In the money: JC Penney remains "on track" despite Q2 loss
The CEO of JC Penney has emphasised the US department store operator remains "on track" despite changing its pricing model for a second time after it swung to a second quarter loss and admitting it won't meet full-year forecasts.
"The first and most encouraging thing to me is I am completely convinced that our transformation is on track. We are making extraordinary progress in everything we’re doing," CEO Ron Johnson told analysts on Friday (10 August).
The comments came as the retailer posted a second-quarter loss of US$147m over the three months ended 28 July, against a $14m profit in the same period last year.
During the quarter, comparable sales dropped 21.7%, while total sales declined 22.6% to $3.02bn. Gross margin fell to 33.2% from 38.3% due to lower-than-expected sales combined with $102m in markdowns to clear discontinued inventory ahead of autumn arrivals.
Johnson said the group would switch to an every day low price and clearance model after its three-tier model, announced in January, failed to gain traction with customers.
The old model included three types of pricing - an everyday low pricing model, as well as two types of promotion: "month-long values" and "best prices", ticketed on the first and third Fridays of each month.
He said every day pricing is part of the retailer's "DNA" and that while it was "courageous" to switch to the three-tier model, it was not courageous enough.
The company has now phased out the month-long value promotions, as Johnson said they confused consumers.
"Customers clearly told us if you have great everyday prices how can you have things on sale for a month called the month-long value? There is something inherently inconsistent with that. How can you call it best price yet which was our name for clearance, if your everyday prices are so good?"
The company also said it no longer anticipates achieving its full-year earnings guidance since the group is not willing to "short-circuit a really strong business strategy for the sake of five months".
While JC Penney will miss this year's forecasts, it expects to resume sales and profit growth in the 2013 fiscal year, said Johnson.
"In January we laid out a four-year plan to transform this company. We said this will be a really tough year. Somehow I don't think that message got through. Your expectations were much higher than ours, but transforming a company is a marathon; it's not a sprint. It takes time. A lot of you thought it would be a sprint. It can't be and it won't be," he said.
New stores concept
Johnson also revealed more details about the company's new stores concept, revealed in January, which will see the addition of 80-100 branded concessions.
Technology will play a key role in the experience. Staff will be equipped with iphones, which will allow them to process payments throughout the store.
The company will also equip all products with RFID tagging, which will mean that customers will be able to place their bags into a reader device instead of having to scan them.
Much of the space formerly devoted to cash registers will be turned into seating with wifi, coffee, and juice bars allowing consumers to stay in the store and extend their shop.
Central to all of this will be the square, which will be at the core of the newly designed stores. Johnson said the square will feature seasonal products - for example, in November and December it will have holiday items for Christmas, then in January, it will offer exercise equipment as well as hosting pilates and yoga classes in the space.
Johnson has grand ambitions for the new stores, looking to take them beyond spaces that sells things and instead become a place where people can "belong".
"When you're done, what we're creating is a place to belong and that's the big idea here, as we take an aisle, and by adding a mere four to five feet of width, and activating the technology, we can transform the experience from a shop to a new retail interface," he explained.
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