Why JC Penney's $1.97 Pants Could Spoil Christmas

This is source I found from another site, main source you can find in last paragraph

"The company has focused on bringing back what I would call its 'stack 'em high and watch 'em fly' strategy in basics," said Trussell, referring to core items such as polo shirts and basic bedding.

Sozzi said that, at such markdowns, even if Penney's merchandise looks just "OK," Target and Kohl's risk losing sales. The latter is at higher risk because Penney's, with its Sephora shop-in-shops, has better beauty offerings and a better accessories department, he added.

Last week, Kohl's reported a 1.6 percent decline in same-store sales in the third quarter and provided a weak holiday forecast.

(Read more: Wal-Mart ups the Black Friday ante again)

In a research note, Morgan Stanley analyst Kimberly Greenberger attributed Kohl's dampened outlook to the competitive environment, specifically citing the fact that Penney's is regaining market share faster than expected.

"I think the wake-up call was when Kohl's reported last week and the stock got hit," Sozzi said. "I think they're going to be the ultimate loser of J.C. Penney trying to beat out Macy's for the holiday."

Trussell said Kohl's is especially vulnerable because its promotional strategy and product are similar to Penney's.

He named Bon-Ton Stores, Walmart, Gap's Old Navy and Sears as stores that could be affected by Penney's markdowns, though he added that it remains to be seen whether they will give back any of the share they stole from the retailer in the rebranding's aftermath.

"I think that they will certainly be more of a threat than what we saw last year," Trussell said. "Penney's was clearly a market-share donor a year ago, and they are out to fight to grab some of that share back this year."

Only part of the equation

Despite Penney's drastic discounts, analysts remain bullish on Macy's and TJX, both of which have posted strong third-quarter sales results in the past week.

In a research note, Stifel Nicolaus analyst Richard Jaffe said Macy's 3.5 percent gain in same-store sales bodes well for the holiday season.

Trussell sounded a similar note, saying Macy's shouldn't see a sales hit related to Penney's because it has a better brand offering, including Rachel Rachel Roy, Michael Kors and Sean John.

(Read more: Macy's reverses lackluster quarter)

Analysts were also quick to point out that J.C. Penney needs extra volume to turn a profit.

In October, the retailer announced its best monthly same-store sales result since December 2011, but the 0.9 percent rise came among a merchandise margin of 29 percent to 31 percent. The typical range for a department store is 37 to 39 percent, Sozzi said, which means that more people will need to come through the doors both during and outside of the holiday season.

"In off-peak periods no one is going to J.C. Penney—despite the markdowns," he said. "Traffic should be up if you're giving the store away."

—By CNBC's Krystina Gustafson. CNBC's Courtney Reagan contributed to this report.

This is source I found from another site, main source you can find in last paragraph

Source : https://www.cnbc.com/2013/11/20/jc-penneys-deep-discounts-could-spoil-christmas-for-other-retailers.html



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