CEO of American J.C. Penney under fire

CEO of American J.C. Penney under fire

Some experts doubt that J.C. Penney’s that the course of its CEO Ron Johnson is likely to guarantee the future of the company, especially because the confusing pricing strategy has created a loss of USD 81 million and turnover and margins were declining also

Comparable store sales declined in the second quarter by 21.7 %and total sales fell 22.6 % (including the exit from it outlet business and what is the greatest surprise also internet sales declined 32.6 % compared to the same period of last year. The company had to report a quarter loss of USD 147 million. The reason for all of this is the change of the business model from a highly promotional business model to one based on everyday value, and this needs time states J.C. Penney CEO Ron Johnson and adds that the new shop concept and the accelerating marketing efforts to focus on brands, products and value in an early response are very encouraging. Gross margin dropped from 38.2 to 33.2 %. Gross margin was affected by lower than expected sales and around USD 202 million of markdowns taken to clear discontinued inventories in preparation for new product arriving in the fall of 2012 leading to an adjusted gross margin of 36.6 % of sales. Sales were adversely impacted by the company’s decision to significantly reduce its marketing activities during the latter half of the second quarter, as it reconsidered its approach to pricing and marketing in time for back to school. The company is stepping up savings and operational efficiencies to accelerate and exceed an annual run rate of around USD 900 million at the end of 2012. The company made also charges in the order of USD 159 million for restructuring and management transition charges. These charges comprised home office and store severance expense of USD 56 million, store fixtures at USD 42 million, software and systems of 36 million, supply chain USD 20 million , management transition USD 20 million and other items USD 5 million. The balance sheet shows around UD 888 million in cash and cash equivalents. Cash used in operation in the second quarter amounted to USD 32 million and this figure represents USD 545 million less than in the first quarter of the ongoing year.

However the market and experts are still sceptical and those changed their attitude only slightly when CEO Ron Johnson explained his strategy on a widely covered critical TV interview. He admitted that “we continue to learn and adjust. We fully expect that our unique specialty department store experience will drive the future J.C. Penney’s success”. He underlined that the rock solid balance sheet will support the execution of our transformation and position J.C. Penney for growth beginning in 2013. The new store-in-store concept and also the offering of activities for families and kids, the use of free IPhones for customers  in the stores will create a new era for department store concepts, Johnson confirmed, and as we all know, Johnson jointed J.C. Penney last November from Apple and has profound knowledge of marketing!

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