Is JC Penney imploding?

The Week

As the department store energetically reinvents itself, customers reject its new pricing model, and the company's plunging stock price reflects their sour mood

This week, JC Penney reported that its sales dropped 20 percent in the past quarter, a lower-than-expected result that caused the company's share price to suffer its worst single-day loss in 40 years. Boosting sales has "been tougher than anticipated," conceded CEO Ron Johnson, who JC Penney brought on last year to "inject much-needed color, life, and enthusiasm into JC Penney's drab stores," says Abram Brown at Forbes. The news in June 2011 that Johnson, the genius behind Apple's popular retail stores, would become CEO was greeted with a surge in JC Penney's stock price. So far, though, he has disappointed. Here, a guide to JC Penney's travails:

Why are JC Penney's sales falling?
Customers are proving allergic to JC Penney's new pricing plan, implemented in January. Johnson switched the chain's focus from blockbuster sales and discount coupons to an "everyday low" pricing scheme, in which customers could more or less expect the same prices all year round. "It seems many faithful Penney customers have stopped shopping [there] altogether," says Anne D'Innocenzio at The Associated Press. Johnson admits that customers without "a coupon in their pocket or in their hand" and an inadequate grasp of the new pricing model had less incentive to go to JC Penney.

But why don't customers like consistent low pricing?
Johnson says that a recent advertising blitz "failed to communicate to consumers exactly what its new pricing policy meant," says Barney Jopson at Britain's Financial Times. One ad, called "Do the Math," "uses a summer dress to illustrate how its everyday lower price comes out to less for a shopper than a sale and a coupon," but the ad didn't catch on, says Phil Wahba at Reuters. The widely criticized spots mimicked the "whimsical style" of retail giant Target (where Johnson also worked), but sacrificed a clear message about prices in their efforts to be cute, says D'Innocenzio.

Will JC Penney return to big bargains?
Not according to Johnson. He envisions the entire overhaul taking at least four years, and says initial losses are to be expected. While the "new pricing strategy underscores how difficult it is for a company to change the way consumers behave," JC Penney and other retailers think it's imperative to wean customers off the deep discounts that have been par for the course since the recession began, says D'Innocenzio

Can JC Penney turn the ship around?
It depends whom you ask. Some investors say "Johnson's ambitious ideas need time to gel," says Brown. And Johnson has more new initiatives up his sleeve, opening a line of boutique stores that will appear in each JC Penney beginning this August, says Roland Jones at MSNBC. The chain has also announced new collaborations with high-end designers Vivienne Tam, Betsey Johnson, and Michael Graves.

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