While venerable department store retailer J.C. Penney (NYSE: JCP ) denied there was any truth to the rumor it was having liquidity problems, saying it heard right from the horse's mouth of CIT Group that its money flow hadn't been cut off, there's also little doubt it has little wiggle room to maneuver. It needs to get sales back on track, and do so quickly. As it's deep into the back-to-school season now, this may be its last chance.
The kids are alright
It's rolling out the door-buster sales again that it was once famous for, but which were cut by ex-CEO Ron Johnson in an attempt to switch to an everyday low price environment. Although I think the strategy wasn't a bad one, the outcome was disastrous. Shoppers fled to rivals Macy's and Kohl's, and Penney's earnings were a mess as it lost $985 million in 2012. Now it's up to the kids to bring the shoppers back.
At first blush, it seems to be working. A recent Wall Street Journal story highlighted how Penney's website was only second to Wal-Mart in back-to-school web traffic, putting it ahead of Macy's, Amazon.com, and Target. It noted that last year, shoppers bypassed the store's site altogether, as it didn't even rank in the top 10.
Because children's apparel is a key component of Penney's sales, comprising some 12% of revenues annually (though, naturally, somewhat more during the start of the school season), succeeding at this juncture could be a sign of whether it will be able to mount a comeback.
On the jungle gym
I think that, while it will likely not flame out, there are still some yellow flags to give me pause. It's making a big bet on the Joe Fresh brand from Canadian designer Joe Mimran, which is spreading down from the Great White North. Not that I'm exactly the person to consult when it comes to fashion, but will the Joe Fresh brand really resonate with kids? There's a certain simplicity in the mix and match style -- sort of like Garanimals for older kids -- but Macy's is making a push for the Millennials who have a fascination with Marilyn Monroe. As a fad, that seems more relevant.
And because Johnson had cut the number of vendors used, along with his stores' inventory levels, new CEO Mike Ullman is ensuring the shelves are flush with product, as levels are significantly above the year-ago period. In the quarter ending May 4, they were still lower than last year, but you could see they were building up again as they were 20% higher than their level in the first quarter.
Should the push for kids not find traction with consumers, there will be a lot of write-offs to take, and Penney's fragile financial condition will worsen. It's a worthwhile question to ask whether the fast-fashion trend will be enough to surpass other retailers like Wal-Mart, that are playing to their strengths. It's staying with its ultra-low price for everything for which it's famous.
It's a tightrope that the department-store chain is walking at the moment, and while adults had abandoned the retailer before, I'm not so sure it can graduate from romper room.