JCPenney: Stop Screaming for Attention

A former Apple Inc. (Nasdaq: AAPL) executive has big plans for JCPenney (NYSE: JCP): a major overhaul of the traditionally staid stores, complete with dozens of designer collaborations -- à la Target (NYSE: TGT) -- and a rotating component "to keep things interesting."

And while the stock has spiked since CEO Ron Johnson revealed his plans last week -- shares are up 20% year to date -- there are serious unknowns about his strategy. The big questions: Can a guy who worked magic at Apple by showcasing a sparse number of products in a large space do just the opposite at JCPenney?

More importantly, can you trust the judgment of a guy who has a connection to what may be one of the most annoying ads ever to run on television? If you haven't seen it, you've heard it: You couldn't avoid hearing it, because the whole ad features one consumer after another, screaming -- make that screeching -- "Noooooooo" in the worst voices ever recorded.

Here. Watch it for yourself. Now how much faith do you still have in this new executive team to turn JCP around?

Someone on that team apparently thought the ad captured the essence of the relaunch of the retail chain -- and actually gave Mother, the New York City agency that created it, the approval to move ahead.

The ad has gained a lot of traction on the Internet, largely from people who vow to never set foot in a Penney store again and wonder whether the executives who approved it were "sober when they signed the ad contract."

Another consumer on the same site adds, "It has affected my toddler, my cat, and my sanity! Absolutely hands down the worst and most irritating commercial I have ever seen in my life."

People will remember the ad, but probably not for the reasons the new executive team had hoped. They'll remember how it woke them up from a pleasant nap, aggravated their headaches, and flooded their minds with the disturbing recollection of a finger caught in a vise.

And those memories will likely linger far after enthusiasm about the company's sparkling new makeover fades.

Johnson said he wants people to forget what they know about department stores. He's even changed the logo, giving the store its third in as many years. Johnson plans to leave little unchanged at JCPenney, except for the name and the e-commerce division.

In that context, perhaps the "Nooooooo" ad is a good start. You don't usually associate the mind-numbing screams of unpleasant people with mid-level department stores. Now, through this inexplicable ad, that's what you're supposed to do.

Beyond the screaming, the ad is supposed to tell consumers something about JCP's new pricing strategy. The new Fair and Square pricing replaces the clearance racks, special discounts, and limited time coupons that consumers see in the ad with three key elements: everyday prices, month-long values, and "best prices" on the first and third Fridays of every month.

At a recent two-day investors' meeting, Johnson outlined his plans to reinvent the retail landscape. His goal is to breathe unpredictability into a store traditionally known less for its style than its consistency. But no more.

Johnson plans to scrap the open selling floor you find in JCPenney stores today in favor of dozens of individual shops, each dedicated to a single brand. The retailer does it on a small scale already: There are separate shop-in-shops for Sephora and Ming, JCPenney's collaboration with Barcelona, Spain-based Mango.

Now it's going to create the same small showcases for its other designer collaborations, including Nicole by Nicole Miller, I Heart Ronson, and L'Amour, a Juniors line by Nanette Lepore.

And that's not all. Each month, every JCPenney store will undergo a "radical transformation" with new visuals and products.

Johnson, of course, explains this like it's a good thing. But will JCPenney shoppers agree? JCPenney, no matter how much you tear it apart and redesign it, will never be Apple.

"As a former merchant, Johnson's plans are nothing short of dazzling," writes blogger Jeff Macke. "If he can pull it off, he will truly have saved the department store model. But that's a HUGE 'if.' JCP doesn't have the resources or clean slate Apple had when Johnson was creating those wildly popular stores."

One problem is that JCPenney is the antithesis of Apple: there no minimalism or technology, just a lot of unrelated stuff in a relatively small space. And unlike Apple, it doesn't have fans or a cult following. It just has shoppers who often want something pretty mundane, like a new pair of pants. Or maybe a coffee maker.

The new format relies on individual brand identities being strong enough to attract customers. But does the core JCPenney customer clearly differentiate between brands?

Johnson is gambling that they will. Although this comprehensive redesign will reportedly cost the company $800 million, executives claim the changes will lead to $900 million in annual cost savings by 2013.

Shares climbed 11% last week after management announced that it expects 2012 adjusted earnings per share to come in at or above $2.16, which is well ahead of the $1.65 most Wall Street analysts were expecting.

Share prices have moved between a 52-week high of $42.29 and a 52-week low of $23.44. The stock closed at $41.55 yesterday -- around 18% higher than the consensus price target of $33.29.

No one is calling the gains irrational. But no one seems to be suggesting that it's fundamentally driven either. In the past few days, BMO Capital downgraded the stock from Market Perform to Underperform. But Piper Jaffray upgraded it from Neutral to Overweight.