Kohl's Could Boost JCPenney

JCPenney's proposed acquisition of Kohl's could lift the ailing retailer up, but it may not help it rise again.

There was a time when JCPenney was a popular destination for America's middle-class shoppers, who flocked to the store to buy quality merchandise at bargain prices—often hyped by coupon discounts. But this business model changed when Ron Johnson assumed the helm of the company and modeled stores after those of Apple. As a result, JCPenney eliminated coupon discounts and changed product lines to cater to up-scale consumers rather than the middle-class consumer.

That was a big strategic mistake as Apple and JCPenney are different businesses with different products and clientele. For instance, Apple has a strong brand and a loyal clientele that doesn’t need coupon discounts to boost traffic to its stores. Thus came the subsequent decline in JCPenney's sales after the company eliminated coupon discounts.

Soon Ron Johnson was gone, and a new leadership tried to correct the mistake. They brought back old-fashioned pricing strategy and merchandise. But it was too little too late to turn things around.

The rest is history. The iconic brand entered a period of prolonged decline and was purchased by Simon Property Group and Brookfield Asset Management, hoping to revive it with the acquisition of Kohl's.

Will it work? Ethan Chernofsky, VP of Marketing at Placer.ai, thinks Kohl's inherent strengths and partnerships could help lift JCPenney.

"There is a tendency when viewing short-term challenges to forget the underlying strength that led a retailer to achieve a certain level of status and strength," he says. "Beyond the effects that the wider apparel sector saw as a result of the pandemic, Kohl's is part of a department store segment that was especially impacted by the shifts caused by the pandemic. Yet, these short-term struggles don't undermine some significant and inherent strengths."

Meanwhile, Kohl's has developed strategic partnerships like the partnership with Sephora with an extensive suburban presence, which could help JCPenney expand its customer reach. "As apparel rebounds more widely, the brand's value orientation is put on a greater pedestal, and the partnership model Kohl's leveraged with Sephora is utilized more broadly, there is a real reason to expect a rapid and significant rebound for the retailer," he adds.

Gregory Ng, CEO of Brooks Bell, sees the acquisition as a positive development too, at least in the short run.

"While JCPenney and Kohl's are technically both an 'aging brand,' Kohl's made a switch early enough to remain relevant and has positioned itself between the affordable Walmart and trendy Target for consumers," he says. "If Simon Property and Brookfield Asset Management hope to make this acquisition successful, its best bet is to keep the Kohl's brand intact. Kohl's has a solid following thanks to its loyalty programs like Kohl's Cash and other initiatives that increase their store traffic, such as its partnership with Amazon."

Still, Ng isn't that optimistic about the long run. "While I'm encouraged by the 'test and measure' approach of the retailer's new CEO Marc Rosen, I believe it's too little and too late for JCPenney to make a significant comeback, and the brand will likely find a similar fate to Sears in the long-run."

Only time can tell for sure whether that could be the case.