Companies & Industries

Saving JC Penney

Can Joe Fresh help?

Jason Kempin/Getty

Jason Kempin/Getty

Department stores are a relic from another era. Perhaps no company is grappling with this reality more than JC Penney Co. Last year, the company lost US$985 million and saw more than half of its market value vanish. In the past quarter alone, same-store sales dropped 32%. CEO Ron Johnson, hailed as a turnaround whiz when he joined in 2011, was recently booted—in favour of the man he initially replaced. To help fix this sad situation, the chain is betting on Canada—more specifically Canadian apparel maker Joe Fresh, owned by Loblaw Cos.—to bring customers back to its stores.

Last month, Joe Fresh began appearing in nearly 700 JC Penney stores across the U.S., and the chain has been heavily promoting the line for weeks, even running an ad during the Academy Awards. Expectations are high. “You have this thing being advertised like it’s the Messiah,” says Howard Davidowitz, founder of New York retail consultancy Davidowitz & Associates.

Joe Fresh is a solid brand, he says, but it will make up only a small portion of JC Penney’s overall inventory. It will therefore do little for sales. “The exaggeration of what Joe Fresh will do is preposterous,” he says. The goal is more about attracting a younger, more stylish demographic to JC Penney’s stodgy old stores. “From what I understand, it’s already driving traffic to some stores,” says Rick Snyder, a retail analyst with Maxim Group in New York. A recent note from analysts at Oppenheimer & Co. reported that “customers do seem to be reacting positively to the Joe Fresh launch,” but cautioned “significant consumer adoption is likely to take time.”

Joe Fresh has only six of its own stores in the U.S., all in New York and New Jersey. Brand awareness is fairly low elsewhere, which is why the partnership with JC Penney is so important for the line. Joe Fresh gains huge exposure to a new market with minimal investment, which could set the stage for a rollout of more standalone stores. (Joe Fresh declined to comment.)

The brand could use a boost. Sales have been flat for the past three quarters, and the U.S. is a natural location to expand. Joe Mimran, founder of the brand, attempted to crack the U.S. before with an earlier venture, Club Monaco. But after it was purchased by Polo Ralph Lauren in 1999, Mimran was soon ushered out the door.

The Joe Fresh deal with JC Penney presents Mimran with another chance. Still, given the American retailer’s dire finances, the partnership isn’t without risk. Johnson is the one who forged the deal with Joe Fresh, and it’s unclear how much of his work will be undone by the new CEO. “You don’t want to launch your brand as part of a massive failure,” Davidowitz says.