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J.C. Penney’s Last Shot at Survival

One year ago J.C. Penney (JCP) CEO Ron Johnson laid out a plan to change the way the world thinks not just about Penney's but the entire department store model. New pricing, fully refreshed stores designed to be a destination "mall within a mall" and partnerships with fashion forward brands never before associated with the dowdy J.C. Penney.

"All it takes is courage" Johnson told a packed audience, "We can change a brand overnight."

Suffice it to say Johnson and J.C. Penney fell short of those lofty ambitions. Last night it concluded one of the worst years in corporate history with the announcement of their 4th Quarter results. How bad was it? Consider:

  • JCP lost just short of a billion dollars for the year with $551 million of that coming in the all important holiday period.

  • Total revenue fell 25%

  • The company sacked more than 30% of the employees at its Dallas HQ; more than 1,600 people

  • Internet sales dropped a stunning 34%. For perspective rival Macy's (M) grow its online business 48%

"We made some big mistakes and I take personal responsibility for this" Johnson said last night with atypical humility. "Experience is making mistakes and learning from them and I've learned a lot".

What Johnson's customers have learned over the last 12 months is that the 111-year old department store chain can no longer be trusted. J.C. Penney first abandoned then restored promotional pricing. It hyped refurnished stores before even 1/3 of the chain had been redone. Legacy customers were jettisoned before new shoppers were secured.

Good retailers set customer expectations then seek to do just a little better. Wal-Mart (WMT) is self-serve. Target (TGT) is fashion at a great price. Tiffany (TIF) is all about fawning all over shoppers. Having been through no fewer than four different marketing campaigns in 2012 alone, the J.C. Penney shopping experience varies from month to month and store to store.

Customer don't like surprises which is why 17% fewer of them even bothered to step into a J.C. Penney store last year.

They say that airplane crashes happen after pilots run out of altitude and ideas. Retailers go bankrupt when they run out of money and time. J.C. Penney is burning through cash at a stunning rate, resorting to measures like slow-paying vendors and selling goods at a loss just to create liquidity. Sales continue to get worse and are shrinking at a pace that suggests it could be in serious financial trouble by this summer if things don't improve.

Main Street would rather get a root canal than shop at J.C. Penney. Wall Street has left the company for dead. The stock is down more than 55% in the last 12 months and fell 15% in response to the results announced last night.

The clock is ticking. J.C. Penney only has enough money to take one more Hail Mary shot at survival. The latest, best, marketing campaign premiered during last Sunday's telecast of the Oscars. Based on what we've seen so far, J.C. Penney just might have a better chance than most people think.

Too Little Too Late?

Retail expert Hitha Prabhakar thinks JCP's new "Dear America" campaign is far and away the best thing she's seen since Ron Johnson took over last year. The seven spots were moving, flirty, fun and different from anything the audience would have expected. They featured name-brand designers and lingerie, and were fashion-forward with a value. It's a message Johnson helped invent when he was with Target (TGT), and he clearly intends to take it even further now.

"The Oscar went to the J.C. Penney ad campaign," Prabhakar exclaims in the attached video. "They hit the nail on the head in terms of who they're trying to target and who they want in their store."

Consumers might actually be the winners in Penney's drive to survive. Forget promotions, the very best deals for shoppers come from desperate companies needing to clear merchandise at any price. Based on January when JCP cleared a massive amount of inventory at a loss JCP is on the verge of becoming an 1,100 store discount bin.

The bottom line is Penney's either executes on its latest promise and creates a cool place to shop or goes into a death spiral and is forced to hold the largest Going Out of Business sale in American retail history.

That leaves shareholders, Ron Johnson and thousands of remaining J.C. Penney employees as the only group at risk of losing it all.

***PROGRAMMING NOTE: Be sure to catch Breakout's LIVE sequester special covering the market open on Friday starting at 9:25am/et. Tweet us your comments using #YFINSEQUESTER***