Another miss for JCPenney

JCPenney (NYSE:JCP) recently reported lower-than-expected profits for the final quarter of the year. Plagued by an excessively discounted holiday season and investments in store expansion, the department store chain posted a $59 million loss.

The single upside was a 4.4 percent rise in comparable store sales, reported Reuters. The company is expecting same-store sales to grow between 3 and 5 percent for the current quarter ending in May. These numbers would constitute the best same-store sales growth in three years.

Net sales increased by 3 percent during the holidays, a number helped by the increased demand for household goods, apparel and jewelry to be used as gifts.

JCPenney is trying to make a comeback after several tumultuous years. The company is in the second year of its turnaround plan since the brand tried to update its image under the leadership of former CEO Ron Johnson. Johnson's attempt to reinvent the department store ultimately failed, leaving the company to bring back Mike Ullman as CEO and close 40 stores and cut about 2,250 jobs.

While Ullman has been working to stabilize losses, the retailer still has a long way to go. The company originally predicted a mid-single digit growth for 2015 to 2017—an estimate that has been lowered.

Robert Passikoff, president and founder of Brand Keys, is not surprised by the holiday losses, as the company's 2014 customer loyalty engagement model puts JCPenney near the bottom of the list. While Passikoff agrees that Johnson made a muck of things, he hasn't seen Ullman make much progress either.

"According to the 2015 Customer Loyalty Engagement Index, JCPenney, which had been perennially ranked last in the Department Store category, moved up to next-to-last, just ahead of Sears, a dubious achievement, but any increased level of engagement is not something to be discounted," Passikoff said.

The company ranks behind Marshall's/TJMaxx, Macy's, Kohl's and Dillard's.

So how can JCPenney get back in the game? For starters, Passikoff said they need to really understand what consumers expect from an ideal department store. "They've been so rooted in the past that they believe that their low-lower-lowest pricing is all customers want," he said. "As we see, that works, but only among an increasingly smaller and smaller segment of the population, and not enough to make them profitable. What they need is a real and believable brand engagement strategy. Advertising on the Academy Awards isn't going to do it for them."

The brands that rank highest understand what emotional values drive their category and what consumers expect, thus building programs on those expectations. Passikoff admits that the category is getting harder and meeting expectations is not easy.

Is there any hope? Passikoff said that JCPenney's real estate, estimated to be worth $4 billion, is the store's lifeline.

"So will they be around? Sure," he said. "Will they be posting surprising same-store numbers and profits based on their ever-shrinking pool of customers? We doubt it."

For more:
-See this Reuters article

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