Out with the old, in with the new
Penney's has long been known for overblown coupon sales, often offering merchandise for half to 75% off regular price by requiring customers to use a proprietary blend of store cards, coupons, and shopping stamina. Underneath it all, however, the company seemed to be stagnating.
Enter Johnson, with his creative streak and store-within-a-store methodology that had worked so well in the past. With JCPenney, Johnson will repeat his signature move: up to 100 stores within the store, all carrying designer brands. The store will resemble an "Anywhere, USA" downtown, including a Main street as well as radiating side streets composed of designer mini-stores. Customer service? It's called "Town Square," and will supply treats as well as services. Interesting concept, certainly -- but can it work?
One person's junk...
It looks as if many analysts have their doubts. Just last month, Penney's was downgraded by Fitch to BB+ from BBB-, a slip toward junk status precipitated by concern over management's ability to make the new marketing strategy work over the next several months. Then the company missed Q4 revenue forcasts by $70 million, and Johnson stated publicly that February was not going to be stellar in the sales department. Others began to doubt the viability of a new Penney's, fearing that an "everyday low price" model would alienate customers accustomed to the retailer's former slash-and-burn sales format. Now, Standard & Poor's has chimed in by knocking Penney's down to BB from Fitch's former BB+. It's official: JCPenney is junk.
Not everyone is crying. Macy's
Can JCPenney survive?
The consolidated opinion here seems to be that the next year or so will test the mettle of the large retailer, as well as that of Ron Johnson. There is no doubt of the man's talent, and the magic he performed at Apple is still an integral part of their business model today. His vision for Penney's seems a bit over the top, but I believe that he can pull it off. Meantime, we can all enjoy the new, Target-like ads, remembering that he once polished their star as well.
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Fool contributor Amanda Alix owns no shares in the companies mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.