November 9, 2012 6:44 pm

JC Penney sales fall by more than 26%

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JC Penney, the US department store trying to replicate Apple’s retail model, reported a 26 per cent fall in sales in quarterly results that confounded analysts’ worst expectations.

Despite the slide in sales and a net loss of $123m, chief executive Ron Johnson, former head of Apple retail, insisted that his transformation plan was on course.

JC Penney’s performance was “atrocious”, said Stacey Widlitz of SW Retail Advisors. “Just when you think it can’t get worse . . . The business is spiralling.”

She blamed the decision to eliminate discounts and special offers.

JC Penney shares fell 5.3 per cent to $20.54 in early trading on Friday.

Mr Johnson – creator of the first Apple store in 2001 – was hired by JC Penney last year. He launched a plan to reform the chain with simplified pricing, speciality shops-within-shops, and iPad-enabled mobile checkouts.

But while Mr Johnson insisted on Friday that the transformation was a long-term project that was on course, customers are deserting stores. A 26.1 per cent fall in like-for-like sales in the three months to the end of October came after a 21.7 per cent drop in the previous quarter and an 18.9 per cent fall in the quarter before that, when Mr Johnson began to implement his plans.

While he had eliminated an array of discounts that he said shoppers found frustrating and confusing, Ms Widlitz said the only way to win back customers was to reintroduce them.

“You cannot continue down a path where customers’ perception is that there isn’t value,” she said.

She added that Mr Johnson had begun to backtrack by offering a “gift” coupon and promising to run special offers during the end-of-year shopping season, though he insists he is not returning to discounting.

On Friday he said this year was proving tougher than expected and JC Penney was “becoming a tale of two companies”.

One was the old department store, the other a “start-up” department store.

“And it turns out what’s good for one isn’t necessarily good for the other.”

He said sales were growing at six out of eight shops-within-shops, which carry outside brands. They opened in August and September.

Retail consultant Walter Loeb said JC Penney’s board would soon need to start considering the viability of his strategy.

“The reality of losing sales at a faster clip than ever seen must give them pause,” he said.

“He’s got a very optimistic vision of 2015 . . . I don’t think anyone can wait that long.”

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