Former Apple (NASDAQ: AAPL) retail chief Ron Johnson, hired to achieve a turnaround at JCPenney (NYSE: JCP), is off to a terrible start. The wobbly department store company may not recover for a long time from the initial trouble during his tenure.
Several media reports say that Johnson will lay off several thousand workers. The cuts make sense from a financial standpoint, but their announcement should have been handled better. Press leaks made it appear that JCPenney is desperate to cut costs, which is probably true. There is no need to telegraph the retailer’s problems, though. It could have shown the need to carefully cut costs as part of a broader strategy.
JCPenney set a deal to distribute Martha Stewart Omnimedia (NYSE: MSO) products in its stores. It took a 16.6% equity position in the media company for which it paid $38.5 million. Rival Macy’s (NYSE: M) says it has an exclusive arrangement for Stewart products that dates from 2007. JCPenney management, which includes Johnson, must have known of the risk of a Macy’s action. And Martha Stewart’s brand is aged. Her company is in trouble, which probably would have accelerated without the JCPenney infusion. Now, JCPenney has the distraction of a legal battle that involves its larger and more successful rival.
In addition to these tactical problems, JCPenney’s fortunes continue to erode. Same-store sales are expected to show erosion for the past quarter. Revenue dropped 2.3% in the five weeks that ended December 31, compared to the same period last year.
JCPenney will host a two-day discussion about its prospects on January 25 and January 26. It has been described by the company as an event at which senior management “will outline the Company’s plan to transform JCPenney into America’s favorite store.” The characterization of the event is grandiose. It implies that new management already has most, if not all, of the answers for stemming a long-term decline. The change actually will have to be very gradual. JCPenney’s sales and brand are too badly damaged. Recent events show that the task of fixing the company becomes more difficult with each passing week.
Douglas A. McIntyre
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