J.C. Penney ... Customers Go Elsewhere

The difference between a private sector company and a public sector monopoly is one of simple choice. Customers choose whether or not to buy what the private sector company is offering for sale at the prices offered.

Customers are in charge. They're the real bosses. Occasionally a CEO tries to outsmart customers and the formerly loyal customers react by voting with their feet. They take their money, go away and don't come back. That's exactly what's been happening at J.C. Penney. And the developing situation is getting ugly --- real ugly.

Penney Posts Large Loss as Sales Sink Further has the details on the sinking ship at Penneys:

"The bill for J.C. Penney Co.'s first year under Chief Executive Ron Johnson is in, and it's about $4.3 billion.

That's how much sales at the department store chain dropped in the 12 months after the former Apple Inc. executive cut back on discounts and rolled out a plan to fill stores with dozens of branded boutiques.

Declines worsened through the year, with sales down 28.4% from a year earlier in the fourth quarter, which spans the crucial holiday selling period. The company reported a fourth-quarter loss of $552 million, its worst of the year, and held $930 million in cash on Feb. 2, a decline of 38% from a year earlier.

For the full fiscal year, Penney had a loss of $985 million, compared to a $152 million loss the year before.

The results are a comedown for Mr. Johnson, who arrived with great fanfare from Apple in November 2011 with ambitions to remake a chain that had sold inexpensive clothes to middle-American shoppers for decades.

The CEO warned investors when he announced the turnaround strategy a little more than a year ago that the changes would involve some pain at first, but he said at the time that the back half of the first year would be stronger than the first and predicted the company would turn a profit during the first year of the transformation.

With those targets blown, his key tasks are stopping the slide in sales and making sure the company has enough cash to complete the job. On Wednesday, he backtracked significantly on his plan to limit discounts, telling investors the company will start holding regular sales.

"We'll offer sales each and every week as we move forward," the CEO said on a conference call to discuss the results. . . .

Customers exit a J.C. Penney store in the Queens borough of New York.

Mr. Johnson has rolled out a new ad campaign that stresses Penney's prices. The CEO said it is gaining traction with customers.

Showing sales growth should be easier for the company in the quarters ahead, when results will be compared with the past year's dismal results. Mr. Johnson hasn't been specific when pressed when he expects to see improvements."

Summing Up

Penney's shares are off more than 16% in pre-market trading this morning.

One thing I know for sure. A company can't manage to achieve any satisfactory level of profitability without stable and growing sales over time.

Another thing I know for sure is that customers are in charge. They decide whether to buy from any single company, another company or no company at all.

It's their MOM and it's their choice. Always.

That's the way free markets work.

And that's why we need more MOM based behavior and not more government control in our economy and those institutions that serve the American public.

It's a free to choose thing where free people are in charge. That's always the best idea.

Thanks. Bob.