stated that its new pricing policy "could result in a prolonged decline in sales." The company also said there is "no assurance that we will be able to successfully implement these strategic initiatives."

New CEO Ron Johnson's arrival has marked the start of a transformation at the retailer. One major change the former Apple (Nasdaq: AAPL  ) executive has already brought about since his takeover is to do away with Penney's former pricing strategy, which relied heavily on hugely discounted items. That approach had hurt performance, as only one out of every 500 products at Penney would sell at its actual price.

Under its new strategy, Penney will resort to an everyday-low-pricing concept coupled with monthly promotional offers at its counters. But in January, when the new plan was made public, some analysts feared that it might baffle shoppers and alienate long-term Penney consumers who'd become accustomed to looking for daily discounts.

Show me the money
Johnson's efforts to re-create the company have already been rewarded: He received $53.2 million in compensation for 2011, and that was on top his base salary of $375,000. He also got a performance-based cash bonus of $236,000, calculated on a pro-rated basis. That's not all: He also got $13,275 to cover perks, such as his own use of the company's aircraft. Not bad.

Since taking over in November from former CEO Myron "Mike" Ullman, Johnson has brought a number of top Apple employees to the company. Michael Kramer joined as chief operating officer, Kristen Blum as chief technology officer, and Daniel Walker as chief talent officer. In addition, Laurie Beja Miller is set to take over as president of The Square, a town-square concept being implemented in J.C. Penney stores. Johnson hopes to mimic the unique Apple shopping experience at Penney's stores, but the concern over losing loyal customers remains.

While spending rises, Penney declines
Consumer spending in general has improved -- Wal-Mart (NYSE: WMT  ) recently said its upbeat sales trend from the latter half of last year has continued into the new year. Its plan to bring back nearly 10,000 products to its shelves, coupled with its price-matching program, has also helped.

Meanwhile, Penney said its same-store sales rose only 0.2%, significantly down from the 2.5% rise last year. Analysts at Citi expect Penney's sale to tumble by $1.2 billion this year. Are shoppers having trouble adjusting to the new pricing program? I was impressed with Penney's initiatives at first, but I'm growing wary of this stock, at least in the short term. What do you think?

Penney may not look like the most promising stock at present, but don't worry: We have some other pretty compelling picks for you. Learn more in our free report, "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail."

Fool contributor Shubh Datta doesn't own shares in the companies listed above.  The Motley Fool owns shares of Wal-Mart Stores and Apple. Motley Fool newsletter services have recommended buying shares of Wal-Mart Stores and Apple, creating a bull call spread position in Apple, and creating a diagonal call position in Wal-Mart Stores. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (3) | Recommend This Article (15)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 07, 2012, at 11:41 AM, bsimpsen wrote:

    It may be difficult to move Apple's pricing philosophy downscale. There is a sort of serenity about Apple's pricing that flies in the face of the constant hype of low-end retail, which fools us all.

    I can hope that Johnson is able to bring that serenity to Penneys, but we like being fooled.

  • Report this Comment On April 07, 2012, at 9:26 PM, neamakri wrote:

    Eons ago my mother was a very regular customer at the local JC Penney. I (as a child) remember the big store with lots of good clothes. My mother could layaway items to pay installments on. Ah, the good old days.

    Bravo to Ron Johnson for a bold move. He saw that the old way of daily specials was just like everyone else. I fervently hope he revitalizes the Penney into a new force for the new century.

    By the way "neamakri" means "new market"; just like Penney will be.

  • Report this Comment On April 09, 2012, at 6:00 AM, bjgibson722 wrote:

    I agree with the concern. I had been a loyal customer but have bought nothing since the change. I am finding Macy's is offering better prices and more selection. Our local store which used to be packed is now almost empty. The store looks nice but the customers aren't there.

    This stock looks like a dog for at least several quarters.

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