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Penney’s Free Haircut Ploy: Not So Dumb

It could even be a sign CEO Ron Johnson still has a magic touch


When J.C. Penney (NYSE:JCP) named Ron Johnson CEO in November, the The New York Times credited the Apple (NASDAQ:AAPL) retail guru with turning the company’s “boring computer sales floor into a sleek playroom filled with gadgets.” It pointed out that some people expected that he could do the same at the venerable Plano, Texas, retailer.

Now, after some missteps, Johnson may finally start living up to the hype, thanks in part to his brilliant free haircut promotion.

Penney is now offering haircuts at no charge to kids from kindergarten to sixth grade starting in November, expanding on the success of a similar back-to-school promotion. The idea, which the Motley Fool mocked as the “struggling retailer’s dumbest move yet,” is actually pretty smart.

First, it gets customers in the door and heightens the chance that they might buy something else, either on that trip or a subsequent one. The promotion is fairly inexpensive and will help establish goodwill with customers.

Of course, it won’t solve Penney’s problems overnight, but it’s evidence of the “out of the box” thinking that indicates that Johnson may be able to harness the magic that served him so well at Apple. There are other reasons to be optimistic as well.

In a recent presentation to Wall Street analysts and investors, who were furious at Johnson over the chain’s unexpectedly poor financial performance, the CEO boldly proclaimed that the transformation he had promised after he took the Penney’s job was “on track.” That’s a bold call given how badly customers reacted to Johnson’s confusing three-tier pricing system that has since been pared down to two (everyday low prices and clearance).

He has also managed to convince Wall Street that Penney has enough liquidity to try new ideas such as the “store within a store” idea to create separate destinations for shoppers for particular brands.

Penney, which has been around for more than a century, has been a basket case for years. Like rival Sears Holdings (NASDAQ:SHLD), the company’s brand identity is murky at best. What is a Penney shopper? Is she looking for Wal-Mart (NYSE:WMT) bargains or Target (NYSE:TGT) “shabby chic?” I have no idea, and probably neither does Johnson.

Like his CEO counterpart at Sears, Lou D’Ambrosio, time isn’t on Johnson’s side. He has said he’ll need four years to turn around Penney. Wall Street won’t wait that long. During the last quarter, the retailer reported a loss that was more than double what analysts expected. Comparable store sales, a key retail metric of sales at stores that were open for a year or more, fell an astounding 22%.

But some big investors, such as billionaire Bill Ackman, whose Pershing Square Capital is a major Penney shareholder, say they’re willing to give Johnson a chance because he has slashed $900 million in costs.

“Ron has been at the job for eight months and has made remarkable progress in many of the requirements for the turnaround,” Ackman wrote in a recent letter. “We look forward to the continued transformation.”

Nonetheless, unless Johnson shows real, tangible progress in the next few quarters, he will be out of a job — and at his age, he won’t even be able to get a free haircut.

Jonathan Berr is long Target and Wal-Mart. Follow him on Twitter @jdberr.

Article printed from InvestorPlace Media,

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