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JCPenney, Product, Ads, Promotions, Changes in Full Effect, Getting Ready for a Strong B-T-S

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Interim CEO Mike Ullman is rolling out coupons, commercials, and discounts to try and grab a piece of the lucrative b-t-s, stop the sales slide, and reestablish the beleaguered retailer’s primacy in a category in which it was once strong.

Former CEO Ron Johnson abandoned sales and discounts in an attempt to streamline the retailer’s operation. One year ago, with much fanfare, Johnson declared an end to “fake prices,” eliminating coupons and slashing on the rack costs across the board. Now, coupons and discounts are back.

The company issued a controversial TV ad apologizing for alienating its customers. “We heard you. Now, we’d love to see you,” the ad declares. The tone is desperate and apologetic, and hints at the bad news Ullman must have found upon his arrival at the firm. A company can only make such a pitch once, analysts say, referring to it as an advertising “nuclear option.” If they don’t get it right now, they will lose all chance of bringing their traditional customers back in.

Analysts are concerned that the company’s efforts will be hindered by the jettisoning of much of its talent. Old-school voices were lost when Johnson took the helm, and the company is now losing the team that engineered its current transition. Aside from returning chief merchant Liz Sweney and Ullman, there aren’t a lot of people at JCP who know how to run a department store, some say. This could complicate the critical b-t-s season for the firm.

Same-store sales fell 16.6% in Q1, according to preliminary results released Monday. The firm blamed the drop on continued fallout from Johnson’s strategies, including lost sales due to construction in the home department. The company’s cash position is at $821 million. JCP also accessed a $1.75 billion loan last month and has $1 billion left in its credit line. This should ensure that they can finance the balance of their transition, assuming they can halt the sales declines.

Ullman is stuck with much of what Johnson put in the pipeline, which may not be a bad thing. Penney’s was planning to open Disney children’s boutiques in 520 stores in Fall 2013, but that rollout, along with rollouts for Giggle and Carter’s, will be delayed, potentially pushing the completion of the new kid’s floor to 2014. Instead, the company is using its cash to make vendor payments and complete stores that are already in progress, with an estimated $1 billion burn in the first quarter. The company has secured additional financing to complete the transition.

Ullman will be able to have some control over how private labels are managed for b-t-s, though much of the merchandize was ordered six to nine months ago. He can affect advertising rollouts and some elements of product mix.

Promotions for back-to-school will be in full swing with private brands,” one source told WWD in a recent article. “They won’t include national brands and certain brands in the new home area, like Bodum and Jonathan Adler. But back-to-school affects all consumers and categories. It’s a storewide phenomenon. It’s a promoting season. Penney’s will be a big-time player again by back-to-school.”

The company largely missed the window for May Day and Mother’s Day, though they’ll likely roll out some promotions for the latter. Realistically though, b-t-s is their next big chance to make a mark with consumers. Retail analyst Walter Loeb said in a blog post that high/low selling around b-t-s, “Leads me to expect an even more aggressive promotional position for the holiday selling season that actually begins before Thanksgiving. In my opinion, former customers will respond favorably to the promotions as J.C. Penney signals it has returned to a value-driven stance.”

“We are still focused on launching home. Back-to-school is our next big initiative. It’s still very early, and just coming together,” said Penney’s spokeswoman Daphne Avila. “We don’t have our promotional execution buttoned up, and its kind of premature to compare to what it was in the past.”

A spokeswoman for Michael Graves, which is installing in-store shops in the home department next month, told WWD that, “Michael is continuing his relationship with J.C. Penney. The home rollout is continuing as planned, and we maintain great communication with the executive, merchant and marketing teams of J.C. Penney.”

The firm, which saw same store traffic and sales plummet under the tenure of Johnson, was once a mainstay of the critical back-to-school category, the second largest shopping season after the holidays.

The company is rolling out more traditional merchandize to try and draw back its former customers, while keeping the Euro-chic styles favored by Johnson’s team. The company is also keeping its new layout, or parts of it, slowing down the rollout plan but remaining committed to store in store.

According to a former Penney’s exec, the real issue on the table here is if Penney’s can roll out the merchandize that customers will want. If it can pull that off, everything else should fall into place.

The company also has a rare opportunity to start fresh with its discounting strategy. This gives them the chance to try new promotions, and because they don’t have any discounts locked in they are able to slowly ramp the promotions up over time. This fits well with the new Fair and Square prices brought in by Johnson, which took away a lot of the margin formerly used for discounting.

Johnson’s plan pushed the company toward a loss by reducing the amount items were priced and discounted, ultimately leading to a lower final price which was often below margin. At the same time, the discounts were less eye catching, which depressed demand.

Now, the firm is bringing back discounts in a big way, with some 50% off promotions and some buy-one-get-one sales. Spring and summer goods are on sale at low prices, showing that Penney’s short-term priority is restoring traffic, not saving margins.

Unfortunately, the striking new JCP ad suffered from many of the same problems that plagued Johnson’s advertising of his Fair and Square plan. It was strong on imagery and concept, but very weak on specifics. Customers could be disarmed by the ad, or they could be baffled. Ullman’s bet is that the ad, coupled with more discounting, will be enough to reverse the sales slide and let customers see all the progress JCP has been making in improving its stores and merchandize.

There are some limits to Ullman’s discounting options, with the company locked in to minimum prices with many of its new brand partners, including Joe Fresh, Happy Chic, Bodium, and Levi’s. They are shackled to the agreements signed by Johnson, which peg the items at an “Everyday” low price. Except to see some pushback on those.

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