November 12, 2012

Penney sticking with pricing despite losses

The retailer's stock is trading at about $18, its lowest price since the middle of the recession.

The Associated Press

NEW YORK - J.C. Penney Co. executives may be confident in the department-store chain's everyday pricing strategy, but investors are panicking.

click image to enlarge

A customer passes merchandise at a JC Penney's in New York. The company's stock fell more than 13 percent on Monday, the biggest percentage decline by far among big companies in the S&P 500 for the day.

The Associated Press

The company's stock fell nearly 11 percent on Monday -- the biggest percentage decline among big companies in the S&P 500 for the day.

Penney stock now is trading at about $18, its lowest price since the middle of the recession in March 2009.

The drop follows Standard & Poor's Ratings move to lower Penney's credit rating deeper into junk status on Friday. That came on the same day that the company reported its third consecutive quarter of big losses and sales declines since it decided earlier this year to get rid of hundreds of coupons and sales each year in favor of predictable low prices every day.

It's the latest sign that Wall Street isn't any happier with Penney's pricing than Main Street is: Investors had pushed Penney stock up 24 percent to about $43 after the company announced the pricing plan in late January.

Penney, which announced its plans for the holiday shopping season on Monday, did not immediately return calls seeking comment about its stock price.

But during an investor meeting on Friday, executives assured investors that the company has enough money to continue with the strategy.

And CEO Ron Johnson, the mastermind behind Apple Inc. stores who took the top job a year ago, reiterated his confidence in the plan and said returning the company to growth is "Job. No. 1."

The reality is that customers still aren't embracing the strategy Johnson rolled out on Feb. 1. The goal of his plan was to wean customers off the deep discounts that they'd become addicted to, but that were eroding profits.

He got rid of the nearly 600 sales Penney offered at various times throughout the year for a three-tiered strategy that permanently lowered prices on all items in the store by 40 percent, offered monthlong deeper discounts on select merchandise and periodic clearance events throughout the year.

But as Penney's coupons and sales disappeared, so did its customers. The company's losses and sales declines began to pile up. Johnson made some tweaks to the pricing plan -- he got rid of the monthlong sales events in August. But that didn't help.

The company said it will have its only sale of the year on the day after Thanksgiving Day known as Black Friday. But Penney said it will open at 6 a.m., much later than some of its rivals.

"The holiday season could be catastrophic for Penney," said Burt Flickinger III of Strategic Resource Group.


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