(By Mani) The more price promotional stance that J.C.Penney Company, Inc. (NYSE: JCP) is now assuming is expected to allow the department store chain to make the most of a challenging Holiday selling season and position it well to re-accelerate its aggressive turnaround strategy in 2013.
Aggressive promotions at J.C.Penney that began a few weeks ago persist. Certain older categories now appear fully cleared. A move back to more aggressive price promotions represents a clear deviation from the strict everyday low pricing (EDLP) strategy initially outlined by CEO Ron Johnson.
"That said, we think a hybrid promotional effort will improve cash generation and serve as a more steady traffic driver for JCP," Oppenheimer analyst Brian Nagel wrote in a note to clients.
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"On Sunday, we observed JCP staff taking additional markdowns in certain sections of the store including the IZOD section. This is consistent with the company's trend lately of taking more aggressive "in season markdowns," Nagel said.
Meanwhile, inventory is clearing off well, suggesting that improving traffic is helping to sell through some of the elevated clearance inventory. In recent circulars, the company has advertised clearance in the home section to make way for new brands in 2013.
"We noted what appeared to be low inventory and bare shelves in some cases, which could lead to lost sales and disproportionately weaker home category performance during the holiday selling season," Nagel wrote.
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J.C.Penney is undergoing one of the most significant transformations in the history of retail. In its zeal to execute the new JCP Shop-in-Shop strategy successfully, it has ignored the performance of the company's legacy departments and in the process impaired its "turnaround cash engine."
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.
The chain is abandoning its increasing reliance on aggressive short-term price promotions and reconfiguring its stores to better assort a wider selection of higher quality and often unique branded items.
The company and vendor commentary regarding new store-in-store concepts have been positive to date. Remodeled areas of J. C. Penney stores are performing well with sales productivity in the company's initial shop-in-shops tracking better than 30 percent ahead of pre-reset levels.
"Near-term challenges are likely to persist, but we believe a much more profitable company will emerge over time," Nagel added.
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.