May 2, 2019
“They need a total overhaul,” said Jane Hali, CEO of Jane Hali & Associates. “The experience in-store is terrible. The experience online is not good. They don’t have the best product. It’s a real problem. And now, it has become a branding situation because they haven’t been relevant for such a long time.”
Both Hali and B. Riley FBR analyst Jeff Van Sinderen estimate the firm’s sharp downturn started around 2011 when it hired former CEO Ron Johnson, who was expected to revive the faltering department store after working his magic at Apple Inc. and Target Corp. Instead, however, Johnson’s bold moves were said to have alienated the company’s core customers and eventually fueled a further decline of the business. JCPenney’s share price reportedly dipped more than 50 percent with Johnson at the helm and the chain has been floundering with a series of C-suite shakeups and retail missteps ever since.
“The biggest hurdle is their reputation – that’s No. 1,” said Hali. “You’re talking about at least 12 to 15 years of problems. The consumer lost confidence. I stopped covering them as a stock because my clients have lost faith in them. [What’s more], the customer lost faith in JCPenney before the Street did.”
Under CEO Jane Soltau — who took the helm in October, roughly four months after her predecessor Marvin Ellison departed for Lowe’s — the company has engaged in a turnaround strategy that sees it ditching a few dozen underperforming stores and bringing in fresh talent from retailers such as Target and Michaels. In January, it also announced the hiring of a chief transformation officer, specifically tasked with developing the company’s strategic initiatives aimed at overhauling the 116-year-old business.
Still, Van Sinderen cast JCPenney — saddled with about $4 billion in debt at the end of fiscal 2018 — as among retail’s “toughest major turnarounds.” (The company also had $333 million in cash on the balance sheet at the fiscal year’s end as well as substantial real estate value, which Van Sinderen noted would offset some debt.)
“Aside from the ongoing challenges of the broader retail backdrop and department stores in particular, the company needs to drive improvement in EBITDA over the next roughly 18 months in order to handle its debt load,” Van Sinderen explained. “Merchandising needs to improve, and JCP needs to gain relevance with the target consumer. None of these things are easy.”
Where customers are concerned, Hali also sees significant obstacles for the company — including its apparent hyper focus on the Boomer generation “which is spending less money in [retail].”
Hali said the company should put more resources behind luring a younger cohort by taking a stance on issues such as sustainability and carrying more eco-friendly lines that resonate with Gen Z.
“JCPenney could probably [also] have some online partners, where they could have contemporary lines that they represent online — which would get their [digital] business going,” she added. “The stores are [also] much too big and the only way to get down [that] square footage is to rent out space — and that could be done with restaurants, entertainment and fitness.”
Among the things the department store has going for it, experts point to its partnership with beauty industry standout Sephora. However, despite product offerings from successful brands such as Nike, insiders have suggested its assortment lacks appropriate editing.
“The company’s new CEO has merchandising expertise and we believe that she can have a positive impact on product content, which had gotten weak and irrelevant in some key areas,” Van Sinderen noted.
When JCPenney reported fourth-quarter results in February, it said it planned to close 27 more stores amid slumping sales and profits. Its Q4 revenues were down 10 percent to $3.67 billion, missing the $3.79 billion analysts had predicted. Adjusted profits had also taken a tumble, sinking more than 60 percent over the comparable period to $57 million, or 18 cents per share.
Since slipping below $2 last year, the firm’s share price has continued to hover there — only climbing to $2.02 in September.
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