Ron Johnson, CEO of J.C. Penney, is facing criticism for the chain’s new retail strategies. Johnson, former VP Retail for Apple, was expected to turn the company around using the same innovation and panache led Apple to defy analysts’ expectations for its retail unit. Sales numbers tell a different story, as same store revenue has fallen 19% since Johnson took over, and margins and store traffic are way down.
The centerpiece of his plan was a dramatic perpetual discounting program that eliminated sales and specials. The Wal Mart-esque plan was based on the notion that savvy consumers were no longer enticed by sales, and foot traffic would rise if consumers knew they were getting everyday values. Johnson also rolled out discount designer lines and trimmed product offerings, in a nod to H&M and Target.
Optimistic assumptions by analysts that Johnson could bring his Apple mojo to J.C. Penney failed to note major differences between the two companies. It’s no surprise that Johnson is struggling, given his different operating environment. Apple has unique branded products with near-infinite public demand. It also has bottomless cash and excellent retail locations. It sells a limited range of products targeting a specific shopper.
Penney’s lacks a clear brand identity and offers unpopular products that appeal to an aging middle class. They are not upscale enough to attract the wealthy, or cheap enough to pull in low-income shoppers. Unfortunately, the middle class is dwindling, and Penney’s is not positioned to succeed in a polarized retail environment.
Facing these trends, Johnson deployed borrowed strategies and failed to capture consumer interest. His changes have actually caused revenues and foot traffic to fall, as other retailers have begun recovering from the recession. Penney’s is also burdened with legacy real estate – potentially valuable if sold, but often in locations that more contemporary retailers would bypass.
Johnson hired Target veteran Michael Francis as president and put him in charge of implementing the turnaround strategy. Francis departed from the company in mid-June as his efforts faltered and Johnson will now be handling marketing on a long-term basis. This has prompted a stock price jump. It’s unclear what having Johnson in charge will do to change things, but stockholders appear to be betting once again on his skills as a retail innovator. If the company can’t figure out how to sell desirable products to a robust demographic, Johnson will now be taking the blame.