Can JC Penney be saved?
Last year was the worst in the department store chain's 111-year history. Is it time for CEO Ron Johnson to give up on his turnaround plan?
JC Penney's stock nosedived this week after the struggling department store chain reported surprisingly bad quarterly results that capped the worst slump in the company's 111-year history. In fact, Henry Blodget said at Business Insider that, with same-store sales plummeting by nearly a third, Penney might have posted the worst quarter in retail history. Investors are clearly worried that CEO Ron Johnson's plan to turn around the company with new pricing and refreshed stores isn't working. "We made some big mistakes and I take personal responsibility for this," Johnson said.
Can anything save JC Penney now?
The company's "epic 32-percent nosedive" doesn't look like the beginning of the end, says Derek Thompson at The Atlantic. It "just looks like the end." And Johnson, who was hired away from Apple in 2011 to work miracles, is "captain of a sinking ship." But his strategy to "journey upmarket" and ditch coupons, simply offering consistently low prices, isn't to blame. "He was handed the Titanic when the dining room was already under water."
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That's one way to look at it. Another is that it's always darkest before the dawn, and Johnson's top-to-bottom reorganization of the company was bound to be messy... and bound to some day start showing positive results. "This is a very long-term process that was never intended to take six months, a year, or even three," says Michael B. Lewis at The Motley Fool. "J.C. Penney is in the midst of a process normally reserved for privately held companies. It is completely reorganizing on every level of its structure." That's bound to be ugly at first. It's also very likely to get results, eventually. Buy the stock now, while it's down, because it's got (almost) nowhere to go but up.
Corporate turnarounds are indeed difficult, says Steve Schaefer at Forbes, "and they take time. But ultimately management is evaluated on results, not ideas." Yes, his revamped stores are doing better than the old ones. Still, judging by sales numbers, his elimination of coupons discouraged some shoppers addicted to "the hunt" — who doesn't like to brag about getting something for 50 percent off? Bottom line: "If J.C. Penney keeps hemorrhaging red ink," Johnson's not going to have the money to expand his turnaround strategy to enough stores to save the company. At this point, even activist hedge funder Bill Ackman, a major Penney shareholder and Johnson's biggest fan, says the clock is ticking.
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Harold Maass is a contributing editor at The Week. He has been writing for The Week since the 2001 debut of the U.S. print edition and served as editor of TheWeek.com when it launched in 2008. Harold started his career as a newspaper reporter in South Florida and Haiti. He has previously worked for a variety of news outlets, including The Miami Herald, ABC News and Fox News, and for several years wrote a daily roundup of financial news for The Week and Yahoo Finance.
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