Is Joe Fresh Already Going Stale for J.C. Penney?
On March 15, J.C. Penney opened its highly anticipated Joe Fresh shops in nearly 700 stores. J.C. Penney executives hope that Joe Fresh, a popular Canadian apparel brand, will bring new customers into their stores. Retail analysts suggested that the launch was fairly successful in terms of customer interest and traffic. However, based on my own store checks, traffic appears to have dropped off quickly. There is little reason to believe that the Joe Fresh brand will help turn around J.C. Penney's awful sales performance anytime soon.
Joe Fresh is one of the most important components of J.C. Penney's new "shops" strategy, so Penney heavily promoted the brand's launch. The new line went on sale online last month, and was featured heavily in J.C. Penney's commercials during the Oscars. It quickly became the top brand on Penney's website, with seven times more visitors than Liz Claiborne, the No. 2 brand. Moreover, most of the customers buying Joe Fresh merchandise in the first few days after the online launch had not previously shopped through J.C. Penney's website.
J.C. Penney hoped to generate a similarly impressive first-weekend performance in stores, and offered a coupon for $10 off a $50 purchase to drive traffic to its stores. Deutsche Bank analyst Paul Trussell stated that this coupon offer led to a solid opening weekend for Joe Fresh, with sales increasing over the course of the weekend. Trussell believes that the launch was stronger in markets like New York and California, rather than J.C. Penney's traditional bastion in middle America.
Analysts at Oppenheimer visited several stores in New York and New Jersey over the weekend, and were also generally upbeat about the new Joe Fresh shops. "Traffic is difficult to measure, but customers do seem to be reacting positively to the Joe Fresh launch," they wrote. The analysts also opined that the price range for the Joe Fresh collection (most items are less than $40) would appeal to the core J.C. Penney customer.
While retail analysts seem relatively pleased with Joe Fresh's opening weekend, this may be the result of low expectations stemming from J.C. Penney's extremely weak performance in the past year. I visited three J.C. Penney stores (also in New York and New Jersey) on Tuesday in order to gauge traffic and interest in the Joe Fresh shops. I also visited Macy's stores in the same malls to create a baseline for comparison, since Tuesday would typically be a light traffic day. In each mall I visited, Macy's was noticeably busier than J.C. Penney: in two of the three cases, dramatically so. Whereas a few sections of each J.C. Penney might be busy, with the rest of the store feeling deserted, the Macy's stores had strong traffic throughout (for a Tuesday).
Joe Fresh was not a strong performer in terms of traffic or customer interest in the three J.C. Penney stores I visited. In the first store, I checked the Joe Fresh section three times (at 10-minute intervals) and did not see any customers. In the second store I visited, I saw one customer in the Joe Fresh section. At the third location (which was the busiest of the J.C. Penney stores), I saw two people in the Joe Fresh shop when I walked into the store, but the section was empty 10 minutes later. Each Joe Fresh shop appeared to have plenty of inventory, but it was not clear if that was due to high initial orders, weak sales, or both.
Like Joe Fresh, many of the other new shops seemed empty. For example, I visited the Levi's denim bars in each J.C. Penney store, and never saw more than one person there (often they were deserted). By contrast, some of the more established shops (pre-2011) seemed relatively busy. The Sephora boutiques had a steady, albeit slow stream of customers. Furthermore, the Call It Spring by Aldo shoe collection was by far the most popular area of the store in two of the locations I visited. It was the only part of the J.C. Penney stores that seemed to rival Macy's in terms of customer interest and foot traffic.
While there may have been an initial burst of curiosity and customer interest upon the launch of the Joe Fresh shops, the buzz may have faded quickly. Traffic was slow or non-existent in the Joe Fresh shops I observed. The brand might not have enough customer recognition in the U.S. to drive new customers to J.C. Penney stores today.
On the other hand, the stronger performance of more established shops like Sephora and Call It Spring by Aldo provides a ray of hope. It may take time to ramp up sales in some of the new shops, particularly when the brands are new to J.C. Penney. Unfortunately, Penney does not have the luxury of time in light of the heavy rate of cash burn recently. Therefore, J.C. Penney needs to find a way to accelerate customer acceptance of Joe Fresh at its stores.
J.C. Penney has been a train wreck whose comeback always seems just around the next earnings corner, but investors are beginning to doubt that CEO Ron Johnson can weave the same magic that he did at Apple. If you're wondering whether J.C. Penney is a buy today, you're invited to claim a copy of The Motley Fool's must-read report on the company. Learn everything you need to know about JCP's turnaround -- or lack thereof. Simply click here now for instant access.
The article Is Joe Fresh Already Going Stale for J.C. Penney? originally appeared on Fool.com.Fool contributor Adam Levine-Weinberg 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.
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