J.C. Penney’s Pivotal Moment Approaches
J.C. Penney’s (NYSE:JCP) moment of truth is approaching. Chief Executive Officer Ron Johnson was charged with transforming the retailer when he joined the company last February, but his efforts to steer J.C. Penney away from its image as a discounter contributed to a 13 percent drop in customer traffic and a 25 percent fall in revenues in fiscal 2012.
Once the retailer was the go-to place for home products like bath towels and window treatments, and with his plan to redesign J.C. Penney into a cluster of approximately 100 boutiques, Johnson is aiming to recapture that reputation. On April 5, the struggling department store chain will open its first new home goods boutique — a launch that even Johnson has deemed “pivotal” to his efforts to turnaround the company’s business, as Reuters reported.
While Johnson first made his name pioneering the “cheap chic” esthetic at Target (NYSE:TGT), he now faces an ultimatum from J.C. Penney’s board of directors: reverse falling sales or risk losing his job.
The new home products boutiques — which will be set up in 500 of its 1,100 stores — will feature designers like Jonathan Adler and Michael Graves. By the time the renovations are completed in late May, the company plans to have 20 such boutiques in place, with Sir Terence Conran’s furniture shops in 225 of its stores. Other brands to be incorporated into the boutique motif are coffee-press maker Bodum and Martha Stewart Living Omnimedia (NYSE:MSO) — if the company’s legal dispute with Macy’s (NYSE:M) is resolved…
Home products are an important draw for department store shoppers, and so J.C. Penney’s years of neglect in that segment and uninspired products have pushed many customers into the arms of its rivals. Its sales illustrate this migration; last year, the home product category accounted for 12 percent of Penney’s sales, compared to 21 percent six years earlier. In addition, sales per square foot in its home products department fell by more than half in that same period. In 2008, the retailer’s $3.7 billion in home products sales came in just below those of Macy’s, but last year they amounted to just about one-third.
“They’re going to have a hard time getting back people they’ve disappointed,” Kathy Gersch, a former Nordstrom (NYSE:JWN) executive told Reuters.
“There are a lot of retailers going after that business,” added NPD Group analyst Debra Mednick. In order to make its business more profitable, J.C. Penney must pull in younger shoppers — a demographic that retail brand experts believe is necessary for success. Currently, as Reuters noted, the company’s average home shopper is much older than its counterpart at Wal-Mart (NYSE:WMT), Macy’s, and Target. However, a successful home goods business must attract the head of a household in addition to the young urbanite. Paul Rutenis, the executive overseeing the home business renovation, told the publication that Penney’s will carry a wide selection of home products at a variety of prices to appeal to a broad range of shoppers.
J.C. Penney’s boutique efforts have also encompassed its fashion department. So far, these shops have reported favorable results, but their sales have not been enough to restore investors’ confidence in the company; its shares are down approximately 23 percent this year to date.
Don’t Miss: Philip Morris CEO Grabs a Golden Parachute.