A turnaround consultant’s view on JC Penny’s rebrand – Part 1
Posted by Gene Baldwin on Fri, Feb 03, 2012 @ 10:55 AM
PUSHING THE RESET BUTTON AT
After three months on the job as CEO at JC Penny, superstar retail professional Ron Johnson rolled out a comprehensive strategy to turnaround the fortunes of the famous retail chain founded by James Cash Penny in Wyoming 110 years ago. It all makes sense to me – on paper that is. Significant elements of the plan include the following:
- Completely revising the pricing and promotion strategy to dramatically reduce the amount and frequency of discounting. More than 70% of the JC Penny merchandise has been sold at a discount of 50% or more.
- Now there will be three price tiers: everyday prices, monthly prices and
clearance prices. Mr. Johnson said in his rollout announcement that the Company ran more than 600 different promotions last year yet the average customer only shopped with them once a quarter. It’s pretty clear that massive discounting can confuse customers and damage the brand so this plan seems to be on the right track.
- Establishing relationships with celebrities, including designer Nanette Lepore, television star Ellen DeGeneres and all-everything home and kitchen guru Martha Stewart. I am sure there will be more alliances to come. You just cannot argue with trying to create unique products consumers want that can only be purchased at JC Penny.
- Remaking store footprints in a major way to eliminate the prominent first floor space occupied by the high margin jewelry, cosmetic and accessory departments and replace it with a “town square” at the center. This area will be at least 10,000 square feet and feature rotating monthly attractions and services. For example, you will be able to get free haircuts during back to school and hot dogs and ice cream in July. This area is patterned after Apple’s “Genius Bar” which has been wildly successful (previously CEO Johnson was in charge of Apple’s retail division). In addition, the store footprint would be carved up into 80-100 “stores in a store”. This process will take three to four years to complete. These separate areas would be set up as themed boutiques selling name-brand or unique products. Once again, the Company is trying to create unique and differentiated products and shopping experiences for the customer.
To put these actions into perspective, a little background is helpful.
- Recent financial results have not been positive. In fiscal 2009 and 2010 revenue fell 6.9% and 5.0% respectfully. In fiscal 2011, sales increased 1.2% but are projected to fall 2.4% in fiscal 2012. EBITDA decreased 30.7% in fiscal 2009, 27.8% in 2010, and increased 16% in 2011 and is projected to decrease 14.1% in fiscal 2012. On the positive side, JC Penny does not appear to be in financial distress. With projected sales of $17.4 billion and $1.2 billion of EBITDA in fiscal 2012, the company generates significant cash flow. Total debt is just over $3 billion so leverage does not appear to be excessive.
- JC Penny operates approximately 1,100 stores in all fifty states. Nearly all of them are located in suburban shopping malls. JC Penny reached its peak number of stores in 1973 at just over 2,000 locations.
- Here are some other interesting facts about JC Penny. They became the largest catalog retailer in 1993, they were in the auto supply and retail business, they owned and sold Eckerd drug stores and their most famous employee was Sam Walton who went to work for JC Penny in 1940.
As a turnaround professional, I would have a number of questions if I were on the Board. Stay tuned for my next blog to hear the important questions that need asking!