WWD.com/fashion-blogs/a_new_course_for_jc_penney-13-01

the Insiders

Archives

January 28, 2013 2:23 PM

Business

A New Course for J.C. Penney?

Just before William Ackman squared off with Carl Icahn on CNBC last week -- in which the two activist investors engaged in a surprisingly personal round of verbal fisticuffs, ostensibly over direct merchant Herbalife -- Ackman hinted at things...

Just before William Ackman squared off with Carl Icahn on CNBC last week -- in which the two activist investors engaged in a surprisingly personal round of verbal fisticuffs, ostensibly over direct merchant Herbalife -- Ackman hinted at things to come at one of his biggest investments, J.C. Penney Co. Inc.

First, he talked some about how his chosen chief executive officer, Ron Johnson, was attempting a transformation like no other over such a short period of time. Johnson, of course, is trying to remake one of the biggest old-line department stores into what he calls a specialty department store, a series of shops-in-shop.

"The vision appears to be working," Ackman said. "The problem with the vision is it's a small percentage of the store."

So sales at the shops-in-shop, which make up 10 or 11 percent of the chain, are promising. But the rest of the store is suffering, and overall comparable-store sales were down 22.3 percent over the first nine months of the Penney's transformation. And even with $900 million taken out of the retailer's cost base, it appears to many observers that the company will have trouble paying to switch the rest of its square footage over to shop-in-shops in the coming years.

"No company survives down 25 percent comps over three years," said Ackman, who controls about a quarter of Penney's stock and sits on its board. "Ron will work to solve the problem. I would not project the future based on the last 12 months. As some people have noticed, the company started to bring back sales....From the public information -- I'm not going to give you the future -- but it looks like [Penney's is headed toward] a balance between everyday low pricing and sales and other ways to drive traffic."

So after a year of transformation that would be a new, new J.C. Penney and, quite possibly, Johnson's last chance to truly reinvent the world of department store retailing. If this were an epic adventure story, this would be the all-or-nothing moment, the perilous turn when the whole venture hangs by a thread with danger everywhere.

Some seem to think the greatest threat is that the whole effort will run out of money, that Penney's will have to tap into its credit line. I'm betting they could and would sell off some stores or something to keep the transformation alive, if they choose to stick with it.

I wonder more about this balancing act between everyday low pricing and sales. If the sales drive traffic, it will be the promotion-oriented shopper who will come. Will there be enough in the store to bring that shopper back when there's not a sale?
load comments

ADD A COMMENT

Sign in using your Facebook or Twitter account, or simply type your comment below as a guest by entering your email and name. Your email address will not be shared. Please note that WWD reserves the right to remove profane, distasteful or otherwise inappropriate language.