Penney Feeling Good About Q4 Prospects
Like
many others, J.C. Penney did not have a good fourth quarter in 2008. It’s
hoping for a better performance this year and CEO Myron “Mike” Ullman is
feeling optimistic that new styles and affordable prices will help the
chain succeed.
Like
others, Penney has been reducing inventory to help it limit the number
of markdowns it has to take to move merchandise.
Mr. Ullman believes
Penney has benefited from its standalone stores located outside of shopping
malls.Â
“Off-mall
discount venues are tending to do better in this climate because people
are shopping more for need and closer to home,” Mr. Ulllman told
attendees at Reuters Global Retail Summit.
Discussion
Questions: Is J.C. Penney positioned better than most of its department
and specialty store competitors to rebound by the fourth quarter of this
year? Do you share Mike Ullman’s optimism about
the Christmas selling season?
I share Mr. Ullman’s view that the fourth quarter will show positive comp sales for retailers in general. Most retailers are up against very soft comparisons from 2008, and signs are already pointing to a bottoming-out of consumer spending. Six more months of positive signposts will help drive demand this fall.
However, as to J.C. Penney’s specific case: Yes, it’s possible that JCP will show positive comps for holiday based on macroeconomic conditions and their own weak comps from last year. But their month-to-month comp sales this spring have been dismal and they are clearly losing market share in this recession to Kohl’s and other competitors. J.C. Penney does not seem to have reacted as nimbly as some other stores in terms of its value positioning and merchandise mix, so it still has work to do in order to stem the losses this fall.
J.C. Penny may get the benefit of the slug-fest between Target’s and Walmart’s chase for groceries and consumables as the middle-of-the-road destination for soft lines. As consumers continue to focus on less consumption and affordable style they may be well positioned. There will be those consumers that have moved somewhat down in the retail choice of stores that may find the J.C. Penney experience of soft lines without the cereal, chips, and soda environment a more pleasurable experience.
Q4 is going to be tricky. Beating last year’s comps won’t be hard, but showing real growth will be challenging. Retailers must have sufficient inventory or a lousy holiday will be a self fulfilling prophesy. But, how much is enough? I was shopping the Houston Galleria this past week and was surprised by the lack of product being offered in many stores. The old adage “You can’t sell from an empty cart” came to mind.
According to the latest economic reports; the recession will end in August. How the consumer reacts after this storm is anybody’s guess. Retailers need to offer compelling products and a great experience this holiday season that make the consumer feel good about spending again.
Coincident or not, JCP launched a new loyalty program last year and that alone signifies an increased emphasis on–yes –the customer!
When you know your customers and can actively engage and communicate with them, it’s easier to manage the business. Of course having a refreshed brand and merchandising strategy helps, as do things like execution (of course) and macroeconomic conditions. That said, there is an interesting correlation between those retail brands that are actively investing in (and those that have recently upped investments) in customer marketing and retailers who are performing.
The same store comps turn much more favorable for most everybody in Q4, and I expect to see back-half inventory levels down significantly over what we’ve seen in a long time. Consumer sentiment seems to be pointing to a back-half bounce back, so I think mid-tier retailers like Penney have reason to be cautiously optimistic, both on the top and bottom line.
I don’t necessarily see Penney positioned much differently than their direct competition. As always, it will likely come down to how they execute in the period.
Q4 may not be quite as positive for specialty and top-tier retailers, as we have seen most of them lagging for quite a while now, and they’re likely to be the last to recover.
Put me in the “concerned” corner. J.C. Penney has been shoe-horning brands into its stores at an alarming rate without giving the previous stable time to take. Poor boundary-pushing American Living, for example; thrown into J.C. Penney’s markdown maelstrom from the get-go…and that was before the recession hit!
I would like to see a more pared-down and clearly-defined brand portfolio and a slow-down in the numbing always-on-sale promotional activity before placing a big bet.
Not sure J.C. Penney (and they are not alone) is connecting with their customers at a rate that will sustain them. Too much TV & print spending the past year as 40% of the US is now equipped with TiVo and DVRs, so they can now “skip” their commercials, and newspaper circulations is declining 6% every 6 months.
Bottom line is, TV and newspapers are becoming increasingly less effective as advertising mediums. Continual allocation of dollars to mediums that are declining and becoming ineffective is puzzling. Does a tree make noise when it falls and no one is there to hear it? Do you expect a consumer to respond to your TV and print ad when they don’t see it?
Penney is better positioned than most department stores, although that isn’t saying much. Ullman continues to update and enhance the assortments and update stores. The off-mall locations definitely help, but they still have mostly mall locations with many of those malls desperately hurting due to bankrupted tenants. I think Penney will continue to hobble for awhile longer.
Back-to-school has traditionally been a strength of Penney so they should do reasonably well as some pent up demand gets satisfied. Christmas should also be fairly decent, but mostly due to the dreadful last-year numbers they are up against.