For retailers, doing everything right is no longer enough.
Over the past year, J.C. Penney rolled out a powerful new marketing campaign filled with heartstring-tugging commercials, it introduced a clothing and home decor line from Ralph Lauren, and it opened 50 stores.
But consumers are not biting. Yesterday, J.C. Penney cut its earnings forecast for the first three months of the year by 33 percent, blaming the tough economy.
That fresh sign of distress in American retailing was reinforced by a report from the Commerce Department saying that consumer spending remained stagnant in February, growing at the slowest pace in more than a year because of the housing slump and a weak job market.
The dour economic data helped push all three major stock indexes down. The Dow Jones industrial average slipped 86.06 points to 12,216.40. The Standard & Poor's 500-stock index fell 10.54 points to 1,315.22. The Nasdaq composite index dropped 19.65 points to 2,261.18.
The slowdown at J.C. Penney bodes poorly for a wide range of retailers – and its profit warning appeared to drag down shares of Nordstrom (off 6 percent), Macy's (6 percent) and Kohl's (5 percent).
If Penney, a midprice chain shopped by middle America, is feeling the pinch of tightening wallets, investors reasoned, so will the rest of the retail industry.
“This is what a recession looks like,” said Adrianne Shapira, a retail analyst at Goldman Sachs. “We are bumping along the bottom.”
The revised profit estimate from Penney was striking because after a decline starting last summer when the housing crisis began, its stock began to recover as consumers responded positively to new merchandise from designers such as Lauren.
His new product line, introduced in February to rave reviews, features immaculate displays, with whitewashed picket-fence walls and fake hydrangea in metal pails, and piles of polo shirts, floral bedsheets and paisley neckties.
“It's designed by the greatest American designer and being sold at the best American department store,” Ken C. Hicks, president of J.C. Penney, said in a recent interview.
The Lauren line was the latest chapter in J.C. Penney's remarkable turnaround over the past decade. The chain lost more than $900 million in 2003 and was nearly written off by Wall Street – and by middle America.
Since then, J.C. Penney has become a force in fashion. New in-store brands, such as A.N.A. and East5th, are considered as stylish as anything at Macy's. And it has attracted big-name outside brands, such as Liz Claiborne for women's clothing and Sephora in the cosmetics department.
Last year, under the direction of Chief Executive Myron E. Ullman III, who once ran the luxury conglomerate LVMH Moet Hennessy Louis Vuitton as well as Macy's, the company earned more than $1 billion.
“It's clearly no longer your grandmother's J.C. Penney,” said Shapira, of Goldman Sachs.
But the decline in consumer spending that began during the holiday season in 2007 only intensified during the first several months of 2008, and it has not spared J.C. Penney, a chain known for catering to lower-and middle-income consumers.
The chain said its first-quarter earnings would likely be 50 cents a share, compared with an earlier forecast of 75 cents to 80 cents a share. It estimates sales at stores open at least a year, a crucial yardstick in retailing, will fall by at least 10 percent in March.
