Twenty per cent off sounds appealing to shoppers. Not to investors. On Tuesday, the JC Penney department store chain reported that same-store sales had dropped by nearly a fifth from the year before. It is hard to recall another like-for-like decline of this magnitude at any company. Even at Gap, an industry problem child, same-store sales bottomed at -14 per cent in the recessionary 2008. Penney shares tanked on Wednesday.
The issue has little to do with the environment for mid- or low-priced retailers in the US, though. Same-store sales at Macy’s and Kohl’s, also mid-tier department stores, were slightly positive and flat, respectively, in the first quarter. Off-price clothier TJX reported like-for-like sales up 8 per cent.
The issue is the strategic changes instituted by new boss Ron Johnson, who previously ran Apple’s retail operations. His decision to abolish sales commissions has attracted attention, but, like his cost-cutting initiatives and planned store revamps, was instituted too recently to explain the drop off. The culprit seems to be the move from constantly changing promotions to a few stable price tiers. Shoppers appear to have liked the old disorder.
It is hard to predict if shoppers will warm to an environment where pricing is predictable and the staff isn’t pushy. We know, however, that there have been few, if any, successful transformations of ageing retail brands. The disastrous turnround efforts at Sears/Kmart prove that cost control is not nearly enough. But cuts can keep a company alive long enough to find a merchandise formula that works. Encouragingly, Gap has recently started to churn out positive same-store results after years of negative sales driven by lousy fashion. Only very astute financial management protected Gap’s profits. The JC Penney turnround, if it comes at all, is likely to take a long time, too.
Want to publish your own articles on DistilINFO Publications?
Send us an email, we will get in touch with you.