JCPenney Announces Cost Cutting Initiatives To Aid Turnaround

By Anna Rose Welch, Editorial & Community Director, Advancing RNA

After issuing a vague holiday report card, company plans to reduce expenses through job cuts, store closings

Following in the footsteps of Macy’s, JCPenney announced its plans to close 33 stores and cut 2,000 jobs in what the company is calling a “strategic initiative to advance turnaround.” The company also plans to transfer about 3,000 company sales associates in various departments back to the commission pay system this spring in the hope that it will encourage employees to secure more sales. After all is said and done, the company stands to save $65 million a year from these new initiatives. However, while the company is optimistic that this will encourage long-term growth, analysts are less certain that this new plan isn’t just another sign that JCPenney’s turn-around effort is proving unsuccessful.

Several weeks ago, as the holiday report cards came rolling out from retailers, JCPenney released only a brief statement. While the company was upfront with its results in October and November, which boasted the first comparable store increases in years, these new results told nothing of the sort. In fact, the release contained no data about how the retailer even fared during this difficult holiday season. The statement said “the company is pleased with its performance for the holiday period, showing continued progress in its turnaround efforts. Customers responded well to the company’s offerings this holiday season, both in store and online.” The company also said it was reaffirming its outlook for the full year.

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Following this report, shares for the company dropped and some analysts began postulating that the company faced setbacks during the holiday season. As Burt Flickinger III for Strategic Resource Group told the New York Times, “It must have been a train wreck under the Christmas tree.” Macquarie Capital’s Liz Dunn tells the Los Angeles Times that, while positive, these new cost-cutting initiatives are small and are a sign that the company doesn’t have enough bigger initiatives in the works to make ends meet. Extensive discounts, coupled with the fact that JCPenney has made large cuts to its home departments because of its unresolved Martha Stewart lawsuit with Macy’s has left some analysts concerned about profits.

However, CEO Myron Ullman sticks by the company’s strategies saying that the company emerged from the “interesting” holiday season “in good shape,” and that online sales “continued to be robust.” Moody’s analyst Margaret Taylor seems less perturbed than some by the lack of details about the company’s performance this holiday season. She says, “The turnaround is not happening as quickly as we hoped, but they had a very strong November, which gives them some cushion for a weaker December. It’s not going to be a great quarter, but they haven’t said enough to indicate that it will be a terrible quarter either.” The company will be announcing its full earnings report in February.

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