Top 5 Questions JCPenney's New CEO Must Answer

By now everyone who follows the retail industry knows that the Ron Johnson era at JCPenney has ended. The retailer announced on April 8, 2013 that Mike Ullman had returned and replaced Johnson as CEO. Many people have been analyzing just what went wrong during Johnson's 17 months at the helm, and these post-mortems will no doubt be valuable to the old/new regime as well as to other retailers.

But given the fact that quarterly sales trends at JCP suggest that the retailer is quite likely to experience a 10% decline in dollar sales in BOTH the first and second quarters of 2013, translating to roughly $615 million in lost sales, JCP must quickly identify the most pressing questions that Mike Ullman and his team need to find the answers to. (See below for more details on the scope of JCP's probable losses in sales and market share.)

In addition, with the change back to a promotional strategy, inventory levels appear rather light on paper and in the stores. At the end of fiscal year 2012 inventory was $575 million less than the prior year or -19.7%. Recent store visits at four of JCPenney’s top locations revealed wide aisles with merchandise widely scattered.

Each of the stores visited had a large floor area still under construction. A promotional strategy requires increased initial markup and inventory in “critical mass” to support the strategy. Since normal lead times in the fashion industry are four to six months, store associates will be challenged to achieve sales with substantially less inventory during the Spring season.

Therefore, the five most urgent questions JCPenney's CEO must answer are:
1. How to grow traffic for both young (and old) to the stores?
2. How to get enough merchandise in the pipeline to meet critical mass for Spring and Back to School?
3. How to increase sell-through of product to acceptable levels?
4. How to increase markup and gross margins while reverting to a promotional pricing strategy?
5. How to control SG&A expenses on a substantially lower sales base?


A graphical interpretation of the 2012 and 2011 % sales trends demonstrates that the 1st and 2nd quarters still pose additional downside exposure to sales with the potential declines in the low double digits (give or take a few points) for 2013. In dollars, a 10% decline in sales for the 1st and 2nd quarters of 2013 would translate to roughly $615 million in lost sales. The projected revenue loss for 2013 would translate into a whopping $5 billion loss of market share during the Johnson and post-Johnson era. Putting things into perspective, the entire Saks Fifth Avenue chain generated $3.15 billion in annual sales for 2012!

JCPenney Quarterly Sales in $millions

2013 Proj

For related content: JCPenney Brings Coupons Back from Johnson-Imposed Exile

JCPenney Axes Johnson as CEO, Names Former Chief Ullman

JCPenney: The Movie

Will JCPenney Fail for All the Right Reasons?


Vincent Quan is an associate professor in the Fashion Merchandising Management Department at the Fashion Institute of Technology’s Jay and Patty Baker School of Business and Technology where he is instructing current and future fashion industry professionals. He is also a global industry advisor specializing in the business of fashion with an emphasis on the retail sector. He can be reached at [email protected].

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