Listening to customers is important and JCPenney learnt this the hard way. Following losses caused by former CEO Ron Johnson decision to discard JCPenney’s traditional retail practice of marking up its products and then offering fat discounts and coupons on its merchandise instead of adopting an ‘everyday low price’ policy, much to the disappointed of regular customers, Ullman returned to take control of the company in April, which has primarily helped the chain to post its first same-store sales gain last quarter since the period ended April 2011. Under Johnson, the retailer had made changes including scrapping of several brands which he considered dull for the customers while introducing newer ones such as Martha Stewart and Joe Fresh lines. These steps taken by Johnson upset the retailer’s loyal customers and store traffic dropped. By the end of 2012, sales had almost fallen to 25 per cent. In addition, the company’s performance was also affected, as were all retailers, by the brutal weather that forced the closing of dozen of stores throughout the Central and Northern states. It was only around the middle of February that retailers, including JCPenney saw better sales momentum.
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- Annual sales result for February 2014
- Same-store sales improved 2 per cent from the year ago quarter, a 680 basis point improvement.
- Its online division sales grew by 26.3 per cent.
- The company had free cash flow of US $ 246 million and finished the year with more than US $ 2 billion in available liquidity.
- Another bright spot in the company’s earnings call was the 460 basis-point improvement in its gross margin, which rose from 23.8 to 28.4 per cent.
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Not until Ullman’s return, did JCPenney begin to come back to life! In order to get the American retailer back to its old profitable self, he marked down various strategic initiatives leading to accomplishments in the first two phases of the turnaround which have included reinforcing relations with key domestic and international suppliers, rebuilding its merchandise assortments, investing in inventory, bringing back key items and private brands, and building a marketing strategy focusing on driving store traffic and promotions. His return also included the need to immediately tackle the inventory issues his predecessor’s turnaround attempt had created. Johnson had done away with some popular private brands to focus on high-profile ones that often did not sell as well. Whereas Ullman’s restocking process involved discontinuing 33 underperforming brands including William Rast, JCP Everyday and JCP Men’s. In order to get rid of the old merchandise, JCPenney has been offering heavy product markdowns which have led to low gross margins in the previous quarters. Now Ullman is simultaneously working to increase – or reintroduce – brands that have resonated with customers such as St John’s Bay, Liz Claiborne, JCP Home, Cooks, Am Brielle Lingerie line and Arizona, to name a few.
Further, to draw in kids Ullman added Disney shops to 565 stores in October 2013, while the company is continuously seeing traction with brands such as Nike, Levi’s, Dockers and Izod. The home store has been a big area to fix as well, and Ullman said the change of merchandising home areas by category, rather than brand, has shown ‘terrific results.’ The firm also has also re-launched its JCP Rewards program. “We know that work must be done and we have plans in place to position the company for a long-term profitable growth. During this go-forward phase, we are laser focused on refining our merchandising and marketing strategies in order to improve our gross margins and steadily grow sales while continuing to tightly manage expenses and will leverage our expense base,” asserts Ullman.
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The online sales of JCPenney grew 26 per cent in the fourth quarter to US $ 381 million, which was an increase of nearly 6 per cent of the prior year’s quarter, which had shown a drop of 34 per cent year on year.
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Indicating that the turnaround is almost complete, Ullman revealed that investors can now expect to see a natural upward progression in the gross margins. The fourth quarter was the first to begin showing that this process might be nearing completion as the company has at least recovered from the days it was dipping down to Sears’ levels. Also, the company expects to show another gross margin improvement in the first quarter, presumably as the company becomes less reliant on markdowns related to inventory overhang. Currently the retailer’s website is also reporting double-digit growth, which has helped in pushing Penney’s slow recovery. The online sales grew 26 per cent in the fourth quarter to US $ 381 million, which was an increase of nearly 6 per cent of the prior year’s quarter, which had shown a drop of 34 per cent year on year. This is because the retailer has focused on unifying the store and online experiences, which include better stocking for both shopping experiences. The website also received a visual makeover that has made online shopping more user-friendly. Home was traditionally one of the strongest segment sellers through the website, since it’s easier to display a number of larger items online than on the showroom floor.
Although the fourth-quarter results reflect a company that has moved through a transition phase but it has yet to prove long-term results. At present, JCPenney investors have reason to celebrate that Mike Ullman has at least undone the damage brought on by Ron Johnson’s strategies. But to remember the past that Johnson was brought on because JCPenney was not performing as well as its peers. Even if JCPenney’s future seems safer than that of Sears, but the company still needs to prove its ability to keep its head above the choppy retail waters. By late 2014, if the company does not improve operations significantly, said Charles Patton of Patton Investment Advisors in a Jan. 30 report, it may not be able to secure more financing from lenders. “If this happens,” Patton wrote, “It will be ‘Game Over’.”
