J.C. Penney admitted that it’s turnaround plan may fail. In its annual report, the company admitted that the plan “may take longer than expected,” and the results “may be materially less than planned.”
For a company with slumping sales and falling traffic, the admission seems to be coming after the fact. The collapse of a major part of their strategy, which focused on Fair and Square pricing and no discounting, started putting the rest of the plan in jeopardy in mid-2012.
The company went even further, admitting that “there is no assurance that we will be able to successfully implement our strategic initiatives” – tantamount to saying that the plan may not be doable.
19,000 Penney workers have lost their jobs in the past year, in a quiet wave of layoffs aimed at right-sizing a company that has also lost 25% of its sales. But total square footage has barely budged, leaving fewer employees to staff stores that, due to new layouts, may actually require even more personnel than before.
At the same time, the company may face empty shelves come Spring, if they lose a lawsuit against Macy’s over whether or not they can sell unbranded Martha Stewart designs in their new home department.
J.C. Penney blamed a highly competitive climate and factors affecting demand, such as consumer confidence, unemployment, energy costs, and the housing market. Those same factors haven’t kept other firms from boosting sales and profits, however.
The company also suffers from low salaries and high turnover, which is negatively impacting efforts to create more boutique feel. By shifting from its traditional wholesaler model to a more nuanced, store-in-store concept, J.C. Penney essentially bet on their ability to attract a more upscale clientele at the cost of its traditional consumer base of lower and middle class shoppers which is now shrinking.
Unfortunately, the company has failed to attract the new clientele, losing out to Macy’s and other companies with stronger brand identities and more attractive retail locations. At the same time, managers and customers have been confused by new inventory and pricing initiatives, raising the risk of an inventory pile up.
If the company is unable to increase store traffic, it may need to boost markdowns or change its marketing strategy, according to the report.