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Can Macy’s and J.C. Penney overcome ‘a legacy of bad decisions’?

A shopper leaves the J.C. Penney department store Nov. 17, 2017 in North Riverside, Ill. (Kamil Krzaczynski/Reuters)

This week, Macy’s and J.C. Penney laid out their plans to climb out from department store doom.

For the rest of the year, the question will be: Did it work?

Macy’s announced on Tuesday a slate of initiatives for 2019 — many aimed at the brand’s most loyal customers in some of its most successful stores. The company also said that 2018 marked its first full year of positive comparable sales since 2014, despite a bumpy holiday season.

Meanwhile, J.C. Penney reported declining sales, store closures and cuts to its inventory — even as it pulled off a fourth-quarter profit of $75 million. Its share price is down about 65 percent over the past year.

Years of mismanagement have left the company’s core customers — namely middle-age, middle-income women — in a lurch. In the fall, J.C. Penney named retail veteran Jill Soltau as its new chief executive. And in the months since, Soltau has wasted little time shedding parts of the company that take away from a sharp focus on women and, most importantly, what they wear.

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Macy’s and Penney’s are attracting similar shoppers, with some important distinctions. Macy’s generally draws a higher-income customer. There are also more flagship Macy’s locations in top-tier malls, while J.C. Penney’s showrooms tend to land in struggling, low-traffic malls, noted Christina Boni, Moody’s vice president. Customers also tend to expect a higher level of service at Macy’s compared with J.C. Penney, she said.

“The fundamentals are the same ... service matters to everyone,” Boni said. “But there’s different levels of service and different levels of loyalty.”

Still, experts said Macy’s and J.C. Penney are both grappling with fundamental questions: who they are, and how they’ll tell that story to customers.

“Both of them are in problem territory. They’re both trying to sort out a legacy of bad decisions,” said Neil Saunders, managing director of research firm GlobalData Retail.

J.C. Penney’s woes, in part, stem from years of mismanagement. In 2012, then-chief executive Ron Johnson — who had been recruited from Apple — swooped in with big promises for how his tech experience could overhaul a struggling retailer. Johnson had been the mastermind behind the success of the Apple Store. He tossed out J.C. Penney’s deep discounts and coupons, despite the fact that the thrill of the hunt was what attracted shoppers in the first place.

Johnson’s big idea: everyday low prices. Shoppers: We hate it.

Granted, that was years ago. But Johnson’s successors have also had their missteps. In 2016, then-chief executive Marvin Ellison brought back appliances as a way to edge out Sears. And sales have consistently dragged. On Thursday, the company said total net sales were down 9.5 percent for the quarter, and 7.1 percent for all of 2018. J.C. Penney also cut inventory by 13.1 percent in 2018.

On an earnings call, J.C. Penney executives set a priority for women’s clothing. That means doing away with J.C. Penney’s appliance line and moving furniture sales to online only.

Soltau said J.C. Penney’s shoppers are still “in our corner.”

But, she continued, “we just have to be better and improve how we’re showing up for her shopping experience.”

Macy’s plans includes expanding its Growth 50 program — which take test projects, like mobile checkout, from one store to 50 — to 150 locations. Macy’s Backstage, the company’s off-price concept, will expand to 45 stores. Backstage stores that have been open more than a year saw double-digit increases, Jeff Gennette, Macy’s chairman and chief executive, said this week.

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Still, Saunders said Macy’s has struggled in the past to quickly fulfill its ambitious goals and make them resonate for shoppers inside their stores.

“It’s a sensible plan, but now they’ve got to get their heads down and implement it,” Saunders said. “They’re not going to transform until they really to start to execute these plans.”

Mark Cohen, director of retail studies at Columbia Business School, said Macy’s focus on some of its highest-performing stores does little to lift up the hundreds of others with poorer sales. As for J.C. Penney, it’s too early to tell if Soltau can correct more than a decade of poor management and whether the brand can lure women come back.

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“That’s who their customer always was. That’s the bull’s eye they wandered away from,” Cohen said. “They’re saying the right words but not delivering.”

How Macy’s and J.C. Penney deliver on their promises will help answer "if this is indication of a live-cat or a dead-cat bounce,” Cohen said.

Unless both Macy’s and J.C. Penney can tell customers why they’re relevant now, Cohen added, both are “in a footrace against their own demise."