PLANO, Texas — J.C. Penney’s turnaround is about to be tested as parents decide where they’re going for back-to-school shopping.
The Plano-based department store chain always needs to score high during the fall apparel season, which is second only to Christmas in sales. But this year will be an even bigger test.
“Do they have a lot to prove to investors the next couple of months? Absolutely,” said Maxim Group retail analyst Rick Snyder. “Back-to-school performance is extremely important for Penney this year.”
Investors are looking for sales gains, an increase in store traffic, less cash burned and improved margins, he said.
This time last year, CEO Ron Johnson _ ousted in April _ got a lot of attention by offering free haircuts for students, but the promotion didn’t drive sales.
“This year, we’re charging $10 for kids’ haircuts. That’s still a good price,” said Betsy Schumacher, Penney’s senior vice president over children’s.
If free haircuts had worked, the company would have offered them again, she said. Last year, sales declined 22 percent in the second quarter and 27 percent in the third quarter, periods that include the key back-to-school months of July, August and September.
This August, Penney is offering $25 prescription eyeglasses for kids 16 and under. It’s also giving away personalization kits with purchases of shoes and backpacks.
Even more importantly, merchandise mistakes have been corrected, Schumacher said.
Penney struggled with inventory last year, and stores didn’t receive the right mix of back-to-school merchandise in children’s and had problems keeping items in stock, she said. “Now we clarified, narrowed our assortment, and we’re in stock.”
She’s been talking with customers and incorporating their suggestions. Mothers of plus-size girls said they wanted extended sizes in the same department with girls’ regular sizes.
The school uniform business, a huge back-to-school category for Penney, failed to get the space or attention it needed last year. Merchandise for toddlers and preschoolers was also shortchanged. Now there’s a separate department for sizes 1 to 6.
This month and next month, Schumacher, who came to Penney from American Eagle Outfitters and previously worked at GapBaby and Eddie Bauer, is filling her calendar with three-day trips to see 15 stores at a time.
“I want to see that we have the right mix in the stores,” she said. “It’s one thing to see it on paper, but it’s better to see it in person.”
Schumacher, who has 9-year-old triplets, started her job at Penney a year ago today, just as Johnson admitted that the store’s marketing wasn’t working and that twice-a-month discounts and everyday low prices were confusing shoppers.
Penney has returned to coupons and regular discounting with printed ads twice a week.
This year, does she feel the weight of the back-to-school season all on her shoulders?
“I have a great team of experts with a lot of passion,” she said. “We haven’t had inventory like this in a while.”
Canadian brand Joe Fresh, which debuted in Penney’s women’s department earlier this year, is now in children’s.
Faux leather bomber jackets for boys are among the top-selling items in the collection, she said.
Nike has been added to the girls department, and Penney’s own workout apparel brand, Xersion, has been extended to boys and girls. National brands including Disney and Penney’s Arizona have focused on age-appropriate dresses, skirts and matching sweaters, leggings and jeans.
“So much of it is fundamental retail,” Schumacher said. “We have the inventory. We have the denim. We have the extended sizes. We’ve revitalized our brands. We have new ideas on the floor. We focused the assortment.”
While back-to-school shopping is important to Penney’s children’s business, so is the fourth quarter.
“We’re positioned to be able to learn and react. If we need to make adjustments in the fourth quarter, we will,” Schumacher said.
She’s also keeping an eye on the competition.
“My children think everyone shops the competition on Sunday afternoon,” she said.
Penney and other retailers expect a tailwind this year in back-to-school shopping. Analysts see consumers opening their wallets a bit more.
The NPD Group expects sales to increase 3 percent from a year ago, and shoppers in its survey said they expect to spend more at department stores and specialty stores this year.
“Consumers are spending more on desirables rather than only necessities,” said Marshal Cohen, NPD’s chief industry analyst. “Parents are loosening up on the tight budgets and letting their kids once again make the decisions.”
Alliance Data Systems chief economist Rodney Davenport said credit card sales across his company’s portfolio have been strong this year. Alliance Data, based in Plano, operates 120 store-branded and co-branded credit card programs for major chains, including J. Crew, Pier 1 Imports, HSN, The Buckle and Barneys New York.
How consumers use revolving credit accounts reveals how they feel about job security and overall confidence about their household finances, Davenport said.
“Consumers are allowing themselves to carry a balance again on their credit cards. Department stores and specialty stores seem to do better in periods like this,” he said.
The company also has seen the preferred payment shift from debit to credit, especially among consumers with better-than-average credit scores, said Mel Gintert, senior manager of marketing intelligence for Alliance Data.
Nearly 50 percent of shoppers surveyed by Alliance Data said they plan to purchase their back-to-school items with a credit card, a shift from the company’s 2012 study, when 60 percent planned to purchase with debit.
“When we see that shift, it tells us that consumers are once again comfortable using credit,” Gintert said.
Finally, about 55 percent told Alliance Data that they plan to make purchases throughout the school year instead of buying everything at once.