The Laowai

Its been almost a month since JCPenney (NYSE: JCP) announced its re-branding and repositioning with the hopes of becoming “America’s Favorite Store.”  The announcement came in the form of a presentation from CEO Ron Johnson entitled “In Praise of Fresh Air,” which touted a new pricing strategy, new promotional methods, and a rearranged store layout.  Add to this a promise of $900M in expense cuts over two years and the market was sold (or bought, when you think about it…).  The stock increased 17% on huge volume on the day of the announcement (January 26th) and has held steady ever since.  With all this hoopla and “re-focusing on the customer experience,” I decided that I had to check it out for myself.

Prior to the re-branding, JCPenney was something of a blight.  It was the type of place I would go to be ironic.  Perhaps I would buy an Orange Julius and play some skee-ball at the creepy arcade before I went into the store to look at the ugly merchandise.  My girlfriend, who is now a senior in college (and right in the cross-hairs of the new strategy), described JCPenney as the type of place she would expect to see cheap prom dresses and mismatched earrings attached to plastic backing.

I have to say that when I did make it into the store I did not have the immediate feeling of panic wash over me, as it did in the old layout. It was a bit like walking into a Nordstrom (NYSE: JWN), where there are no “hoarders-esque” goat trails through merchandise and everything is below eye level.  It did, in fact, feel fresh.  The new color coded pricing strategy was everywhere, but was a tad confusing because not every item was correctly labeled.  Red indicates monthly promotional sales, White is “everyday savings”, and Blue is essentially clearance prices (“clearance” is a apparently a no-no word, as indicated by the whisper coming from the sales clerk when I asked her what blue means).  Clear enough… but I found white labels to be under a blue sign, and pink (?) labels under a white sign.  Also, on the tag, the price is color highlighted in the corresponding sale.  Why not color the entire tag to eliminate confusion and make it easily noticeable from across the store?

So layout is great, pricing strategy is promising; but upon close inspection, I came to the realization that JCPenney is still pushing the same assortment of ugly clothes and cheap jewelry.  It’s the classic example of putting lipstick on a pig, and it’s a shame because all of this publicity they are driving from the re-branding is going to be lost when the curious fail to return upon coming to the same realization I did.  There were a few bright spots in the form of exclusive lines from designers looking to follow in the path of Target (NYSE: TGT) and H&M and create affordable pieces.  I think building this concept out will really help people see JCPenney in a new light, but again, I am surprised this was not done before the store rearrangement.

So where, exactly, does JCPenney fit in the retail space?  They are not going after Nordstrom as they are in a completely different echelon of price point.  People keep talking about Target, but I think Target is completely different as well because they are a big-box store, whereas JCPenney is a department store.  Where Target succeeded is not that they provide good design at a good price, it’s that they provided it in a conveniently accessible place that people do not have to go out of their way to find.  With JCPenney, you have to deal with a mall, and all the requisite headaches.  I think the most likely model, then, is that of the internationally expanding chains like Zara (traded in Madrid), H&M (traded in Sweden), and Uniqlo (traded in Tokyo).  These low-cost, high-fashion department stores are relatively unheard of in the US, and JCPenney has some real competition as these rapidly growing stores make their way onto our shores.

JCPenney CEO Ron Johnson worked wonders at Apple with the retail stores (as VP of retail operations, his job prior to JCP), but remember he was working with Apple Products.  A great analogy is to look at the Windows store.  Microsoft copied the Apple store layout exactly, but (in a Babu Bhatt accent) “Where are the people, show me the people.”  I would consider buying once JCPenney shows that they have great merchandise AND a great layout, but until then I am wary of the hype of the current stock price.

Tags: JCPenney, Retail