7 Reasons Why JC Penney's Q2 Earnings Were Another Huge Disaster


By Ira Kalb, Marshall School of Business, USC

JC Penney (JCP) has just reported even worse results for their second quarter than they had during their first quarter under new CEO Ron Johnson.

The first quarter results represented the company's worst performance in four decades. The second quarter results just reported had losses of $147 million (or 67¢ per share), revenue was down nearly 23%, same store revenue for stores open at least a year fell 21.7%, and customers dropped by 12%.

While analysts expected the loss, excluding one-time items, to be 26¢ a share, it was actually 37¢ per share.

When was the last time you shopped at JC Penney?
Within the past two weeks1 (20.0%)
Within the month1 (20.0%)
I went once or twice this year1 (20.0%)
More than a year ago1 (20.0%)
I do not shop at JC Penney1 (20.0%)
1. The marketing strategy is still off-way off.

As I said in my previous post in May, after JCP's first quarter loses, the entire marketing mix seems to be off. One would hope that the company would learn from its mistakes. From the results just reported as well as Mr. Johnson's comments to the financial markets and the media, it appears that not much learning is going on. Per the Los Angeles Times, to calm the financial markets, he said, "I am completely convinced that our transformation is on track." What has him convinced? To convince the rest of us, he should provide the data so we can feel as comfortable as he does. As Cuba Gooding Jr. said in the movie Jerry Maguire, "Show me the money."

2. Inside-out thinking rarely works.

From the start, it appeared to be a strategy that came out of the mind of Mr. Johnson rather than JCP's customer base. Successful companies think outside-in rather than inside-out. They focus on the needs and desires of customers. They don't assume that they understand those needs and wants better than customers do. When he says, "I am convinced" without providing any reasons, it just confirms that he is still operating inside his own head. If his marketing mix of strategies doesn't fit the needs of his target audience, they are unlikely to work.

3. Pricing.

The problem with "everyday low prices" is that it is not a unique positioning strategy. Wal-Mart used always low prices as a slogan for 19 years. The concept of "everyday low prices" doesn't seem to "square" with the positioning of in-store boutiques. Usually boutique prices are higher. Most importantly, "everyday low prices" is a weaker strategy than giving customers "deals." The reason is that "everyday low prices" only uses the price building block. It establishes the products at a lower value or position in the minds of buyers. By giving shoppers discounts and coupons, the products are established at a higher value (from the list price), and the discount or coupon (both examples of sales promotion) allows customers to save money off of that higher established value. Hence they feel good about getting a deal.

4. Coupons.

Coupons have another important advantage for companies. Only an average of about 2.5% of coupons in the U.S. are ever redeemed. Therefore the company receives the promotional value of the coupon (each coupon is a mini ad for the product) while only having to discount the face value of the coupon to the small percentage that redeem them. Moreover if the coupon comes from the manufacturer of the product, rather than the retailer, retailers such as JCP will receive reimbursement for the coupons that are redeemed at their stores from manufacturers. Therefore retailer gross margins are preserved.

5. Discounts or sales.

Discounts and limited time "Sales" also have other important advantages for companies over "everyday low prices." Once the discount or sale period is over, the company can raise the prices back up and make more money. Furthermore, as with coupons that have expiration dates, special deals or limited-time discounts encourage shoppers to come into the store to buy before the "Sale" or discount period is over. With "everyday low prices," the retailer does not benefit from any sense of urgency in the minds of shoppers. Shoppers think, "Since I can go to the store whenever I want, what's my incentive to go there now?" Meanwhile, many of those that would have come to the JCP store to take advantage of the discounts before they expire are lured by discounts and special deals offered by competitors. Hence, JCP loses out altogether.

6. Promotion

The confusing screaming ads that annoyed so many people (click here for an example) are gone, but they have been replaced by new TV commercials that may be entertaining as mini movies, but they don't give customers good reasons to shop at JCP. Here is just one example of a commercial the Company ran in June. In August, they have been running a free haircut for kids commercial. Free haircuts are a clear short-term benefit to parents that may boost traffic in the short run, but they are unlikely to have any lasting benefit to JCP. Moreover, this offer is fraught with problems related to people having to wait in line, being unhappy with the haircut (those that get "things" for free are often the most demanding and easily disappointed), and the costs to JCP without any clear benefit to the bottom line.

7. Still not listening to customers.

The worst mistake of all, which is related to all the others, is that Ron Johnson is still not listening to the JCP loyal customer base. He approached his new position of CEO from an inside-out perspective. To help insure success, you have to talk with customers, run your ideas by them, and get ideas from them. In short, companies need to listen to their most loyal supporters and the prospects that they hope to attract. From the strategies chosen and the disappointing first- and second-quarter results, this apparently has not happened at JCP.

What's next?

Let's hope that the third and fourth quarters are better for JCP. If they are, the results may be related to seasonal issues, such as "back-to-school" and year-end "holiday" shopping because the marketing strategies so far leave seasoned marketers scratching their heads. JCP financial results to date only confirm their concerns.

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Are you sure this CEO isn't part of our gov't? He thinks as bad as they do.

August 15 2012 at 10:08 AM Report abuse rate up rate down Reply
2012 Clark 2012

J C Penny has a employee turnover system that results in over 70% of it's staff in thier stores to have no job benefits or no long term work time at thier stores. J C Penny keeps about 25% of thier staff in permanant management positions to monitor the short term employees. Over 70% of J C penny employees smoke cigarettes on thier break times and look very unhappy.

August 15 2012 at 3:18 AM Report abuse rate up rate down Reply

close all jcp stores no bargin at all make 1.00 trees out of them

August 14 2012 at 11:47 PM Report abuse rate up rate down Reply

Went to JC Penney on Chicago's S.W. side in Oct. 2009. Walked through the entire store, looking at housewares, purses, coats, accessories, shoes, clothes, bathroom decor, etc., although I admired everything I saw, very nice, I walked out of the store empty-handed. The prices were much too high---sky high in fact, and I'm no cheapskate. I'm a shop-a-holic and am not afraid to buy when something I am interested in is reasonable. JC Penney's merchandise was not even reasonable.

August 14 2012 at 6:38 PM Report abuse rate up rate down Reply

I would hate to see JCPenney go out of business. I have had my furniture and clothing bought from there for years. My couch is ready to be replaced and I haven't seen any sales that I would like lately. I also got the new catalog today and it is hideous. Please get your act together. I would love to shop with you - mostly by internet.

August 14 2012 at 5:26 PM Report abuse rate up rate down Reply


August 14 2012 at 4:47 PM Report abuse rate up rate down Reply
1 reply to loulou751's comment

Me too!!

August 14 2012 at 6:49 PM Report abuse rate up rate down Reply
Richard Hodom

As once supervisor at another clothing store, JC Penny’s has been going down hill for some time. The store her has no skill’s in customer service, lack of training and educating the staff shows. With poor leadership has caused this company to fall behind. Problem was not the store design but the way it is showed. The catalog’s are out dated but not everyone would agree with that. Seniors’ still look for them and expect the product to be there after ordering. But because of not knowing your base and the people you sell to has caused issues. Your main office I’m sure has a lot of young buyers with big idea’s but never step foot in a real store except the show store, right… If this company wants to move forward it would need take a step back and look at the main office, how they interact with the stores. If you really want know how to sell again let me know, glad to help.

August 14 2012 at 4:46 PM Report abuse rate up rate down Reply

I was feeling unhappy with JCP after a very classy lady from my work place (had proudly told many of us that 90% of the cloths we admired came from JCP) had purchased shoes there for her husband who needed to go to rehab for a stroke. The rehab center told her they were incorrect + should be velcro. She never put them on him, only opened the box then returned them for an exchange within 48hrs (had charged them on her JCP card). Came without the receipt but told the manager she had charged could they look it up, the manage not only refused but made a rude remark to her. I thought I would search elsewhere for the items I alway bought there but then an employee got admitted to my nursing unit after an incident with the same manager at the same JCP, so I knew then I would never return. If their management hies and promotes that kind of person they will never get a $ from me again. I have not found a few of my favorite items anywhere else but I will manage just to know I am not part of making this acceptable!!

August 14 2012 at 4:45 PM Report abuse rate up rate down Reply


August 14 2012 at 4:43 PM Report abuse +1 rate up rate down Reply

The pricing structure is the most visible but perhaps they are just seeing the results of the target market they selected. They neglected the family values that the store was founded on. Guess the market they selected isn't filling the registers with the needed funds that previous customers provided before the current push to exclude the traditional family unit. Seems like no one wants to accept that as a possible loss of business.

August 14 2012 at 4:41 PM Report abuse +1 rate up rate down Reply