Bringing Back the Sale Is Penney Wise

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Justin Timberlake may have brought sexy back.

But it's Ron Johnson who's bringing the sale back.

The CEO of J.C. Penney Company (NYSE: JCP) recently said his company is abandoning its pioneering strategy of solely offering an everyday low price and is bringing back numerous sales and, hopefully, customers.

Funny how a 50 percent slide in the stock price this past year makes a company head do an about-face.

Some on Wall Street might think Johnson's offering up a too-little-too-late strategy. But for patient investors, now's a good time to get into a company that has the stores (and necessary inventory) already in place. It just needs the right game plan. At least that's what Johnson was thinking when he was hired to lead the company in November 2011.

Obviously, things haven't gone as planned. Still, credit goes to Johnson for at least trying something different. Johnson, the former senior vice president of retail at Apple and Target's former vice president of merchandising, was hired to put J.C. Penney back in consumers' minds as the go-to place for anything from head (apparel and jewelry) to toe (footwear).

J.C. Penney is trying to get shoppers to get back into its stores through its change in pricing strategy. One comparable company that continually offers the sales and discounts to lure customers in is Kohl's Corp. (NYSE: KSS).

But that strategy hasn't worked well lately for the Wisconsin-based company. 

Its stock is near a four-year low and published reports indicate the company may be part of a leveraged buyout because Kohl's had to continually discount its merchandise to increase same-store sales.

Kohl's and J.C. Penney sell many of the same types of items: lots of clothes, with home products like pillows, blankets and comforters thrown in. But as tough of a time Penney has going for it, Kohl's is in even worse financial shape. The stock may make for a good short-term play, especially if a buyer is waiting in the wings, but that's a gamble I'm not willing to make.

Penney vs. Sears

It's not easy for old-school department stores, like Penney, to keep investors and Wall Street happy. A great example of a similar company that knows this all too well -- and one that Penney has been compared to for a long time -- is Sears Holdings (NASDAQ: SHLD).

Sears and J.C. Penney's compete closely when it comes to men's, women's and children's apparel. But it doesn't stop there. Footwear, photo studios and optical departments -- you'll find them at both of the companies' stores.

Sears has more employees than Penney, so it's not a surprise it offers more to its customers. While Penney sticks mainly to apparel, Sears also sells electronics, appliances, lawn and garden equipment, and -- arguably its most popular brand -- hardware under the Craftsman label.

And Sears, like Penney, has its own problems.

J.C. Penney may not be as big of a company as Sears. But, for Penney, it's a blessing in disguise.

It doesn't have a Kmart to worry about.

Since being acquired by Sears in 2005, Kmart has struggled to carve out its own niche and has continued to close stores. Plus, with Sears stores being a strong competitor to Penney, it's trying to win over and keep those Penney's customers.


Is JCP worth a closer look?

But all Johnson and J.C. Penney have to do is simply give customers what they want. Because not doing that is what got them into trouble in the first place.

When Johnson and his team rolled out its pricing strategy about a year ago, it was under they guise of offering customers what was supposed to be a consistent low price each day, instead of the highs and lows of everyday pricing and store-wide clearance sales.

Old habits, for customers armed to shop for the best bargain, certainly die hard. The deep discount deals they were accustomed to didn't come, and neither did the customers.

So now, Penney is going back to the sale-pricing philosophy with a few minor tweaks. And the company is smartly getting out its message through ads on TV, print and the digital side.

By doing this now, Johnson and Penney are buying time so word can get out about Penney's new strategy before the summer and back-to-school shopping season.

Do I think Penney stock will have a meaningful rise in the next quarter? No. But now's a good time to buy and hold this stock, and investors will certainly notice the difference a year from now.

Customers want to know they're getting a good deal, and it's taken Johnson and Penney about a year to figure it out. It's a shame for current investors, but a moment of opportunity for new ones. Because as long as Penney follows through by communicating great offers to shoppers who are hungry for the next deal, the foot traffic will increase.

And so will the stock price.

news423 has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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