J.C. Penney chief is trying to stitch together a turnaround

CEO Ron Johnson, an Apple alum famed for spearheading the technology giant’s sleek stores and Genius Bar concept, is still a relative newbie at J.C. Penney.
(Jin lee, Bloomberg)

The glass-walled Melrose Avenue space, halfway between the budget apparel shops to the east and swanky haute couture salons to the west, wasn’t where one would normally go looking for JCPenney.

But the hip shopping strip is where discount chain J.C. Penney Co. chose to launch a temporary pop-up store last week in celebration of its new collaboration with popular Canadian apparel brand Joe Fresh.

At the opening soiree, the languid beats of Frank Ocean’s “Super Rich Kids” played over the clink of champagne glasses. Stylish guests browsed the artfully arranged array of bright pants and silk blouses. Chief Executive Ron Johnson showed up in jeans and a dark blazer.

There was no obvious sign that this was a retailer in dire straits.

J.C. Penney is employing a number of tactics — the Joe Fresh partnership among them — to recapture fleeing customers and assuage growing investor skepticism about a stock that has fallen 60% in the last year, closing Monday at $15.05, down 6 cents.

It’s what Johnson has called the “repositioning,” the “reinvention” or the “transformation” — a push to turn the 1,100-store company into a “specialty department store” that will “give a reason for a lot of customers who haven’t been to JCP lately to come check it out.”

“We’ll be much, much stronger a year from now,” he promised at the party.

Johnson, an Apple alum famed for spearheading the technology giant’s sleek stores and Genius Bar concept, is still a relative newbie at J.C. Penney. Since joining in late 2011 to perk up the chain’s dated look and lackluster financials, his growing pains have been plentiful and public.

J.C. Penney employees are also on edge. In the last year, some 19,000 workers have lost their jobs at the company, with 2,200 of those cuts made this month.

There’s a legal scuffle with rival Macy’s Inc. over the right to sell products from domestic doyenne Martha Stewart. After J.C. Penney and Martha Stewart Living Omnimedia announced a partnership to sell products from the home goods diva, Macy’s sued both entities, claiming that the deal violated its own exclusive agreement with Stewart.

Last week, the judge overseeing the case adjourned hearings for a month and sent the parties into mediation. J.C. Penney said it would keep the contested Stewart products off its shelves for the next month.

“We are very encouraged that the judge asked us to go into mediation to resolve the dispute, and I hope and expect that that will happen,” Johnson said.

Johnson could use some good news.

In the fiscal year that ended Feb. 2, revenue tanked 25%. Johnson says his team expected sales to be down as J.C. Penney revamped, but “they were down more than we anticipated.”

As for when revenue will return to positive territory, “the sooner the better,” Johnson said.

“You can’t predict when it will change, but it will,” he said. “The top priority right now is to get customers in the store and return to growth.”

Johnson said sales stumbled because the chain “de-promoted” last year — a rebranding misfire that temporarily removed many of the bargains and discounts customers had come to expect of J.C. Penney. Traffic dived, forcing Johnson to reinstitute some of the offers, a change he now says he’s “really excited about.”

He’s less enthused about Wall Street. He said he doesn’t plan to make extra public appearances or schedule investor meetings to mitigate analyst skepticism.

“The doubt is in the business community and not with the customer,” he said. “The business backdrop is interesting, but my focus is totally on the customer. That’s where I need to spend my time.”

That strategy includes a string of ads and a social media campaign launched during the Academy Awards, which positioned J.C. Penney as a more cutting edge company by introducing partnerships with upscale lingerie line Cosabella and red-carpet designer Georgina Chapman of Marchesa.

Johnson lights up talking about the refreshed look for the home section coming in May, featuring collaborations with designers such as Jonathan Adler. And with exclusive mini-boutiques scattered throughout its stores, Johnson hopes to “bring in new customers and cause a halo effect.”

“All that we went through last year was to enable what we’re going to launch this year,” he said of the chain’s struggles. “We’re not the first company to go through this, but we’re just the most visible one today and we’re in the spotlight.”

J.C. Penney is fine-tuning what Johnson calls the “art of the mix,” featuring brands such as Joe Fresh, whose shops launch within JCPenney stores Friday. Founder and Creative Director Joe Mimran said he was drawn to the troubled retailer despite the risks involved.

“It’s very difficult to take a moribund concept and reinvent it,” he said. “Anybody who thinks taking 1,000 stores and reinventing them can be done in six quarters in our industry needs to rethink that.”