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J.C. Penney: It's All Over But the Shouting

By Daniel B. Kline - Updated May 22, 2019 at 2:27PM

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The retail chain had a terrible quarter that was more about managing the downward spiral than returning to growth.

J.C. Penney (JCPN.Q) has been in steady decline for years, seeing its sales drop and watching its customers leave for other retailers.

It's easy to blame (AMZN 0.19%) and the shift of consumers to shopping on the internet. The reality is that J.C. Penney has caused its own problems by failing to connect to a customer base or finding a way to be relevant in the changing retail marketplace. It's not Amazon's fault if J.C. Penney has failed to give consumers a compelling reason to visit its stores.

A J.C. Penney store.

J.C. Penney had an abysmal quarter. Image source: J.C. Penney.

How bad is it?

J.C. Penney has tried a lot of things. The retailer moved into areas being abandoned by its longtime rival Sears. Those moves seem like a good idea, but consumers weren't looking to the chain to buy appliances or home services.

Its leadership failed to execute an omnichannel strategy. It added toys and baby merchandise, and went into other areas abandoned by failed retailers like Sears and Toys R Us. But that wasn't what shoppers wanted, and the chain's numbers reflect that.

Sales in the first quarter fell by 5.5% and the company lost $154 million, or $0.48 per share. Those are abysmal numbers that show the company continues to lose its customer base. CEO Jill Soltau, of course, can't acknowledge that, and she put a positive spin on the terrible numbers in her comments in the Q1 earnings release.

"I am pleased with the strides we've made in setting key objectives, building our senior leadership team, executing significant changes in our assortment -- such as eliminating major appliances -- and mobilizing the entire organization around our priorities," Soltau said. "We have made good progress on each of our immediate-action steps highlighted last quarter, including our continued efforts to reduce and enhance our inventory position, which resulted in a 16% reduction in our inventory and a meaningful improvement in our free cash flow this quarter."

Having less inventory saves cash. It also means having less to sell consumers. Companies that are growing and connecting with a customer base don't tout having a smaller inventory. Penney, however, has nothing else positive to point to, so Soltau has decided to celebrate her efforts to control spending.

"As our inventory rationalization effort continues, we are testing a number of strategies around optimal inventory levels and assortment choice counts with a goal of delivering an improved experience for our customers and maximizing our return on investment," she said.

There's no answer

Chasing away a customer base can't be fixed by managing inventory. Same-store sales keep dropping because consumers no longer have a reason to visit the chain.

Amazon doesn't have a plan to cut 16% of its inventory. It works on making sure it sells whatever customers want and that it can deliver it quickly.

Penney offers less merchandise in an outdated shopping experience. Its tired, dated stores don't motivate shoppers to leave the house, and its website might be even less appealing.

The chain has tried to move into under-served areas, but it should have been focusing on the shopping experience. Soltau keeps up a brave face -- she more or less has to -- but she can't save her company, which no longer has enough customers. It's almost certainly too late to change that, making Penney's future really a question of managing its death rather than saving its future.

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