Since the departure of JCPenney CEO Ron Johnson, analysts and commentators have been quick to post-mortem his ideas and programs.
In case you’ve been living under a rock since November 2011, Johnson’s signature idea was to reinvent the century old retailer by making it, well, more like a Target or an Apple store. He was going to change the layout, bringing in small specialty stores organized around a central “town square.” He was also going to streamline operations by cutting unnecessary staff, getting mobile purchase points (iPads) in the hands of employees, and, critically, eliminating the many discounts that he believed were condescending to customers and expensive to maintain. His plans to “clear the air,” and make JCPenney “fair and square,” failed on a scale rarely seen in retail.
Here’s Sourcing Journal’s autopsy of his worst and best moves:
Royal Screw-Ups
1. Johnson doesn’t like or understand people who shop at JC Penney
All his changes to the retail store – eliminating discounts, de-cluttering, bringing in top designers and shops – are loved by young people with a lot of disposable income. Unfortunately, JCPenney is a discount store for older lower and middle class shoppers. Johnson always seemed baffled and a little annoyed with that. When his no-discounts strategy was confusing to customers, he didn’t change it, he said they needed to be “educated.”
2. Nobody likes paying full price for anything
Apple customers only pay full price because there’s no other place to buy their products. Target, Johnson’s other retail adventure before hitting JCP, has near-constant discounting. When regular discounting was invented, it actually solved two problems. One, which Johnson understood, was the elimination of extra inventory (he kept clearance sales, but didn’t use the words “clearance” or “sale”). The other was keeping shoppers interested, in a landscape where they already have too much of a bunch of similar products. Eliminate discounts, eliminate customer interest. Lesson learned.
3. Change can alienate people – so can arrogance
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This goes back to Johnson not understanding his core customer. There’s a basic principle in management that Johnson misapplied, which is that you have to “delight” your customer. A strategy built around delighting the customer can’t fail, because people shop (partly) to be entertained. The quick changes Johnson made confused his customers and made them feel unwelcome. That’s because he was designing for the customer he wanted, not the customer her had.
4. JCPenney does not have a single “must-have” product
Customers will tolerate inconvenience, confusion, long lines, high prices, meteorites and riots to get a new iPhone. They’ll even tolerate an iPhone that doesn’t work that well, as the Apple maps debacle showed us. JCPenney does not have a single product that is in any way comparable to an iPhone. They sell a fine product, but a sheet is a sheet is a sheet. Even an Egyptian cotton Martha Stewart sheet isn’t unique enough to make customers work as hard as Johnson’s plan demanded.
5. A nice JCPenney feels like a facsimile of a fancy store
A store that sells a $37 sport coat is really unlikely to attract the kind of people who demand a fancy shopping experience. It’s simply impossible to get enough quality into an item at the price points JCPenney uses to attract an upscale consumer. As a result, the new JCPenney’s feels less like a fancy store and more like a low-rent store with some fancy elements.
6. Rebranding is not the same thing as reinventing
Johnson brought slick design to JCPenney. This is good! The logo was tired, the slogan was tired, the look was tired, and the store designs were tired. But rebranding a store is about changing its image and reinventing a store is about changing its essence. As Johnson proved, reinvention is much harder.
Total Victories
1. Tackled the demographic challenge of the discounters
Fact: middle class and lower class customers are disappearing. The tide of history is against them. The economy is being polarized into the Macy’s and Dollar Generals of the world, where upper income shoppers and lower income shoppers don’t ever meet in the middle. Unfortunately, legacy discounters like JCPenney came up in a time when the gap between the haves and have nots was a lot smaller, so it was possible to simply sell both groups different quantities of the same basic stuff. As that cadre ages and loses buying power, legacy retailers are being forced to go high or go low. Johnson boldly tackled this problem by aiming high.
2. RFID, Mobile POS, tech, tech, tech
Maybe because of his background in tech, Johnson was quick to deploy these solutions. He was one of the first to put RFID on the retail floor and to deploy RFID total inventory tracking. Tighter inventory management is actually one of the reasons why JCPenney didn’t bleed out in 2012. iPhone purchase points on the retail floor was a little more ambitious, but they have it at REI, so it’s probably the wave of the future. He also juiced up transparency, so floor workers could really help customers get what they wanted.
3. Up-staffing on the retail floor
Confusion about coupons aside, the in-store experience at a JCPenney is the best its been in my lifetime. He put more bodies on the floor and gave them more tools and training. Gone are the days of wandering through fluorescent-green aisles trying to get a price check.
4. Getting creative on the back end
Johnson has been rightly criticized for firing a lot of people and not talking about it, but overhead is just dead weight at a shrinking company. He chopped jobs at the top to bring administrative staffing in line with falling volume. It’s not good for Plano, Texas, but it’s good for JCPenney.
5. Keeping the real estate
Sears Holdings has been criticized for being a real estate venture with a retail arm in recognition of the fact that the company’s legacy holdings are probably worth a lot more than the Sears name. They’ve sold and leased a lot of properties to raise money to finance their turnaround, including spinning off whole divisions. Johnson could’ve gone down this road but didn’t. The company’s real estate is its most valuable asset by far, and if Johnson had started selling in a somewhat soft commercial property market he would’ve cost the company a lot of money down the road. He got rid of a few things, but he mostly planned to finance the turnaround with revenues, cash on hand, and credit. Good move, Johnson.
Wrap up: Johnson made a lot of mistakes (test markets, anyone?), but he made bold moves and broke the mold of JCPenney’s “pathetic” corporate culture (so called by COO Michael Cramer). Former CEO Mike Ullman has been brought in to hold down the fort while the firm transitions away from Johnson’s worst policies, but let’s hope they don’t throw the baby out with the bathwater.