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JCPenney’s business has gotten increasingly worse since new CEO Ron Johnson announced his turnaround plan a year ago. Same store sales are down 32 per cent, which is much worse than Wall Street had predicted.
Johnson’s new strategy included doing away with sales and promotions (though the company has since backpedaled) and featuring designers in their own shops.
But the strategy that’s supposed to be JCPenney’s saviour is actually its worst enemy, said Brian Sozzi, chief equities analyst at NBG Productions.
“Here we see a company that is being eaten alive by its turnaround story,” Sozzi told us. “The company is burning through cash.”
JCPenney is betting big on its shop-in-shops and investing tons of cash to build them in stores. Johnson has also said that the business won’t totally turn around until they’re completed.
The company will probably be forced to tap into its newly expanded credit line to keep investing, Sozzi said.
And even then, it might not work.
Activist investor Bill Ackman identified JCPenney’s problem on CNBC in January.
“The problem with the vision is it’s a small percentage of the store, which is the so-called ‘shop’ strategy,” said Ackman. “It’s 10-11 per cent of the square footage.”
Ackman says that such a small percentage of the store can’t be sustainable.
“The negative is 90 per cent of the store,” said Ackman. “Very very difficult year. Sales results reported so far — mid 20s down comps. Those are numbers that no retailer likes to see.”
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