The Three Reasons J.C. Penney will not survive

jcpenneyJ.C. Penney will not survive for very long because of the following 3 reasons. First, a retailer cannot lose as many customers as they have and expect to win them back anytime soon. It takes four times as long to get a customer back as it does to lose them and four times as many marketing dollars. Second, a solid e-commerce strategy has never been developed and the company is so far behind that any effort in that direction is futile. And last, the number of unprofitable real estate far outnumbers the profitable stores, which only gets worse every day.

When J.C. Penney released their first quarter earnings last week, the stock priced seemed to increase slightly with investors reacting to any positive news. But looking at the whole picture of what J.C. Penney has become, it is hard to see anything good.

The retailer stated

“For the first quarter of fiscal year 2013, J.C. Penney anticipates total sales of approximately $2.635 billion, a decrease of approximately 16.4% from $3.152 billion in the same period last year, and a comparable-store sales decrease of approximately 16.6% for the quarter compared to the same period last year. The sales decline in the first quarter is partially attributable to construction activities in connection with the transformation of the home departments in 505 stores. The company noted that results for the quarter also reflect its prior pricing and marketing strategies, which are being changed under new leadership.”

What J.C. Penney is not talking about is the real number of lost customers which some estimates put as high as 1.5 million customers. That is one of two true measures of how bad things are. The second is the 35% loss in e-commerce sales since last year. Customers online and offline are clearly dissatisfied and the perception of J.C. Penney is negative.

I have founded both brick and mortar and e-commerce retail over my career and can tell you with certainty that losing customers at that rate is leads to a death spiral.

J.C. Penney’s has over 1,000 stores in the U.S. with a large amount of them unprofitable. The double digit loss of sales they have experienced over the last year has only compounded this problem. Closing stores is inevitable, which is going to lead to more lost customers and more store closings. Ultimately, the company will close or be sold because there is no real reason customers should come back to J.C. Penney. There is no core competency that they possess that their competitors do not.

I think Ron Johnson was more of a lucky man than a smart one and absolutely full of himself. Let’s face the facts. He EXECUTED Steve Jobs vision for the Apple stores. He did not come up with the idea. He EXECUTED the Target vision that was already in place. He did not develop the concept. Having the reins of JCP, he tried to run a staid retailer like a startup. The only issue is that in a startup, the customers are new and you can get them to understand and buy into your concept through marketing and execution. Here, he tried to change the customers to his idea of how to run a store. Marketing 101 – develop concepts that appeal to the needs of the customer, never try to change a customer. It doesn’t work.

It is time for management to develop an exit strategy, quickly.

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