Retailers and investors should be excited about the upcoming holiday season. The economy is (slightly) stronger than last year, and retail experts are forecasting higher sales than last year. But one retailer isn't having visions of sugarplums dance in its head: J.C. Penney (OTC:JCPN.Q).

Brother, can you spare a Penney?
The past three quarters haven't been kind to J.C. Penney. Sales are down each quarter from the same time last year. Eliminating its beloved retail coupons cut store traffic by 10%, and its gross margin on sales fell to 32.5% from 37.4% last year.

In its earnings report released last week, J.C. Penney reported a 26.1% drop in same-store sales year over year. Analysts expected the company to decrease sales by only 17.9% this quarter. Store traffic also dropped 12% from the year-ago quarter. Aside from a sale of noncore assets, J.C. Penney lost $0.93 a share this quarter.

These numbers stand in stark contrast to competitor Kohl's (NYSE:KSS) in its most recent quarter. The rival retailer had comparable-store sales growth of 1.1%, earnings per share went from $0.80 to $0.91, and the company paid a quarterly cash dividend of $0.32 a share. According to The Wall Street Journal, Kohl's dropped prices and rolled out exclusive product lines, which has helped sales.

The average American shopper is expected to spend $749.51 on holiday-related gifts and decor, up from $740.57 last year, and the National Retail Federation expects retail sales will increase this season by 4.1%, to $586.1 billion. But J.C. Penney's next quarter, the time of the year when customers want to spend money, doesn't look good.

Walter Loeb, president of retail management consultant Loeb Associates, expects a big drop in J.C. Penney's sales this holiday season, according to a New York Times article. Brian Sozzi, chief equities analyst at NBG Productions, isn't bullish on the company, either. In a Forbes article, he said, "The data says J.C. Penney is not a top destination and is nowhere near becoming a top destination in peak seasonal shopping periods."

On Dancer, on Prancer, online sales
According to, retail industry online sales are expected to jump 12% this year to $96 billion. The National Retail Federation survey also showed that 51.8% of shoppers will do some of their buying online this year, compared with last year's 46.7%.

Macy's (NYSE:M) apparently got the memo. Sales on and were up more than 40%, combined, this past quarter. Part of the online sales growth at Macy's comes from using 292 of its stores to pull inventory for online customers, according to the company's last earnings call. But J.C. Penney didn't fare so well. Its Internet sales fell 37.3% in the last quarter.

It's a wonderful strife
J.C. Penney knows it needs to win back its customers, and it has slightly veered from its anti-coupon campaign to do so. It started with a $10 coupon, and then free haircuts for kids as a back-to-school promotion, and finally a 30% promotion on clearance items. Now, the century-old company is offering free family photos to get customers through the doors.

And who can blame it? The company needs more sales, and the current marketing trajectory isn't working. Customers are confused by J.C. Penney's strategy of eliminating coupons, and then bringing them back occasionally, according to a report by Charles Grom, an analyst at Deutsche Bank.

The festive Foolish approach
J.C. Penney shareholders shouldn't expect this holiday season to ride in and save the day. The company hasn't fully decided on its marketing and promotion direction, and if it doesn't have it down by now, it won't before consumers kick off their holiday shopping.

Foolish investors thinking about jumping in with J.C. Penney should take note that the company's sales would need to increase by 28% next year just for it to get back to its 2008 revenue numbers, according to Tom Gara at The Wall Street Journal.

In a recent conference call, J.C. Penney CEO Ron Johnson said the company will hold a huge Black Friday sale that will "have some of the lowest prices in J.C. Penney history." If the company can't turn around its dismal sales over the next year, the same thing may be said about J.C. Penney's stock price.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.