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J.C. Penney: From 110-Year Old Company to Start-up?

J.C. Penney is reinventing itself. And that is not going to be easy, or painless.

It is the fourth largest department store company in the US, with a chain of 1,100 stores. But after 110 years, the brand was getting pretty tired. The company wants to be leaner, and it wants to “operate like a start-up”, according to CEO Ron Johnson.

That means trimming a lot. The company plans to cut $900 million in annual expenses by the end of 2013 ($200 million form corporate headquarters, $400 million from store operations and $300 million in advertising). And it’s cutting 900 jobs: 600 from the Plano, Texas headquarters and 300 from a call center in Pittsburgh (which amounts to less than 1% of the company’s 159,000 employees).

It also means rethinking a lot. The company is doing away with its old pricing strategy. It is looking to focus less on promotions, and more on value. That means no gimmicks, fewer sales and fewer discounts… just a “square deal”.

But the company’s new image doesn’t come cheap… and it includes an $87 million loss in the fourth quarter, mostly resulting from the brand makeover (a year ago the company had a profit of $271 million).

Whether this new fair and square pricing strategy will resonate with consumers remains to be seen. And the company still has to prove it can streamline itself to look like a start-up.

After signaling a buy earlier this year, shares are now signaling an intermediate sell, and are down -9.8% over the past year.

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