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J.C.Penney: $10 Coupon Not A Change In Strategy

 October 12, 2012 05:38 PM
 


(By Mani) J. C. Penney Co., Inc. (NYSE: JCP) CEO Ron Johnson threw Wall Street and investors another curve ball yesterday when the company broadly distributed a $10 gift card to customers.

The turnaround at J. C. Penney is taking shape under CEO Ron Johnson, who joined the department store chain in late 2011 and began to steer the beleaguered chain down a path of significant transformation.

Yesterday, in an email message, Johnson invited customers to come to stores and witness the company's transformation first-hand. As an incentive to come see the changes taking place, the email included a $10 gift card on a purchase of $10 or more.

[Related -Macy's, Inc. (NYSE:M): Cyber-Monday’S Biggest Winner?]

In the email, the CEO stated, "One of our core values is that you shouldn't have to wait for a sale or a coupon to get great value. So you'll find low prices every day on the brands you really love."

Naysayers immediately called foul, indicating this action represents a retrenchment from the company's new core everyday low pricing (EDLP) strategy.

"We disagree. In our view, behind lots of noise, the JCP turnaround is taking shape. We take the company's decision to entice its customers back with a one-off price promotion as an indication that Johnson is increasingly nimble in his strategy and views the chain's recent store enhancement as now worthy of better customer traffic," Oppenheimer analyst Brian Nagel said in a client note.

The department store chain is very likely to tweak its strategy as it comes together and is expected to augment its EDLP plan with select traffic-driving events.

[Related -J.C. Penney Company, Inc. (NYSE:JCP): $1 Million CEO Insider Buy – Why?]

Meanwhile, coupon is not a deviation from earlier methods. Under prior management, the company performed near 600 promotional events at a cost of over $1 billion annually.

However, as an incentive to get customers to visit the stores, a $10 coupon, valid through 11/4 and unable to be applied to online orders and Sephora, was attached.

"In our view, this serves as another admittance that the EDLP strategy transition continues to be difficult and on the heels of a month-long kids haircut giveaway in August, it shows that the management team is actually willing (and looking) for promotions that will aid the store draw traffic," Deutsche Bank analyst Charles Grom wrote in a note clients.

Investors should not be surprised to see additional coupons and promotional events provided by J.C.Penney as the Black Friday and the Holiday period approaches.

However, the upcoming holiday season may prove a challenge for the company, which currently operates 12 shop--in-shop concepts in its larger box stores despite encouraging early results.

"We do not, however, view the company as well positioned to compete effectively in holiday 2012," Nagel said.

The chain, which is in the midst of one of the biggest turnarounds in the history of retail, is abandoning its increasing reliance on aggressive, short-term price promotions and revamping its stores to better assort a wider selection of higher quality and often unique branded items.

J.C. Penney operates about 1,100 department stores in 49 states and Puerto Rico selling apparel, footwear, home furnishings, accessories, fashion and fine jewelry, and beauty products.

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