By Natalie Zmuda
In the wake of bleak second-quarter results, JC Penney says it is shifting its marketing from brand building to business building.
During a meeting with analysts to discuss second-quarter results, CEO Ron Johnson detailed the marketing shifts that have taken place since its chief marketer and merchandiser, President Michael Francis, abruptly departed after just eight months. JC Penney "went dark" in mid-June — the same time Mr. Francis departed — turning off TV ads, canceling the July catalog that was already printed and scrapping July newspaper inserts, Mr. Johnson said.
The upbeat, colorful marketing–(see the spot below)–rolled out during Mr. Francis’ tenure made people rethink JC Penney and was entertaining, Mr. Johnson admitted, but it didn’t reach the core customer and didn’t build the business. Mr. Johnson also believes the brand was spending too much money on TV and not enough on print.
"In many ways we were trying to build the brand ahead of its time, when we really needed to build the business," Mr. Johnson said.
Now, JC Penney is investing heavily in what Mr. Johnson calls "traditional traffic-driving means." The retailer has 30 newspaper inserts planned for the back half, including eight in August alone. By comparison, it ran just 11 inserts during the spring season. To free up money for those investments, the retailer is cutting back on TV.
The tone of its TV ads has also shifted, with a focus on brands, products and pricing, rather than lifestyle. For example, back-to-school themed ads highlight a variety of denim brands, as well as free haircuts for kids in kindergarten through sixth grade. Mr. Johnson called the effort a "great brand deposit" and said the retailer has already given 500,000 haircuts.
At the same time, Mr. Johnson has done away with the confusing three-tiered pricing strategy in favor of a two-tiered system that consists of everyday low prices and clearance items. That strategy has tested well in focus groups in the last 30 days. September TV spots will highlight the changes.
Already, the new marketing and pricing are having an impact, Mr. Johnson says. In the past two quarters, when JC Penney cycled highly promotional time periods, traffic dipped between 14% and 20%. In the first 10 days the new marketing approach was in effect, traffic was down 7%, a "dramatic" improvement, Mr. Johnson said.
"Clearly, our new marketing, our new message is getting through," Mr. Johnson said. "We have more traffic in our stores. People are buying more, and we’re encouraged by that."
The retailer reported a second-quarter loss of $147 million, which compares with net income of $14 million a year ago. Sales slid 23% to $3 billion, the lowest quarterly sales since at least 1989, according to data compiled by Bloomberg. Comparable-store sales fell 22% in the quarter while internet sales plummeted 33% to $220 million. Mr. Johnson told analysts gathered in New York this morning that the retailer would not meet its profit forecast for 2012. The retailer did not provide a new projection.
Despite the poor results, Mr. Johnson sought to put a positive spin on the news, telling analysts he is "completely convinced" the transformation is on track.
"It’s very clear that withdrawing from our promotional model to a more everyday model has been harder than we anticipated," Mr. Johnson said. "But it doesn’t change our conviction that the promotional model had run its course, and that we have a far better path forward."
Mr. Johnson also spent time discussing his plans for becoming a specialty department store, an "entirely new class of department store that doesn’t exist today." He outlined plans to overhaul the retailer’s technology platforms, as well as introduce a new store design.
Within a month, all stores will have Wi-Fi networks, and all stores will have some level of mobile point-of-sale this fall. By spring 2013, all employees on the floor will carry an iPad used to check out customers, view stock information and store layouts. Next spring, the retailer also plans to roll out self check-out.
A new store prototype is expected in fall 2013. Mr. Johnson said the site has already been selected and his team is working with the developer. The store will mimic a traditional mall with 100 shops, including branded shops and category-specific shops. It will also include The Street and The Square. Mr. Johnson called the pair a "new retail interface." He envisions The Street as a place to relax and refresh, featuring places to eat and drink, as well as tables with built-in iPads for surfing the internet. The Square will be a seasonal space, featuring holiday decor and Santa during the Christmas season, for example.
"As I learned from Steve [Jobs] at Apple, the way you change the customer experience, it all starts with the interface," Mr. Johnson said.