“The problem with J.C. Penney is that it serves no compelling customer purpose,” says Roger Martin, Dean of the Rotman School of Management.
The firm reported disastrous Q4 results recently, with comp-store sales down 32%, following a similarly stark double digit drop in Q3. The firm also may have delayed payments to vendors, to improve its cash position at the time of the release. It has been shedding money and customers since the implementation of CEO Ron Johnson’s disastrous no-discounting policy, which has since been rescinded.
The transformation plan for the company focuses on improving the in-store experience and bringing in new brands and top designers to attract younger, more affluent customers. What the plan lacks, according to Martin, is an answer to the question, “What can this company do better than anyone else?”
Store-within-store has created high grossing islands in a sea of falling sales. Martin writes:
“For the approximately 90% of the store that isn’t the new J.C. Penney, the floor of sales/square foot hasn’t been a floor but rather quicksand …
Customers are likely to walk through the ‘old J.C. Penney’ part of the store thinking “this is pretty bland” and then get to the ‘new J.C. Penney’ part and think “wow, the rest of the store is really a lot worse than I thought.”
That is how sales per square foot in the ‘new J.C. Penney’ can be double the rest of the store and total store sales are down 30%. The tiny ‘new J.C. Penney’ part of the store is cannibalizing massive volumes of sales from the ‘old J.C. Penney’ part of the store for each customer who walks through the door.”
Johnson is betting that the higher sales in the store-in-store are being captured from JC Penney’s external competitors, but the evidence seems to be that they are actually being cannibalized from other parts of the same store.
Even if the strategy is correct, and it’s possible to reinvent JC Penney as an umbrella for prosperous mini-stores, the store is still facing problems with its Martha Stewart line, which was supposed to anchor a revamped home section. It has also been cutting jobs at its headquarters, which may be appropriate for a fast-shrinking company, but is undoubtedly creating chaos at the top.
What Martin highlights is a new take on the JC Penney problem: instead of trying to beat the old JC Penney, the company needs to figure out how to beat Macy’s and Target. According to Martin, the current strategy won’t do it.