April 9, 2013 at 4:28 PM ET
For JC Penney, it's going to have to be a trip back to the future if it wants to woo the customers it alienated with its failed no sales, no discounts policy. Apparently, Americans love their coupons.
A day after the struggling retailer ousted the Ron Johnson, the architect of the policy, retail industry analysts said JC Penney's newly reappointed CEO Myron Ullman would need to revive discounts and promotions that its loyal customers knew and loved.
"You have to have the discounts, but then you have to have full price, too," said Dana Telsey, chief executive of Telsey Advisory Group. "You have to give the consumer product that they're willing to pay full price for, and that's branding the store."
In a report issued on Monday, JP Morgan analysts said they expect the company will return to coupons and promotions as part of an effort to stabilize itself before the crucial back-to-school season.
It would be a repudiation of Johnson’s attempt to reinvent JC Penney, which had already been struggling before he left Apple to take the helm at the retailer.
With Johnson as CEO, the company set out to transform itself into a series of shops within a store and rebrand itself into "America's favorite store" as part of a multi-year makeover. Analysts said, however, that the private-label brands carried little to no meaning in today’s market.
"We are convinced JC Penney needs a compelling way forward — but what that is remains to be seen," they said. "Johnson's path of aspiring to a new shopper did not work, but JC Penney struggled to stabilize sales before Johnson's arrival."
In the process of going after a new customer base, the company also lost touch with its core customer and saw its same-store sales nose dive 25 percent last year. Same-store sales measure sales at stores open more than a year and are considered more accurate because they smooth out wrinkles caused by the hype and excitement after a new store opens. Its share price also shed about half its value and the company recently reported a $552 million quarterly loss.
In a tough economic environment where consumers have been pinching every penny, Johnson’s plan backfired and competitors pounced on the opportunity.
Telsey said for JC Penney to succeed, it would have to lure its core customers back — a move that she said is possible.
"You're not going to get back all the sales you lost, but you can certainly make improvements on what you have," she said.
Ullman, who served as JC Penney’s CEO for almost seven years until 2011, returns to Penney roughly one third of the way into its transition to a shops-within-a-store model, a transition that "has thus far displayed only scant evidence of success," Oppenheimer analysts said.
Looking ahead, analysts expect Ullman to continue with the transformation of Penney's home goods section, which includes 33 shops by May, but to examine plans after this and possibly slow the conversion rate to conserve cash.
It's noteworthy that Ullman, rather than Johnson, was the first to introduce the shop-in-shops concept when he partnered with Sephora in 2006 and MNG by Mango four years later.
To cut costs amid flagging sales, Johnson turned to widespread layoffs during his tenure, a move that Citigroup analysts said reduced morale at the retailer. Boosting this morale, along with recruiting talent, are two priorities for Ullman, Citigroup analysts added.
"We believe Mike will tap his retail Rolodex and past JC Penney management to bring back department store talent the organization," they said while also fostering internal talent.
CNBC's Katie Little contributed to this report.