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J.C. Penney’s Chief Says His Mistakes Led to Big Loss

In the year since the chief, Ron Johnson, introduced his ambitious new strategy, the company has lost $4.28 billion in sales and its stock is down about 55 percent. In his quest to “be the favorite store for everyone,” Mr. Johnson said the retailer had gotten some areas wrong, including marketing and an assessment that customers wanted simple pricing without constant sales.

Penney’s quarterly sales reflected little customer enthusiasm for the new approach. Revenue in the quarter, including the crucial holiday shopping season, fell 28.4 percent to $3.8 billion. Its net loss amounted to $552 million compared with $87 million in the year-ago period.

Sales at stores open at least a year, a measure retailers use to gauge like-for-like demand, fell by 31.7 percent. And Internet sales, which have been increasing at a fast clip industrywide, fell by 34.4 percent.

While Mr. Johnson’s strategy makes “great intellectual sense,” he is running out of time, said Chris DeRose, co-author of the business book “Judgment on the Front Line,” in an e-mail message. “If customers don’t embrace the changes in the next two quarters, the key investors will need to decide if they’re willing to sign up for another questionable holiday season,” he said.

In January 2012, just months after he took over the struggling department store chain after running Apple’s retail operations, Mr. Johnson outlined a turnaround that would add stores-within-a-store, step away from sales and promotions, and adhere to a three-tiered pricing plan. He suggested then that Penney needed a little bit of Apple’s magic.

From the start, there were questions then about whether Penney’s customers, who were used to sales and coupons, would be willing to give them up.

“Apple stores are destinations with must-have merchandise; JCP doesn’t have those benefits,” Mr. DeRose wrote.

Since then, Mr. Johnson has backed away from some of those goals, saying that Penney will hold some sales and admitting that the pricing plan confused shoppers.

On Wednesday, he went even further.

“I had a personal conviction to deliver everyday value beginning with truth on the price tag,” Mr. Johnson said. “We worked really hard and tried many things to make the customer understand that she could shop anytime on her terms.

“But we learned she prefers a sale, at times she loves a coupon, and always, she needs a reference price,” he said, referring to items like “compare to” prices on price tags.

He said the company would be running sales “each and every week” going forward, along with offering coupons.

He also said that the company’s marketing last year “failed to communicate our unique value proposition,” but that new ads, which started last week and focus on price comparisons, led to an immediate jump in traffic and sales.

“We are highly confident that as we return to some level of promotion, we’ll get the customer back in the store,” Mr. Johnson said.

Shares of the company, which reported the loss after markets closed, dropped 14 percent, or about $3, to $18.19 from $21.16 in after-hours trading. The stock is down 55 percent since the announcement of the turnaround plan.

Penney had been trying to cut down on inventory, and that was a success, with inventories declining almost 20 percent from a year ago.

The company said that its adjusted loss, which excluded charges for restructuring, management transition and some pension plan expenses, was $1.95 a share. On that basis, analysts expected a loss of 18 cents a share, according to Bloomberg data.

Gross margin also plummeted, to 23.8 percent of sales from 30.2 percent of sales from the same quarter a year ago, as Penney made aggressive merchandise markdowns.

In a news release on Wednesday, Mr. Johnson focused on the future, saying that the “ambitious transformation plan” remained under way. A key part of that is the stores-within-a-store approach, with dedicated floor space and signs and shelves designed by a brand. The strategy is popular with other retailers, and last year Penney added boutiques for Levis, Arizona and other brands.

Mr. Johnson said the company would open 20 new shops-within-shops in spring 2013, focusing on the home department.

Last year, we “learned that shops work, and we have more on the way,” he told investors on Wednesday.

Ken Hannah, chief financial officer, said that the shops-within-a-shop were outperforming the company as a whole.

Investors were eager to hear about the first weeks of the current quarter, where “the company is now cycling these changes in pricing,” as the Citi analyst Deborah Weinswig wrote. Mr. Johnson, however, said the company would not comment on current sales trends.

He did say that the company was “thrilled” with the visits to stores on recent holidays, saying there had been more traffic on Valentine’s Day this year, and that Presidents’ Day had traffic similar to a year earlier. In the fourth quarter, traffic dropped 17 percent from a year earlier.

Article source: http://www.nytimes.com/2013/02/28/business/jc-penneys-chief-says-his-mistakes-led-to-big-loss.html?partner=rss&emc=rss

The Dollar Store Economy

As we entered her favorite store, a Dollar Tree in Salem, Mann warned me that I’d have to hustle to keep up with her. “Look at these,” she said. “Cute.” Before I could even examine her find — a rack of smushy yellow chickens on sticks (plastic toy? Garden ornament? Edible peeps?) — she had ricocheted down another aisle, where I found her studying a prominent display garishly pushing a superabsorbent shammy. Mann noted that this was not the famously kitschy ShamWow! but a very cheap imitation called, merely, Wow. The display boasted, “As Seen on TV.”

“As in, you’ve seen the real ad on TV,” she said.

All around, the stacks of products and aisles of merchandise screamed a technicolor siren song. I found four AA batteries for my tape recorder for a dollar ($5.49 when I spotted them the next day at RadioShack), and dish towels that might have sold for $5 elsewhere were just a buck. Mann now brandished something called a “wineglass holder” the way Jacques Cousteau might have held up a starfish. It was a small aluminum device meant to clip onto your plastic picnic plate “for hands-free dining and socializing.” At a price of four for a dollar, it’s a good deal if your world is overrun with miserly wine connoisseurs.

When I looked up, Mann was already around the corner, having fun with a bottle of discount detergent boasting a “bingo bango mango” scent. Just up the way was a bin of brown bags marked either “A Surprise for a Boy” or “A Surprise for a Girl.” Mann’s 5-year-old niece accompanied us on our tour and was crazed with excitement over these, and the truth is, we were all in the same exact mood. All around us, strange things hung here and there, urging us on an unending treasure hunt. Perhaps, like me, you have driven by and occasionally stopped in a dollar store and assumed that there were two kinds of customers, those there for the kitschy pleasure of it all — the Heather Manns of the world — and those for whom the dollar store affords a low-rent version of the American Consumer Experience, a place where the poor can splurge. That’s true. But current developments in this, the low end of retail, suggest that a larger shift in the American consumer market is under way.

We are awakening to a dollar-store economy. For years the dollar store has not only made a market out of the detritus of a hyperproductive global manufacturing system, but it has also made it appealing — by making it amazingly cheap. Before the market meltdown of 2008 and the stagnant, jobless recovery that followed, the conventional wisdom about dollar stores — whether one of the three big corporate chains (Dollar General, Family Dollar and Dollar Tree) or any of the smaller chains (like “99 Cents Only Stores”) or the world of independents — was that they appeal to only poor people. And while it’s true that low-wage earners still make up the core of dollar-store customers (42 percent earn $30,000 or less), what has turned this sector into a nearly recession-proof corner of the economy is a new customer base. “What’s driving the growth,” says James Russo, a vice president with the Nielsen Company, a consumer survey firm, “is affluent households.”

The affluent are not just quirky D.I.Y. types. These new customers are people who, though they have money, feel as if they don’t, or soon won’t. This anxiety — sure to be restoked by the recent stock-market gyrations and generally abysmal predictions for the economy — creates a kind of fear-induced pleasure in selective bargain-hunting. Rick Dreiling, the chief executive of Dollar General, the largest chain, with more than 9,500 stores, calls this idea the New Consumerism. “Savings is fashionable again,” Dreiling told me. “A gallon of Clorox bleach, say, is $1.44 at a drugstore or $1.24 at a grocery store, and you pay a buck for it at the Dollar General. When the neighbors come over, they can’t tell where you bought it, and you save anywhere from 20 to 40 cents, right?”

Financial anxiety — or the New Consumerism, if you like — has been a boon to dollar stores. Same-store sales, a key measure of a retailer’s health, spiked at the three large, publicly traded chains in this year’s first quarter — all were up by at least 5 percent — while Wal-Mart had its eighth straight quarterly decline. Dreiling says that much of Dollar General’s growth is generated by what he calls “fill-in trips” — increasingly made by wealthier people. Why linger in the canyons of Wal-Mart or Target when you can pop into a dollar store? Dreiling says that 22 percent of his customers make more than $70,000 a year and added, “That 22 percent is our fastest-growing segment.”

Jack Hitt (jackhitt2011@gmail.com) is a contributing writer for the magazine and author of a forthcoming book on amateurs in America.

Editor: Vera Titunik (v.titunik-MagGroup@nytimes.com)

Article source: http://feeds.nytimes.com/click.phdo?i=102ca50a48e26cc5c94bc7d101739d42

J.C. Penney’s Chief Says His Mistakes Led to Big Loss

The Dollar Store Economy

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