Believe It Or Not J.C. Penney’s Strategy Is Working, Says Analyst

Believe It Or Not J.C. Penney’s Strategy Is Working, Says Analyst

By Henry Blodget | Daily Ticker
Jun 21, 2012

J.C. Penney's (JCP) stock got clobbered yesterday after the company announced the sudden departure of its president, Michael Francis.
Yesterday's drop only added to the woes of J.C. Penney's shareholders, who have seen the value of the company nearly cut in half over the last three months. The stock has also hit the lowest level it has seen since Apple's former retailing guru, Ron Johnson, joined the company last fall.

A day after Francis's departure, Ron Johnson is publicly throwing him under the bus, blaming him for the failure of J.C. Penney's marketing message to connect with consumers. Johnson is now taking over responsibility for that marketing message himself.
At the same time, Johnson is standing behind his larger strategy for J.C. Penney, which is to offer "everyday low prices" instead of constant sales and discounts and other gimmicks designed to get cost-conscious customers into the stores.
And believe it or not, according to Morningstar analyst Paul Swinand, the latter strategy is working.
The customers who do make it into J.C. Penney stores, Swinand says, are buying more than they did before Ron Johnson took over.
J.C. Penney's problem, Swinand continues, is that the overall store traffic is lower--because fewer customers see a reason to come into the stores.
But the silver lining in the lower traffic, Swinand says, is that the customers who are currently visiting the stores are not as aggressively price conscious as those who simply shop from sale to sale. As a result, J.C. Penney should be able to have higher gross margins than it would if it were goosing sales by offering a never-ending stream of deep discounts to get people into the stores.
Swinand, therefore, believes that J.C. Penney's strategy is working. He thinks the turnaround will take at least another year, but he also thinks the stock is worth $38. So investors who are patient, Swinand thinks, will be rewarded.
SEE ALSO: The JC Penney Disaster Timeline: How Apple's Retail Guru Is Destroying The Company.
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