Guess What Percentage Rise in Sales Apple Guy Needs Just to Get JC Penney Back to its Peak?

Fitch Ratings nailed it: calling JC Penney’s (JCP) third-quarter results “dismal” and warning that its revenues will fall still further. Basically, about a year after CEO Ron Johnson unveiled his strategy for revamping the century-old retailer to bring it into the 21st century, sales have nosedived. Over the last five years, revenues have fallen by nearly 54%; in the last year the decline has actually steepened. Same-store sales plunged 26% over year-earlier levels in the third quarter, compared to an average decline of 20% in the first two quarters of 2012. To recoup those losses and get back to where it was five years ago, JC Penney would need to double its revenues – something that’s hard to envisage at present.

JCP Revenue Quarterly Chart

JCP Revenue Quarterly data by YCharts

Too much time at Apple (AAPL) – which still seems unable to put a foot wrong when it comes to marketing – may have warped Ron Johnson’s world view. His intent is to transform Penney’s retail outlets into a series of boutiques under the Penney umbrella (think a Levi’s mini-boutique, and one from Martha Stewart) and, in the process eliminating the culture of discounting to win sales and market shares.

“We have got to wean (shoppers) off (coupons) and educate our consumers,” insisted JC Penney executive Michael Kramer on an earnings conference call early this year. But JC Penney’s shoppers appear reluctant to be educated. And increasingly, they have demonstrated a clear preference to dispose of their disposable income elsewhere.

KSS Revenue Quarterly YoY Growth Chart

KSS Revenue Quarterly YoY Growth data by YCharts

As we head toward the official kickoff of the holiday shopping season, Black Friday, at the end of next week, it is clear that some of the rivals poised to pick up more market share from JC Penney are those that remain committed to aggressive discounting. Take the case of Kohl’s (KSS), for instance. While some of its rivals plan to open their doors on Thanksgiving Day itself, Kohl’s has raised the ante still further by offering online “Early Bird” deals on Wednesday, the day before Thanksgiving. That’s just the latest stunt by a retailer aimed at driving up foot traffic in stores and eyeballs online in the all-important holiday sales period. Wal-Mart Stores (WMT), for instance, plans to offer one-hour special events on Thanksgiving Day itself, and has pledged to ensure adequate quantities are available to meet demand during those windows.

KSS Profit Margin Quarterly Chart

KSS Profit Margin Quarterly data by YCharts

The trick for all these retailers will be to balance the incentives – the deals – they need to coax shoppers in their doors and stop them from turning to online retailers -- like Amazon (AMZN) -- in search of better bargains, with maintaining profit margins at a respectable level. JC Penney, clearly, has already lost that battle, too. The only question, by the time the 2013 holiday shopping season rolls around, is how viable JC Penney remains.

Suzanne McGee is a contributing editor at YCharts, which includes the just-released YCharts Pro Platinum for professional investors.

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