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Current Events & Hot Topics Current Events & Hot Topics

J.C. Penney Is the New Sears: Ron Johnson Has Done “Incalculable Damage,” Davidowitz Says

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J.C. Penney (JCP) shares tumbled Wednesday after the retailer reported a much wider-than-expected first-quarter loss, suspended its dividend and saw weakness across all core metrics.

In an apparent rebuke to new CEO Ron Johnson's strategy to change the company's focus from discounts to everyday low prices, total sales fell 20% while same-store sales declined 19% and gross margins fell to 37.6% from 40.5% as foot traffic in the stores dropped 10%.

"Our marketing isn't doing the work," Johnson said in a conference call. "We've got to get our pricing across. Coupons were a drug, they really drove traffic. [Customers] need to understand the value we're offering."

But it's Johnson, not J.C. Penney's customers, who has a problem understanding what the retailer needs, says Howard Davidowitz, a veteran retail banker and CEO of Davidowitz & Associates.

"He's caused incalculable damage," Davidowitz says of Johnson, who joined J.C. Penney last year after running Apple's (AAPL) retail operations. "The customers are everything. They don't know what the hell he's doing."

In a nutshell, Johnson wanted to wean customers off one-time discounts -- notably coupons -- and get them to look at J.C. Penney as a place for everyday low prices. (See: J.C. Penney CEO: We Can Become America's Favorite Store)

But that's "a very tricky thing to get customers to believe," Davidowitz says. "What is a 'fair' price? Who's to determine it?"

Using Target's (TGT) multi-year rollout of groceries as an example, Davidowitz says "experiments" are good in retail but need to be done on a test basis and introduced slowly to get customers comfortable with a new concept.

"J.C. Penney didn't need a revolution, it needed an evolution," he says. "You can't take an old line company that's been operating the same way a very long time and throw everything out the window and say 'now we've reinvented the company.'"

Davidowitz does have a flair for the dramatic, as you can see in the accompanying video. But he was also one of the few who didn't buy into the hype last year when Johnson was named J.C. Penney's CEO, as you can see here.

After calling J.C. Penney shares a short last June, Davidowitz remains glum about the company's prospects following its dismal quarter, predicting the company will now slash inventories -- limiting customer choice -- cut staff and eliminate all promotions.

In other words, Davidowitz says J.C. Penney is going down the same path as Sears Holdings (SHLD), another retailer that has fallen on hard times. As with Eddie Lampert at Sears, J.C. Penney has come under the influence of financial heavyweights, hedge fund manager Bill Ackman and Vornado Realty Trust's Steven Roth.

Lampert, Ackman and Roth are all incredibly accomplished investors and brilliant by all accounts. But the early returns at J.C. Penney suggest once again that being a great investor does not necessarily make for a great retailer.

Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com

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by on May. 16, 2012 at 9:36 PM
Replies (11-20):
punky3175
by Punky on May. 17, 2012 at 6:06 AM
I haven't shopped in Sears and JCPennys for a dry long time. I got really sick of trying to buy a larger shirt for it only to get wider, not longer and have no real shape. Now it's mostly Kohl's or Nordstrom Rack and Macy's for suits. I definitely like the clothing options for my teens at Kohls.
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dustinsmom1
by JENN on May. 17, 2012 at 7:20 AM

 I still shop there from time to time, you can find some good deals if you look. BUT they do not carry a lot of things i used to buy there. I used to always get my sons pants there, the Arizona elastic waistband, because he hates buttons and snaps. They don't carry them anymore at our store and even their online selection for them are piss poor.

Donna6503
by Platinum Member on May. 17, 2012 at 8:21 AM
Any mall that is anchored by a JC Penney is a mall that is failing or going to fail.

JCP, is a non specialize retailer that mostly deals with everybody basic outfits. In today's world, those needs are being meant by Walmart (Waltrash), Target, and to a lesser extent Kmart/Sears. You'll find that retail outlets need to specialize like the Gap, Big and Tall, and such. JCP had a chance to buy eBay some 14 years ago; and didn't, because it didn't fit their business model and mission statement and that's JCP biggest problem; a crappy model and a stupid mission statement.
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OHgirlinCA
by Platinum Member on May. 17, 2012 at 8:24 AM
I don't like JCPenney's new system. I liked the buy one get one for 88 cent sales, and the 10.00 coupons I received. I rarely go in there anymore. I've noticed Old Navy is cheaper especially when they have sales.
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raegansmom
by Member on May. 17, 2012 at 8:29 AM
I don't ship at penny's because everything I have bought there has fallen apart. It's not worth even a discounted price.
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Veni.Vidi.Vici.
by on May. 17, 2012 at 8:46 AM

I like JCP & SEARS for everything except clothes. I can say that if JCP can't offer the deals they have in the past on housewares I won't shop there anymore and 'll stick to Macy's.

illegallyblonde
by Lawyerupbeeches on May. 17, 2012 at 8:53 AM
I personally don't shop at either.
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lovinmyboys...
by Member on May. 17, 2012 at 8:56 AM
I hate their new Sunday ads.
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rotPferd
by Silver Member on May. 17, 2012 at 9:04 AM

 I'm a t-shirt and jeans kinda gal and I have noticed the same shirt at JCP for $18 sells for $8 at a Family Dollar store and they are all made in China.

LillyJDv3.0
by on May. 17, 2012 at 9:38 AM
I used to like JCP... But I don't shop there anymore. Usually I just shop at old navy and target now.
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