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Risky Changes Made J.C. Penney Most Interesting Company of 2012

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A year ago J.C. Penney unveiled a new strategy, turned its business model upside down and effectively became one of the most talked about companies of 2012. One year ago, I declared that J.C. Penney would be the most interesting retailer of 2012.  It’s safe to say: mission accomplished.

J.C. Penney wasn’t just the most interesting retailer of 2012, it was one of the most interesting companies, period. Too bad it wasn’t interesting in the way J.C. Penney and its CEO Ron Johnson intended.

Let’s review:

On Jan. 25, 2012, Johnson announced a slew of changes at J.C. Penney. A name change that hasn’t stuck; a strategy to transform stores into an avenue of shops or boutiques with a Main St. feel and town square presided over by Martha Stewart; a new spokeswoman; a bunch of designer and brand partners; and a new pricing strategy.

This last part is where Johnson messed up.

Fair and square pricing was meant to mirror the “every day low pricing” (EDLP) model favored by Walmart. The goal was to lower prices across the store, stop spending money on hundreds of promotions every year, and simply give shoppers a good quality product at a fair price. There were to be specials that would last one month, but not much else except for the occasional clearance rack.

Johnson said shoppers would welcome the simplicity. Instead, all hell broke loose.

Shoppers were confused, angry and disenfranchised. They fled J.C. Penney for competitors Kohl’s and Macy’s in droves. Sales plummeted. Vultures began circling and some of the smartest analysts in business declared that a death watch had begun.

In just one year, J.C. Penney lost more than half its market value or $5 billion in market capitalization. Its debt rating was cut to junk status. For the first nine months of J.C. Penney’s fiscal year ending October 27, 2012, the retailer saw sales decline 23.1 percent, gross margin drop 31.4 percent and comparable store sales drop 22.3 percent. Worse still, net income fell more than 100 percent from the prior year.

That’s right, income declined more than 100 percent during J.C. Penney’s first three quarters combined, compared to the same period a year earlier…

Read More: forbes.com

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