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J.C. Penney Reneges On No-Discounting, But They Won’t Admit It

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Ron Johnson, beleaguered CEO of J.C. Penney, is taking another step back from his ill-fated “no discounts” strategy.

In a follow up to their $10 coupon offering two months ago, the company just concluded a 3-day Friends and Family event – 20% discount that was once a staple of J.C. Penney’s strategy. Johnson, a former Apple wunderkind, has been trying to move the company away from such gimmicky promotions, at the risk of alienating long time customers.

Revenue at Penney’s has fallen from $11.8 billion through the third quarter of 2011 to $9.1 billion through the third quarter this year. Same-store sales have fallen 26% in the latest quarter – a disastrous decline, particularly when compared to other general merchandize retailers who have been experiencing steady growth. Investors have noticed the slide, and shares of J.C. Penney have lost almost half their value this year.

Outwardly, Johnson is determined to stay the course of his transition and reinvent J.C. Penney as a leader in modern retail. Recent moves suggest that he’s having his doubts, however. A reversal on his discount strategy might get customers back into the stores, but it could endanger Johnson’s standing with his investors. They’ve bet big on his vision of high tech stores, with iPads replacing POS systems, store-within-a-store, and places for consumers to hang out. Unfortunately, 30% of their stock is currently being shorted.

Q4 numbers are going to be big for Johnson. Another 26% drop in same-store sales could cause a crisis, and would certainly demonstrate that his strategy is backfiring. No store can scare off all its customers, no matter how good its vision sounds.


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