J.C. Penney draws on credit to fund game plan of reinvention
By Jay Keller
The reinvention of J.C. Penney has begun in earnest as new leadership has moved quickly to mark the return of coupons and make moves that leadership hopes will strengthen the company’s ongoing financial position.
With Mike Ullman and his supporters undoing the makeover set in motion by former CEO Ron Johnson, the company’s new direction seems to be headed back towards the J.C. Penney of old, one with a 111-year legacy founded on the principals and ideals of small-town America.
J. C. Penney Company, Inc. on Monday announced plans to draw $850 million out of its $1.85 billion committed revolving credit facility to fund ongoing spending to improve in-store traffic, increase inventory and support other forward-looking strategies.
What the move means is that J.C. Penney Co. is now able to fund efforts aimed at developing and articulating ”a game plan to establish a foundation of future success.”
In the statement, J.C. Penney said some of the proceeds will be used to replenish inventory levels in anticipation of the May launch of its newly-renovated home departments.
“As we near completion of the home department transformation in over 500 stores, we have been undertaking and will continue to experience a significant inventory build and increase in capital expenditures,” J.C. Penney CFO Ken Hannah said on Monday.
Remaining funds will back future endeavors designed to strengthen the company’s “development of other new initiatives to drive store traffic and deliver the style, quality and value that its customers want.”
Analysts and industry experts believe that jcpenney has to make up a lot of ground to win back its customer base as many say Johnshon’s strategy to eliminate coupons alienated older, loyal customers.
Much of the debate came after Bloomberg Businessweek reported last week that jcpenney shoppers are older and less affluent than previously thought.
According to the report, which uses survey data from Ohio-based Prosper Business Development, just about half of the people shopping at jcpenney stores are older than 55 while only 13 percent of shoppers have an annual income of over $100,000.
Ullman’s move to tap into its loan now, according to industry experts, suggests that J.C. Penney’s start to 2013 was very poor with slumping sales and lack of customer response to Johnson’s makeover.
Additionally, Hannah said that tapping into the credit line will provide more than current funding needs but jcpenney will continue to look for additional ways to raise cash.
Critics of the move say jcpenney is desperate while supporters applaud new leadership for making preemptive steps to avert the type of panic that could lead to the loss of key vendors and suppliers.
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