J.C. Penney Company, Inc. (NYSE:JCP) fired Ron Johnson as CEO and brought back the previous boss, Mike Ullman. Johnson completely altered Penney’s business model, leading to a horrific sales decline, and now Ullman looks like he is bringing back the old model. The failings of the old model, however, were the reasons for bringing in Johnson.
Old and Tired
J.C. Penney Company, Inc. (NYSE:JCP) is a storied brand in American retail history. However, like so many other storied brands, including Sears Holdings Corp (NASDAQ:SHLD) and K-Mart, both now owned by Sears Holdings Corp (NASDAQ:SHLD), it has struggled to remain relevant. Over time, the stores have become “tired,” and J.C. Penney Company, Inc. (NYSE:JCP)’s image slowly became that of a store that grandmothers shop at. It simply stopped resonating with younger customers. When that happens, grandmothers usually slowly follow the kids out the door, too.
The recession didn’t help maters. Sales peaked heading into the deep 2007 to 2009 recession at around $20 billion and then declined into the mid $17 billion range and languished. Seeing the decline and realizing that the old way of doing things was leading the company down a slow path toward obscurity, the board brought in Apple Inc. (NASDAQ:AAPL) retail alum Ron Johnson.
Lies, Damn Lies
Johnson examined Penney’s business and shifted from offering coupons and discounts on overpriced merchandise to simply offering lower prices. Customers stopped getting “deals.” That’s a big change, since Penney’s had trained its customers not to pay the price on the tag. In a single year, the top line at J.C. Penney Company, Inc. (NYSE:JCP)’s went from the $17 billion range to just under $13 billion. The new tactic clearly alienated loyal customers and didn’t bring in enough new ones.
As a comparison, Kohl’s Corporation (NYSE:KSS), a direct competitor to Penney’s, has stuck to the sale and coupon model and has seen sales head steadily higher, save for a small one-year drop during the recession. Kohl’s Corporation (NYSE:KSS) has been struggling with same store sales declines of late, but new store openings have supported the top line.
So all is not well at Kohl’s Corporation (NYSE:KSS), either, as its customer’s continue to struggle through the slow economic recovery. But the sales misses are relatively small, while J.C. Penney Company, Inc. (NYSE:JCP)’s top line sagged 25% in one year! As long as Kohl’s Corporation (NYSE:KSS) can keep growing its store count, same store sales issues can be handled and investors kept happy. The massive strategy shift at J.C. Penney Company, Inc. (NYSE:JCP) left no one happy.