Macy’s (NYSE: M) struggled during the fourth quarter, but that has largely been overlooked due to the recent volatility of J.C. Penney (NYSE: JCP). J.C. Penney fell nearly 5% at the open this morning before bouncing back somewhat, down about 2% as of 3:25 p.m. EDT after yet another Wall Street analyst cut its views on the ailing retailer. BMO Capital Markets lowered its call on the stock from “market perform” to “underperform” and slashed its price target on the stock from $18 to $12, implying that the firm sees about another 20% of downside from current levels.
When former Apple (NASD: AAPL) executive Ron Johnson took the helm of the retailer, he quickly scuttled the firm’s long run policy of frequent sales and deep discounts to get consumers in the store. In its place, he adopted more of the store within a store model popular at some of its more upscale competitors. So far that strategy hasn’t produced good results. It’s arguably unfair to expect such a massive turnaround to have an immediate impact, but investors must be nervous about the big capital expenditures J.C. Penney is making in a gamble for the company’s entire future. Now the company has started to cave, reintroducing some minor promotions that have an eerie resemblance to the discounting it used to do more freely.
What’s increasingly clear is that investors on Wall Street and shoppers on Main Street are losing confidence in J.C. Penney’s business strategy. The retailer needs to make a final decision on its future strategy soon and then dedicate all of its resources to making it work, or else the exodus of both investors and shoppers will continue. It could be determined very soon that Johnson isn’t the right man for the job and a more seasoned retail executive is needed for the firm. The firm has stayed committed to reinventing its image and embracing a new younger client base – a strategy that sounds good on the surface, but in doing this has largely ushered out its bread and butter older client base that is starting to shop less at the store.
J.C. Penney just finished a year of mounting losses and declining sales amid a transformation plan spearheaded by its CEO Ron Johnson that has turned off some shoppers. The Plano, Texas, company reported a dismal fourth quarter late last month, capping a year where Penney amassed nearly $1 billion in losses and saw its revenue plunge nearly 25 percent to $12.98 billion. Worries are growing that Penney won’t be able to stem the losses in time to complete the transformation plan.
