Transition isn't an easy thing. Just ask J.C. Penney
But as with all transitions, it's never as easy as just making a right turn to get on the right path. No... in J.C. Penney's case the company is making three left turns to get back on the "right" path. Confused? Let me explain.
Left No. 1:
Ron Johnson left his position as president of Apple's
Left No. 2:
The company announced in late January that it had left its previous pricing strategy in its past, and that it was going to alter its approach to pricing immediately. The new approach entailed offering everyday low pricing with occasional clearance sells on certain merchandise on the first and third Fridays of the month. The goal is to entice customers not to hold off on their purchases and to get them to recognize that every day offers them great values. That's a tough order for a customer base that was used to receiving huge discounts and multiple coupons in the mail for Penney's 600-some previous annual sales.
Left No. 3:
The company left its profitable ways in the dust -- at least for the meantime. Mr. Johnson has been candid in his assessment that a turnaround would take time and that not all of Penney's customers would be receptive to the company changing a pricing tactic that hadn't changed for generations. Based on comments from Macy's
The problem with making three left turns is that you're bound to hit three lights along the way. Last night J.C. Penney encountered that first red light when it reported nothing short of disastrous first-quarter results.
Wall Street had expected the company to report an 11.4% drop in comparable store sales for the quarter. The actual results demonstrated a much steeper 18.9% drop in sales as many consumers simply didn't venture into Penney's now sale-less stores. Whether it's a breakdown of communication or a resistance to change doesn't matter; the company posted an adjusted net loss of $55 million and that's all investors care about.
To make matters worse, J.C. Penney announced that it would be indefinitely suspending its quarterly dividend of $0.20, which should save the company $175 million annually.
When to hit the gas
So is it time to hit the gas? Maybe...
Ron Johnson is a miracle worker, but trying to raise the dead is a completely different task. Penney's growth model was broken when it was offering huge discounts, so it's going to take an inextricably long time before we see real results from its new pricing strategy. It also isn't helping that with Sears Holdings'
The exceptionally warm weather across the U.S. is another missed opportunity. Warmer weather should have resulted in more shoppers in its stores, but instead, its new pricing strategy seems to have kept shopping elsewhere.
Yet despite all this, I believe that Ron Johnson's vision will eventually succeed. That isn't to say there won't be red lights, flat tires, and slow drivers in J.C. Penney's path, but its focus on moving higher-margin merchandise and creating a store-within-a-store branding platform should prove to be successful enough to get Penney's back on the right path.
Patience, my friends... patience!
Disagree with me? Tell me about it in the comments section below.
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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He admits to being a terrible clothing consumer. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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