JC Penney Co Inc. (JCP) stock has been slowly recovering from the retailer’s failed attempts to remake itself. The stock, which traded in the $80 range as recently as 2007, is now trading in the $8 range. This is quite a fall, but surely a big improvement on the $5 low it hit in 2014.

What’s behind JCP’s wild ride? It all started with an attempt to give the stagnating retail company a sexy new makeover. In mid-2011, JC Penney brought in former Apple Inc (AAPL) executive Ron Johnson as CEO. Johnson had a proven record at Apple where he pioneered the Apple retail store and Genius Bar concepts.

However, Johnson couldn’t make the Apple magic work at JC Penney. Johnson’s changes alienated JC Penney customers and sent sales plummeting. As a result, the company lost about $1 billion and fired Johnson after just over a year on the job. The JC Penney board then brought back ex-CEO Myron Ullman III. The story of JC Penney’s attempt to make itself over reads like a case study of marketing missteps.

Ending Promotions

A cornerstone of JC Penney’s new marketing strategy under then-CEO Ron Johnson was to end the constant cycle of sales, price cuts, promotions, and coupons that customers had grown used to. Johnson felt that it would be more effective to have a more direct approach of offering everyday low prices, rather than engaging in constant promotions. However, this approach did not resonate with customers who had come to look forward to promotions and coupons.

Store-within-a-Store Approach

JC Penney also tried to attract more affluent consumers by placing separate stores and boutique-like spaces within the larger department store. The retailer did this by creating a number of different areas within its stores that stressed particular brands, and partnering with stores like Sephora. This marketing move has outlasted Ron Johnson. Long after Johnson's departure, JC Penney is still going ahead with boutique-like areas within their stores. 

Before this makeover, JC Penney had promoted its own in-house brands. Now it aimed to bring in more exclusive outside brands, such as Martha Stewart. Apple, of course, draws on the power of its brand and Johnson was therefore attuned to the power of brands. The Martha Stewart partnership also led to Macy’s Inc (M) suing JC Penney (Martha Stewart had a similar marketing agreement with Macy’s). 

Lack of Coordination between Online and Physical Stores

A lack of coordination between JC Penney’s online and brick-and-mortar stores also created problems for the retailer. Johnson decided to separate the buying department for online sales from the buying department for the physical stores. That meant that a consumer who saw something at a JC Penney store would not necessarily be able to find the same merchandise online. This separation of the two groups resulted in online sales plummeting 37 percent in the quarter ending October 2012, compared to the same quarter in 2011.

Overly Lax Return Policy

In an effort to gain trust with JC Penney customers, Johnson allowed them to return merchandise without a receipt and still receive a full refund. It seems some customers began to abuse this policy hurting JC Penney’s bottom line.

Regaining Health

After the ouster of Johnson and his misguided marketing plan, and the reinstatement of Ullman, JC Penney has been slowly regaining its health. For the first quarter of its fiscal 2015 year, ending May 2, the retailer has reported a net loss of $167 million, down from a net loss of $352 million for the comparable period in 2014.

And for 2015, the company has revised up its guidance on comparable store sales and gross profit margin, while also revising down estimates for selling costs.

The Bottom Line

JC Penney’s stock is slowly recovering after being hit by the company’s attempt to make itself over. The company’s long history and its multiple locations are positives for JC Penney as it attempts to move past its missteps. However, it still faces a multitude of risks, including intense competition in the retail industry and constantly changing consumer tastes.

 

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