Worse Than Expected: How Apple Guy is Turning JC Penney Into a Museum of Tired Brands

YCharts

At the North Riverside Park Mall, just outside Chicago, Ron Johnson’s “transformation” of JC Penney (JCP) was on display last week—if you knew where to look for it.

[More from YCharts.com:Guess What Percentage Rise in Sales Apple Guy Needs Just to Get JC Penney Back to its Peak?]

Men’s jeans were draped artfully, Gap-style, across rustic-wood shelves in the remodeled Levi’s department. Satiny leopard-print pajamas hung beneath a neon-pink sign for the Cosmopolitan brand, a new partnership. Overhead, holiday signs with minimalist, Target-like graphics of doves and presents blinked with LED lights like electronic snowflakes. Beneath the soft Christmas music, the store was so quiet you could hear the squeak of the escalator.

[More from YCharts.com:Apple Guy's Approach to J.C. Penney Exec Comp: Here’s a Pile of Cash – We Hope You Stick Around]

Johnson, hired 18 months ago from Apple (AAPL), where he oversaw retail stores, has been touting JC Penney’s new “shop-in-shops,” which he depicts as boutiques spotlighting the store’s best brands. At the same time, he’s eliminated coupons, driving away loyal customers.

[More from YCharts.com:Apple Stock: Among the Nutty Theories, a Legitimate Worry]

This is Johnson’s transformation: New signs. New shelves. No shoppers.

Johnson has been talking up the new store format, but better to visit and have a look for oneself. “Their stuff is pretty decent,” said Ibis Faulkner, one of the few customers in the store, looking doubtfully at the floral-print blouse she was holding. Like many shoppers, she’s spending less time at JC Penney since it took away coupons. “That’s an incentive for people to come and shop.” Instead, she visits competitors Carson’s (BONT), Lord & Taylor and Macy’s (NYSE:M), all offering generous holiday discounts.

Johnson says JC Penney will speed up its remodeling next year, with 40 percent of its selling space converted to the new shop-in-shops, according to an interview Monday with Women’s Wear Daily.

The CEO is counting on the upgraded floor sections to reverse JC Penney’s dramatic sales slide since he took over. Reversing the stock chart would be nice, too:

View gallery

.
JCP Revenue Quarterly YoY Growth Chart

Alliances with hot designers can be winners -- limited-edition clothing lines at Target (TGT) and H&M consistently sell out, and Vera Wang has performed well at Kohl’s (KSS).

But Johnson wants to revive JC Penney with outdated brands. One new housewares partnership, for example, is with architect Michael Graves, who was Target’s first designer name -- 13 years ago, back in the Clinton administration.

JC Penney also is banking on Martha Stewart (MSO), whose company is closing magazines and laying off employees. Stewart—whose housewares failed to fix Kmart (SHLD) last decade—is tied up in litigation with Macy’s over whether she can sell her products at JC Penney at all. One thing she and Johnson have in common, according to this New York Times article on Stewart is that both executives are pulling in huge compensation while their companies reel from financial losses.

View gallery

.
JCP Net Income Quarterly Chart

Another new JC Penney shop-in-shop will be the colorful Canadian clothing brand Joe Fresh, started by grocery chain Loblaw. But even Joe Fresh founder Joe Mimran admits it’s tough for Canadian brands to win over jaded American shoppers, in an interview with Racked.

This reliance on has-been brands could explain why former Target executive Michael Francis left JC Penney after only eight months and was just named chief global brand officer of DreamWorks Animation SKG (DWA), according to the Wall Street Journal.

Johnson has said JC Penney’s transformation will be complete by 2015—around the time America gears up for the next presidential election. He won’t have that much time. Yet accelerating his remodeling plans would strain a company already bleeding cash:

View gallery

.
JCP Free Cash Flow Chart

Apple’s polished, glassy retail locations are undoubtedly beautiful. But Johnson could have opened stores inside Chinese shipping containers, and people still would have lined up to buy iPhones and iPads. Similarly, in the department-store business, appealing layouts do entice shoppers to spend more—but it’s the product that brings them in the doors.

Amy Merrick, a contributing editor at YCharts, is a former staff reporter for the Wall Street Journal, where she spent 11 years writing about the Midwest economy, state and municipal finances, and the retail and banking industries. Her work has been published in the Poynter Institute’s Best Newspaper Writing series. She can be reached at editor@ycharts.com.

YCharts is a financial terminal for the web, with advanced stock charts, an innovative stock screener and the largest database of economic data on the web.

View Comments (0)