What went wrong at JC Penny September 2013
What went wrong at JC Penny J. C. Penney, founded in 1902 by James Cash Penney, is a retailer operating through department stores (1,104 stores as on February 02, 2013) and internet website (www.jcp.com) in 49 states of the United States and Puerto Rico. The company sells Women’s apparel (23%), Men’s apparel and accessories (21%), Home furnishing (12%), Women’s accessories (13%), Children’s apparel (12%), Family footwear (7%) and Fine jewelry (7%). Services (such as styling salon, optical, portrait photography and custom decorating) accounted for c.5% of the sales in 2012. 2012 – Not only were the annual sales lower by c.25% as compared to 2011… The trouble at the company began with the arrival of new Chief Executive Officer (CEO), Ron Johnson, in November 2011. The company roped in Ron Johnson to replace 12.99 the then existing CEO, Mike Ullman, who was finding it difficult to grow top-line of the company. Ron Johnson, the former retail chief at Apple, had built the successful retail chain for the 2005 2006 2007 2008 2009 2010 2011 2012 company. The “While our prices continue to represent a tremendous pricing strategy of JC Penny was to provide sales and discounts value every day, we now (referred to as ‘High-Low pricing strategy’) to the customers. Ron understand that customers Johnson discarded this strategy and adopted the consistently-low are motivated by pricing strategy (also known as ‘Every Day Low Pricing – ELDP). promotions and prefer to However, this pricing strategy backfired and resulted in dwindling receive discounts through sales and coupons applied sales at JC Penny as customers who were accustomed to sales and at the register.” discount pricing at JC Penny were finding it difficult to adjust to the - Daphne Avila, new pricing which sold products at consistent prices, albeit they Spokeswoman, JCP may be lower. Annual Sales (USD Bn)
The Troubled 18.78 19.90 19.86 18.49 17.56 17.76 17.26 Year
Quarterly Sales (USD Bn)
Holiday quarters registered c.35-40% higher sales as compared to other 5.55 quarters
3.88
3.94
4.18
5.70
3.93
3.94
4.19
Holiday Sales were down c.28% Y-o-Y
5.43 3.94
3.91
3.99
3.88 3.15
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
What went wrongYear at JC Penny Year 2009 2010 Source: Company Filing
Q1
Q2
Q3
Year 2011
Q4
Q1
3.02
Q2
2.93
Q3
Year 2012
2.64
Q4
Q1
2.66
Q2
Year 2013
The year 2012 was a troubled year for the company. It registered lower sales in each quarter than as compared to the same quarter of the previous years. Even the holiday season, which generally resulted in about 35-40% higher sales, saw a sales decline of c.28% from thePage same2quarter of the previous year (2011).
…JC Penny’s stock also tumbled during the year
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JC Penny
Source: Yahoo Finance (Last Closing Date: August 30, 2013); Rebased to 100
Since the start of the year 2012, it seems investors lost confidence in the stock, which went tumbling despite visible strength in the capital market. Lower quarterly sales announcement for many quarters too has taken a toll on the stock price. The days ahead The company has recalled Mike Ullman to replace ineffective Ron Johnson in April 2013. In an attempt to turn around the company and lure customers back into its stores, Ullman is bringing back coupons, frequent sales events and some merchandise that Johnson eliminated. “Since I returned to jcpenney four months ago, we have moved quickly to stabilize our business - both financially and operationally - and we have made meaningful progress in important areas of the business. There are no quick fixes to correct the errors of the past. That said, we have identified the challenges, put solid plans in place to address them and have experienced and capable people in key roles to do so.”
- Mike Ullman, CEO, JCP
What went wrong at JC Penny
However, the company currently is also worried about the hostile takeover after it reported the sixth straight quarterly loss for Q2 2013. It has adopted a defence strategy, a so-called “poison pill” plan, which allows existing shareholders to buy more shares at a very low price to dilute the stakes of an individual or an entity who has acquired 10% or more of the company’s outstanding stock. JC Penny is at a critical stage of its history and its fate continues to remain highly speculative. Page 3