J.C. Penney Backtracks in Hopes of Boosting Sales

source: http://www.flickr.com/photos/epsos/

source: http://www.flickr.com/photos/epsos/

J.C. Penney (NYSE:JCP) Chief Executive Officer has been loath to admit that his turnaround plan — meant to steer the retailer image away from its image as a discounter by implementing what he called “everyday low prices” and creating small boutiques at the expense of its private brands — was failing. But the company announced Wednesday that it had decided to abandon part of its strategy; the retailer will be raising prices on its own brands so that it can offer discounts once more. This move, noted Reuters, is aimed at improving margins and winning back shoppers.

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When Ron Johnson left Apple (NASDAQ:AAPL) and took on the mantle of chief executive officer at J.C. Penney in November 2011, his leadership was expected to launch a rebirth of the 111-year-old department-store chain, but conditions have worsened. The company posted its biggest quarterly loss since 2004 at the end of February.

Johnson envisioned a company that could offer everyday low prices and boost its offerings with a wide range of small boutiques from designers from Levi’s or Sephora. His eventual plan was to turn most of the chain’s stores into a cluster of approximately 100 boutiques. But his attempt to revitalize the chain and transform the business has not happened. His change of the company’s pricing structure — which eliminated coupons and massive sales in favor of “everyday-low prices” — drove customers away instead of drawing them in. Shoppers coming into stores decreased by 13 percent in the twelve-month period ended February 2.

As Reuters reported, the “illusion” of savings only served to cheapen the brand…

After the company reported a 25 percent drop in fiscal year sales, Johnsons said that J.C. Penney would resume the use of discounts and sales. He even acknowledged that it was a mistake to eliminate markdowns and coupons. However, as recently as the second week of March, the chief executive still maintained that this push to turn the 1,100-store company into a “specialty department store” will provide “a reason for a lot of customers who haven’t been to JCP lately to come check it out.”

Yet several days later, Chief Financial Officer Ken Hannah Wednesday said at Bank of America’s consumer and retail conference that part of its strategy had been a “huge miss,” noting it was a mistake to remove private-label items without offering alternatives. Hannah added that private labels were set to return in April. And this announcement is good news for the company, as private labels provide the company with a profitable business that generates more than half of its revenue.

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Now that private labels — including St. John’s Bay and Arizona — are returning, the company will be changing the price tags on its merchandise, as spokeswoman Daphne Avila said in a statement emailed to Reuters on Tuesday.

“While our prices continue to represent a tremendous value every day, we now understand that customers are motivated by promotions and prefer to receive discounts through sales and coupons applied at the register,” Avila said.

Investing Insights: Can the J.C. Penney Situation Get Any Worse?