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A Struggling Retailer's Dumbest Move Yet

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J.C. Penney (NYSE: JCP  ) wants to stay a cut above the competition.

The struggling retailer is extending last month's promotion in which kids get free haircuts on Sundays.

Starting in November, J.C. Penney will begin offering haircuts at no charge to children in kindergarten through sixth grade on Sundays.

On the surface, it's easy to see why the problematic retailer is doing this. Freeloaders turned out in droves last month, keeping the department store chain's salons busy snipping away at 1.6 million young heads of hair.

We don't know how well things worked out for J.C. Penney last month, though. The CFO had some generally encouraging thoughts at an investing conference last month, but the chain stopped providing monthly same-store sales updates back in January.

Busy buzzers don't always generate buzz
It's hard to imagine J.C. Penney having a good run during last month's back-to-school shopping season. Comps fell a mind-blowing 21.7% in its fiscal quarter ending in July. They tumbled 18.9% during the previous quarter ending in April.

CEO Ron Johnson won investors over last year when he arrived. He seemed to have the perfect pedigree. He was a rising star at Target (NYSE: TGT  ) before arriving at Apple (Nasdaq: AAPL  ) in time to lead the rollout of the wildly successful Apple Store concept.

Unfortunately, J.C. Penney doesn't have the "cheap chic" allure of Target, and it's clearly no Apple. The "Fair and Square" pricing strategy that Johnson introduced in February has been a disaster in terms of action at the registers.

In theory, free haircuts would seem to help. The timing of the August promotion -- just as kids were gearing up for school -- was an opportunistic way to woo parents into the store, giving the chain a chance to explain its new everyday-low-pricing strategy and play up the upcoming "brand stores within a store" makeover.

We'll find out in November -- when J.C. Penney reports results for the current quarter -- if 1.6 million crops given away saved the day, but I doubt it.

Cultivating an audience of freebie seekers
If you feed a dog from the dinner table, it will always be hovering around for scraps. J.C. Penney could've gotten away with this promotion as a one-time August thing, but now it will be hard to let this promotion go.

You don't have to be a genius to see how this will all play out. Parents of the 1.6 million kids who got free dos last month may wait until November to come back. Don't expect them to come with long lists of holiday shopping to do.

J.C. Penney has a problem. It's not drawing enough customers, especially on the weekend, when traffic fell off even more than during the week earlier this year.

How will this help? J.C. Penney will start drawing in folks poor enough to put up with long lines at a hair salon for the sake of a free haircut, and this isn't a group likely to spend a ton of money at the store. Parents aren't going to want to leave their kids in the salon chair to go shopping, and after waiting around for a cut, most young kids will be too impatient to wait at a register.

What about potential shoppers without kids? How likely are they to visit a J.C. Penney now on Sundays knowing that it may be the equivalent of a Chuck E. Cheese without a ball pit?

The free cuts will have an impact, but not necessarily at J.C. Penney. You may not want to own Supercuts parent Regis (NYSE: RGS  ) if free haircuts become the new retailer door prize. However, scissors wouldn't be my weapon of choice if I wanted to turn a struggling retailer around.

Hey, Johnson. The folks who queued up in front of your Apple Stores were never there to get something for free. They were lining up for the right to pay a premium for something that culturally mattered and worked.

Right now, J.C. Penney is failing on both fronts.

More square than fair
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The Motley Fool owns shares of Regis and Apple. Motley Fool newsletter services have recommended buying shares of Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not 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.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

Read/Post Comments (6) | Recommend This Article (9)

Comments from our Foolish Readers

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  • Report this Comment On September 12, 2012, at 10:37 AM, farmerjada wrote:

    I would like to thank JC Pennys Hair Salons for handeling the Kids Haircuts so poorly. We picked up more adult clients and color clients as they could not get in due to all the free haircuts (thanks for the new business!!) They hired a bunch a girls out of beauty school that didnt know what they were doing so they did poor work. Now that they are over staffed they will have to lay stylists off in the near future. This is all short term thinking!!!

  • Report this Comment On September 12, 2012, at 6:21 PM, johnrb76 wrote:

    A combination of arrogance and corporate greed is what fuels JCPenney these days. I am a designer with JCP salons, 15 years, and giving away free haircuts was by far the stupidest thing I have ever seen. Why Ron Johnson thinks he knows more about my business than he does is mind boggling.

    Hope he is voted off the island soon...

  • Report this Comment On September 19, 2012, at 9:15 AM, farmerjada wrote:

    I would really like to know how the stylists at JCP feel about the free kids cuts on Sunday. With Sunday being a slower day in the salon industry this will force JCP to staff more stylists on Sundays to handel the FREE haircuts which will make payroll go up and hurting profit. Most stylists hate working Sundays and I believe this will cause some of their better stylists to quit. Again thanks for all the unhappy customers due to your long waits and client turn aways.

  • Report this Comment On November 21, 2012, at 2:53 AM, jcphair wrote:

    I worked Sunday's in the salon because my client's need me then.I have a lot of working Mom's as client's and they enjoyed the relaxing atmosphere that Sunday's offered. Dad's could take care of the kid's and Mom could get her hair done in peace... NOT anymore!!!! Our salon has turned into craziness.. Kids running around.. going into stylist stations.. touching and breaking things in the salon.. My Sunday client's are NOT happy and no longer want to come in the salon on Sunday's to get their hair done. And those who may put up with the craziness can't get an appointment because I'm booked up with kids and 1/2 don't show for their appointment.. I'm happy to do charity work when it is my choice.. We were NEVER ask how we the STYLIST felt about giving away our services for FREE! Yes, we get paid hourly.. we had pay cut this year and now we have to work harder. Most cosmetologist work on commission so, the harder we work the more we make.. not anymore at JCP! We have to meet productivity or take the chance of a job loss. We only get 1/2 credit towards our productivity with the FREE kids cuts. So we need to work twice as hard to keep our jobs. I think the FREE kids cuts is only hurting the salon and our team of GREAT stylist's. Our hours are cut when we don't make productivity because of FREE kids cuts. With less hours we can't make appointments for our paying clients. So, even less pay for us.. I love my team of stylist's and it is sad to see our hard working team being taken advantage of. I wish JCP would see what they are doing to our salon's.

  • Report this Comment On December 10, 2012, at 5:48 AM, UpsetXStylist wrote:

    I'm a stylist at a JCP Salon! This is the worst idea ever! Ron Johnson needs to spend a day in the salon as a receptionist on one of these Sundays! It's miserable! I shouldn't have to loath coming to work! People wanna know what the stylist think about this?! I'll tell you we hate it! I recently found that we only get half compensation for the kids cut! 7.00! Which might not be too bad if the parents were actually tipping! Our "new" clients have been so ungrateful and rude! Their attitudes are just rotten! People have been treating us like we owe them something. They show up late and don't understand why they can't get in. They get 15 minutes to show up before we can't take them anymore because we won't have time for our next kid. And they don't understand how important it is to show up on time! Then you'd think they could at least run a brush through their hair before they decide to show up! Then its just sad how parents are lying about the ages of the kids. Shame on them! It's 5-12 years old! Also the no tipping thing has really been horrible. All of our stylist are depressed and sick of this! I really hope they stop this! Our regulars have been complaining about the noise and the destructiveness! They've also been destroying our only one stall bathroom. Peeing all over the walls and just being nasty. I'm sorry but this has to come to an end! :(

  • Report this Comment On December 11, 2012, at 6:58 PM, 19yearstylist wrote:

    I am a stylist that used to work at JCP but quit last month after 19 years. Yes, it is true they cut our pay, cut our hours and force us to do the free kids haircuts even though it kills our productivity and hurts our wages. I worked Sundays for years and my customers loves it because it was a quiet relaxing day to come in but what client want to pay good money to have their hair done in an atmosphere of screaming, crying kids?

    So many long term stylists left this year because of the changes made my Ron Johnson.

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