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2 Changes Coming for J.C. Penney

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J.C. Penney (NYSE: JCP  ) continued its turnaround efforts with this week's announcement of two significant changes coming soon. The company will join Macy's (NYSE: M  ) in closing stores as a cost-cutting measure. J.C. Penney also plans to reinstate commissions for select salespeople in hopes of motivating more sales of big-ticket items. The announcements come a week after the company issued a vague holiday sales report that sent shares plummeting more than 10%. 

Here's a look at what the company plans to do in the coming months -- and what J.C. Penney needs to do to inspire investors. 

Store closures
J.C. Penney plans to close 33 stores to save approximately $65 million a year. The closing stores have a wide geographic spread, account for about 3% of the chain's total store count, and will eliminate 2,000 jobs. The closing stores will sell all remaining inventory before the closings complete in May, which will likely involve margin-constricting price markdowns. J.C. Penney will take a one-time charge of $26 million in the fourth quarter. An additional $17 million charge will appear in future reports.

The 33 stores were likely vastly underperforming, even by J.C. Penney standards, which is saying a lot right now. But Penney isn't the only chain cutting stores to save money this year.

Macy's recently announced plans to close five stores, eliminating 2,500 jobs and amounting to about $100 million in annual savings. The company will book total charges of $120 million-$135 million in the fourth quarter with $50 million-$55 million of that total as non-cash charges.

Store closings notwithstanding, J.C. Penney isn't on an even playing field with Macy's. And that's the problem behind the next planned change.  

Commissions return
Ron Johnson had done away with commissions during his brief reign because he preferred to focus on customer service. Bloomberg reports that J.C. Penney now plans to reinstate commissions for approximately 3,000 employees who work in the fine jewelry and home furnishing departments. The employees will receive a base pay reduction potentially subsidized with a percentage commission bonus. 

On that last part, the devil is in the details. Commissions are common in department stores such as Macy's, but their stores typically have better traffic than J.C. Penney. Even wildly talented salespeople will find it difficult to move diamonds or loveseats if there are no customers in the store. Investors should hope that J.C. Penney will implement the commissions at its best-performing stores to give the salespeople a fighting chance. Otherwise, the chain risks sending valuable employees running for the hills.  

But it will take time to see how much the store closures and commission reinstatement help business. And J.C. Penney needs a more short-term method of appeasing investors. 

Start disclosing
J.C. Penney learned an important lesson from the plunge that followed the company's vague holiday report. It's vital right now that the retailer disclose as many metrics as possible. The truth might still look better than what pessimistic analysts and investors could imagine. 

The company has gone on the record explaining what parts of Johnson's turnaround strategy failed the hardest. But J.C. Penney needs to show what's working now and maintain periodic updates. This could boil down to highlighting the chain's top stores in the nation to show what type of performance is still possible in a J.C. Penney store. 

Foolish final thoughts
J.C. Penney continues on the road to recovery. Store closures were inevitable, and more closures will likely follow. But the commissions reinstatement seems doomed to fail if implemented in underperforming stores. Ultimately, J.C. Penney still needs to focus on its inventory issues and providing more performance details to investors. 

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Read/Post Comments (11) | Recommend This Article (11)

Comments from our Foolish Readers

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 January 21, 2014, at 8:57 AM, rocketman262 wrote:

    My wife was one of the floor people that survived the Ron Johnson cuts. She had a first row seat watching the debacle.

    It was a mistake taking people in fine jewelry and home off of commission.

    Problem is all those people that worked in those areas that did have sales skills are gone. It took years to build those teams and it's going to take a long time to rebuild.

  • Report this Comment On January 21, 2014, at 10:20 AM, ronsunn wrote:

    For all the flax that Ron Johnson has taken there's little to suggest that Penney's has a long term strategy for viability. They're a lot closer to Sears at this point than they are to Macy's. And that was the case before Johnson took over. While I might disagree with some of the things that he did, the stores needed a radical reinvention. At best Penney's can hope to get back to the point that they were at before Johnson took over which is a slow death march.

  • Report this Comment On January 21, 2014, at 10:26 AM, damejacqueline wrote:

    I was thinking about this before I arose this morning...I used to work retail during the 1970s. The store hours were Mon - Thu from 9:00 am to 6:00 pm; Fri & Sat from 9:00 am to 9:00 pm and on Sundays, Closed. Sales were up and the employees morale was up, too! Why! For one thing, folks could attend church on Sunday, or rest. Not only that, instead of CLOSING STORES AND PUTTING FOLKS OUT OF WORK, just close the store on Sundays and that will help operating expenses a lot, and your salespeople will feel better on Mondays. I was stationed in Germany and I must say the Germans got it right about retail: Stores are open from 9 am til 6 pm Mon - Fri and from 9 am til 2 pm on Saturdays, except for the 1st Saturday of the month; then the stores are open from 9 am til 6 pm. CLOSED SUNDAYS! Let's try it! It won't hurt!

  • Report this Comment On January 21, 2014, at 10:29 AM, wiseshopper wrote:

    I have been a shopper of JCPenney for over 40 years. The biggest mistake they have made was stopping the catalog...people loved the end. The variety in that book was fantastic. People love the tactical feeling of leafing through a book compared to a computer screen. But not only that, they dropped all their fantastic curtain line and went with the average line-up you can get any place else. They used to stock, or you could order from the catalog, odd sizes at great prices that you now need to order from expensive custom-made window treatment companies. I ordered in the past 150 inch-wide, pinch pleated curtains for 300.00. Now that size is a custom made requirement at most window treatment companies for about 2000.00. They had such a niche and were making so much money. The selection in the store now is so narrow and one style...contemporary. My husband still loves their Stafford underwear, but I know they will change that also to the the same sorry stuff at Kohls and everywhere else.

  • Report this Comment On January 21, 2014, at 10:30 AM, angelsgiggle wrote:

    4% of zero is zero. In our store we will get $7.5 per hour plus 4% commission. BUT we can also only have 20 hrs per week. 80 hours in our dept to split among four employees. That is what we were told.

    Basically there is no way to earn a living. But, when we are gone, quit, we cannot even get unemployment.


  • Report this Comment On January 21, 2014, at 12:25 PM, ronsunn wrote:

    Well this isn't the 70's anymore. There are more choices than simply going to the mall. The problem that J.C. Penney's has is that there's nothing there that you can't find somewhere else cheaper and in a better environment. They simply can't compete.

    And for those that miss the catalog, you might want to check out its replacement. It's called Amazon.

  • Report this Comment On January 21, 2014, at 3:22 PM, smallfry wrote:

    This is old news. The JCP closings were posted a week ago. You are way behind the time. In a 24 hour news- cable news- internet news world you are yesterdays news.

  • Report this Comment On January 21, 2014, at 3:25 PM, elise0511 wrote:

    JC Penney is not Macy's. There is nothing Penney has you can't get at TJ Maxx or Kohl's for a better price in a modern-looking store. Sears and Penney don't feel clean or kept when you go in, I'm afraid Penney is past its era and no matter what they try it's like rearranging the deck chairs on the Titanic.

  • Report this Comment On January 22, 2014, at 9:51 AM, wiseshopper wrote:

    This is defiantly not the 70s anymore and I know what JCP niche was...the catalog. And I do shop amazon all the time, hate it, get sent the wrong size, what a hassle. I used to be able to bring returns back to the JCP store and get my refund. I loved the luxury of sitting down and checking out the book in my easy chair. What they lost was their millions of customers that ordered more specific sizes that are not offered now at JCP online or in their stores. Window treatments were a mainstay for JCP....they dropped their specialty sizes and yes everyone does go to Kohl's and Target and Bed Bath Beyond for the same generic window treatments in each store.

  • Report this Comment On January 22, 2014, at 1:20 PM, daverhall wrote:

    It is going to get much tougher for many stores to stay open and be profitable. Due to outsourcing of American jobs were are having to go through big sized failures. Bring back all those outsourced jobs to America and start becoming dedicated to the US again and restart our economy and become strong again.

  • Report this Comment On January 22, 2014, at 2:46 PM, Bri wrote:

    the person who said they should close on Sundays is totally wrong. I live on the west coast and all the malls have been open on Sundays as long as I can remember, and I'm in my 50s'. I have worked retail since the late 70's and somewhere in the early 90's Sunday replaced Saturday as the big shopping day. People work weird hours, there is really no such thing as "bankers hours " today and people still shop, just hours that are convenient to them. JCP closed the catalog as it was on its way to loosing money, people use the internet. I hope they follow Macys mold and change. Retail is constantly changing, customers are more demanding, and stores have to change with the times

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Brandy Betz

Brandy Betz has written for The Motley Fool since 2011 and primarily covers health care, ETFs, and dividend stocks. You can follow her on Twitter @BrandyBetz.

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Related Tickers

9/1/2015 4:01 PM
JCP $9.26 Up +0.15 +1.65%
J.C. Penney Compan… CAPS Rating: *
M $57.95 Down -0.66 -1.13%
Macy's, Inc. CAPS Rating: **