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J.C. Penney's Sales Plummet: How Couponing Moms Cost The Store $55 Million

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Ron Johnson, the new star CEO of J.C. Penney, wishes that couponing fanatics would just listen to him already and stop fussing with those little scraps of paper.

"Coupons were a drug," said the CEO on Tuesday evening at a conference with analysts. Earlier that day, J.C. Penney announced abysmal results for the first three months of this year, with sales plummeting 18.9 percent at stores open at least a year. Net losses for the period were $55 million. Executives blamed the results on the departure of deal-hunting shoppers after the company changed its pricing strategy in early February to abandon coupons.

"We did not realize how deep some of the customers were into this," noted COO Michael Kramer about couponing. "We've got to wean them off this and educate our consumers."

Johnson, the wizard behind Apple's retail stores whom J.C. Penney hired in November, has been working hard to de-frump the company, by adding more fashionable brands, updating stores, redesigning the logo and hiring Ellen DeGeneres as a spokeswoman. Simple, consistently low prices -- about 40 percent below what they were before -- are key to his new strategy. "People are disgusted with the lack of integrity on pricing," Johnson declared at a media event in New York in January.

But J'aime Kirlew, a paralegal and mom of three who writes a Jamie Kirlew Couponing blog, was more upset by J.C. Penney's commercials featuring women shrieking as coupons poured out of their mailboxes that aired in January and February. "This was a super annoying commercial," said Kirlew. "I'm totally turned off."

On Tuesday, Johnson was humbled by the earnings news but still confident, admitting that J.C. Penney's marketing had not been completely effective in communicating the company's new strategy to customers. In the last three months, foot traffic at stores dropped 6 percent on weekdays and 12 percent on weekends. "It's going to take time," he said. The company is now launching a new ad campaign that compels customers to "do the math" on its new prices.

Amber Bustanoby, a self-described "frugal mom" who writes another Coupon Connections blog, says people like her will never abandon coupons because the slips help them make ends meet. "I don't think it's a drug," she said. "For me as a mom, I want to do the best I can with the resources I'm given. We live on one income in a two income world." Bustanoby, whose family makes about $50,000 a year, says J.C. Penney's prices didn't drop enough to get her back into its stores. Bustanoby, like Kirlew, has appeared on TLC's reality show "Extreme Couponing."

History lies on the side of coupons. Macy's once tried and failed to reduce coupons after it acquired May Department Stores in 2005, leading to consumer backlash, weak sales and a declining stock price. In 2007, CEO Terry Lundgren reinstated coupons. At an investors' conference in April, Karen Hoguet, Macy's chief financial officer, reminded attendees of the lesson. "People love these coupons. They love thinking they got us," she said. "From the customer perspective, it’s been very important."

The lingering effects of a recession, meanwhile, have made coupons even more appealing to consumers. A 2011 survey from market researcher Nielsen highlighted the resurgence of coupons, which have come "back in vogue" with a tepid economy, it said. Sixty-six percent of the Americans questioned use coupons, according to the survey of Internet users. New sites like Groupon are also making it easier for companies to deliver deals.

But the new Johnson-lead J.C. Penney doesn't want to follow the crowd. Johnson, who worked at Target for 16 years before leaving for Apple, is hoping to refashion J.C. Penney into an innovative destination where shoppers go for the experience as much as the savings. At Tuesday's conference, an in-person event in Manhattan attended by Martha Stewart, Johnson's team attempted to soothe anxious Wall Street investors with mentions of hip new lines by Cynthia Rowley and Vivienne Tam, nuggets of data from customer surveys and references to Johnson's time spent in Silicon Valley. Johnson promised to run J.C. Penney "like a startup."

And on Wednesday, investors fled. As of Wednesday afternoon, J.C. Penney's stock has plummeted 19.7 percent, even more than during one of the company's worst days in history, Black Monday of 1987.

But some analysts are still are optimistic. In a note titled "Rome Wasn’t Built in a Day, But It Was Fantastic When it Was Finished," analyst Liz Dunn of Macquarie praised J.C. Penney's new brands and its marketing, blaming bad sales on "slow customer adaptation to [the] new approach."

The new spokeswoman and a catalog image featuring a gay couple have led to protests from conservative groups but also won plaudits from others.

Bustanoby thinks that until J.C. Penney spruces up its 1,100 some stores, it doesn't make sense for the company to abandon coupons. "Store experience is huge, but you don't get much of an experience at J.C. Penney," she said. "Target is cleaner and more organized." Target also offers coupons.

This doesn't mean that Bustanoby will choose to shop at either Target or J.C. Penney just for a pleasant experience. "I’m a typical mom like everyone else that likes to save her family money," she said. "Couponing has allowed me and my husband to not both have to work. I think this is a big accomplishment."

CORRECTION: Because of an editing error, an earlier version of this article incorrectly stated that Michael Kramer is the Chief Executive Officer of J.C. Penney. He is the Chief Operating Officer.

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