J.C. Penney Too Much Too Late; Creating Retailing Revolution or Revulsion?
It may seem like a decade ago when J.C. Penney’s newly crowned wunderkind, CEO Ron Johnson announced several revolutionary, rather bold changes for the more than century-old retailer. Johnson officially began operations as corporate CEO in November 2011. Just three months later, on February 1, 2012 to be precise, the company announced a completely new pricing system among other proposed changes that caught retailing by surprise to say the least. This resulted in an anxious but respectful wait and see attitude among savvy retail stalwarts, competitors, brick and mortar retailers in general and of course the financial markets headed up by Wall Street analysts.
While the JCP plan going forth was to include a radical overhaul of store design and merchandising, the first forceful change consumers were likely to feel was that of pricing and promotion. Here Johnson stated that in the previous year JCP had promoted 590 sales events, often using coupons primarily issued through company mailings, newspaper ads and the Internet including third party websites.
Johnson’s new proposal was basically to do away with virtually all of these sales events and go to an essentially everyday low price policy termed, ‘fair and square’. This was expected to incorporate a consistent daily pricing structure which would reduce original prices of the past by an expected 40% or more. It was to be an everyday low price model which eliminated the need for coupons or for consumers to wait in line at 4 a.m. to grab great deals on limited supplies. Unlike Walmart, JCP’s EDLP structure was designed to give consumers the peace of mind that they were always receiving low prices without jumping through hoops or seeking the best coupons, as opposed to Walmart’s desire to undercut all competition on price.
Johnson’s new pricing policy though attempting to be straightforward had several of its own unique wrinkles. ‘Every Day’ prices were to serve as the new low price norm. ‘Monthly Value(s)’ denoted specially lowered prices designed to quickly move merchandise. ‘Best Price’ was a yet another category, regularly occurring and timed to customer’s shopping habits. This was to be an improved term for clearance. Unfortunately it had little meaning to customers and was quickly doomed.
In addition to any customer confusion brought on by the loss of traditional promotions, many wondered why an EDLP policy required categories called Monthly Values and Best Price. In fact, it was the massive customer confusion brought on by these terms pretty much planted the seeds for their eventual demise.
As good as these pricing ideas may have sounded, it seems that many long-time Penney’s customers were turned off and/or confused by the new straightforward policy. Sales quickly plummeted and continued to consistently decline throughout 2012. It appears that many shoppers receive excitement from the art of couponing and taking advantage of special store hours to bring home bargains. This seems especially true of Penney’s long-time traditional customers, including those most loyal to the retailer, whose roots date back to the turn of the last century.
Many retail insiders theorize that current JCP management was less than in love with the traditional customers they inherited. This theory states that as many of these customers were maturing, they were a less lucrative market than the more youthful groups that waited on JCP to make the right invitational moves.
Meanwhile Johnson’s other plans for change were initiated on the fast track as well. His redesign of JCP stores as ‘specialty department stores’ quickly went into production. His idea to introduce a system of ‘mini-shops’ came into being just a half year after he took the reins at JCP with the introduction of boutiques for jeans by Levi Strauss. Similar boutiques for products by Sephora, Liz Claiborne and Joe Fresh were on the way to rollout as well. Ultimately Johnson expects to see more than 100 different mini-shops in each location by the end of 2015.
Aisles were also being widened considerably, leading to a space designed for shoppers to lounge on sofas and chairs and browse on computers while enjoying a fresh cup of coffee or other refreshment. Essentially, JCP was to sport a radically different look with which to attract a new crowd of eager shoppers. A lot of the old Penney’s clutter was to be eliminated both in terms of product placement and pricing.
One thing no one can deny Johnson is that of his focus and ability to implement even radical new store designs and concepts with cutting edge speed. Unfortunately part of this speed comes from ignoring careful testing phases and the resultant tweaks and corrections testing suggests. These can be time consuming and costly but may prevent even more expensive customer turnoffs and losses, especially of long-term loyalists.
Lately it seems that the company is back peddling and sharply reversing its new policies, often while seemingly trying to avoid admitting errors of execution. This increasingly comes off as awkward and the awkward moments mount up. It seems the lesson of innovation through testing hasn’t sunk in. Rather than create and test a merchandising plan which focuses the company and the customer on the future, every week seems to bring new wrinkles in now almost year-old plans which only serve to further confuse customers about the company’s purpose and intentions.
Just contemplating a few of JCP’s reversals of policies and initiatives over the past nine months may bring on the impression that the corrections are about as stunning as the original ideas were bold. After just eight months on the job as President it was announced that Michael Francis was leaving the company, effective immediately. The new regime’s bold, introductory, failed advertising was blamed on Francis as Ron Johnson announced that advertising would become his own responsibility. Francis had been a colleague and friend of Johnson more than a decade prior, during their time at Target. When Francis was hired by JCP it was clearly due to Johnson reaching out to recreate the magic they enjoyed from their days at Target. Coinciding with the departure of Francis, the costly, iconic ad campaign featuring former Penney’s associate, Ellen DeGeneres, was scuttled.
A recent set of commercials compares current JCP prices with those of competing retailers. The message is vague and doesn’t detail brands. Not exactly an apples to apples comparison. This has been brought into question by both retail analysts and consumer bloggers. In fact several bloggers claiming to be long-time Penney’s customers have stated that the quality of JCP private label apparel has noticeably decreased since the company’s shift in price policy almost a year ago. Questionable comparisons are all the more obvious as Walmart’s recent commercials show direct comparisons between actual consumer register receipts with named competitors. It has to be assumed that after Johnson’s statements on the dismissal of Francis as his president, the responsibility of all aspects of company advertising rest with him.
On announcing tepid returns to promotional advertising and coupons, a JCP spokesperson recently commented, “Our return to sales in no way signifies a change to our pricing strategy, but rather an evolution of it”. Such a comment indicates a drastic lack of understanding of the concept of evolving. The return to traditional promotions was long resisted despite drastically falling sales and stock prices.
In April 2012, JCP announced plans to cut its workforce. By month’s end there was a layoff of nearly 13% of its headquarters staff in Dallas accompanied by the closing of a call center in Pittsburgh. Many managers, supervisors and long-time employees were let go. Store visits resulted in clear perceptions of drooping employee morale as often accompanies such drastic moves.
In February 2013, another round of layoffs was announced and was perhaps overdue, at least to management’s calculations. Word had gotten out that this round of layoffs had been delayed and that this delay was likely not due to trying to avoid the pain and yet additional pressures on employee (and ultimately customer) morale.
Earlier, it had been reported that the company would fire at least 10 percent of the 3,000 employees at its home office in Plano, Texas. This is a move that insiders are now calling the St. Valentine’s Day Massacre as it was originally scheduled for January, but the layoffs were pushed back as the company wanted to move the severance costs into this year. Apparently the past fiscal year was so disastrous that it was deemed more desirable to begin the current fiscal year on the negative note.
JCP brass has done its best to avoid issuing specific overall numbers for these cuts. Instead general references have indicated changes departmentally. The New York Post said the cuts will leave the company with less than half the headquarters workers it had when Johnson became CEO in late 2011. It is believed the total number of cuts for this round was less than the original prediction of around 300, however the cutting may continue for some time.
Indeed further cuts apparently were inevitable. Just two weeks later, an additional group of layoffs have indeed come down. Here the retailer dropped approximately 2,200 employees from its stores and district offices.
Had Ron Johnson chosen a course of evolution, rather than revolution to begin with, he could have prudently reduced the number of annual customer promotions and clarified the company’s merchandising positions, without alienating a significant part of his loyal customer base. He could have reinvented the look of his stores and implemented a new pricing strategy with a fresh product mix through proper consumer tests in select markets, over time. Evolution might have allowed him to maintain and reeducate his customer base while attracting new categories of consumers and maintaining acceptable financials.
Certainly a proper evolutionary approach could have avoided several pratfalls and allowed for a graceful change in company culture. Now Mr. Johnson’s personal fame is rivaling that of the JCP brand, at least among industry evaluators. That is simply not good. Currently there seem to be headlines and rumors breaking at least weekly about JCP’s fortunes or lack thereof. It is almost too much to follow and perhaps too late to correct the course of performance.
As if matters needed further complication, the decision of the Macys/Martha Stewart lawsuit may shakeup a key to Johnson’s future plans. In court, Macy’s Chairman, CEO and President Terry Lundgren has been strong in his disdain for the predatory actions of Ron Johnson and the less than upfront communications of Martha Stewart, with whom he partnered after her stint in prison. Until Ms. Stewart called him at the eleventh hour to her tell of her hoped for partnership with Ron Johnson, Lundgren considered her a true friend. He hasn’t spoken to her since that fateful phone conversation.
In court Johnson and Stewart have done a great deal of backtracking and explaining. The judge has already let it be known that one option may be to prevent JCP from offering any product originating from Martha Stewart’s realm. This could include items that don’t directly compete with Macy’s Martha Stewart line, even those under a unique or private label. This scenario would pretty much end Johnson’s dream of the Martha Stewart Shops at JCP.
The recent fiscal year-end financials for JCP were nothing short of disastrous. Total sales for the fiscal year, which included $163 million of sales in the 53rd week, decreased 24.8 percent to $12.985 billion. Comparable store sales, which exclude the 53rd week, declined 25.2 percent. Internet sales through jcp.com were $1.020 billion, decreasing 33.0 percent from last year.
For all the talk of the Johnson administration ending the era of coupons, two leading retailer beacons seem to be aiming in the opposite direction. Recently Walmart has been sending manufacturers’ coupons directly to customers via email. Now, Walmart’s website features pages of printable coupons. Recently the site offered a variety of nearly 250 coupons. At the same time red-hot, growth retailer Dollar Tree began promoting the acceptance of manufacturers’ coupons at its stores. It seems that some of Johnson’s revolutionary ideas may not be so iconic.
With even Wall Street partners shedding shares, JCP stock has further plunged even as the Dow reaches record heights. Many long-term company executives, both at corporate headquarters as well as those based across the country, have indicated dismay with Johnson’s operating style. To be sure Johnson has implemented a great deal of change in a relatively short period of time. However, losing the support of a significant segment of his executive core, as Wall Streeters waver, investors cringe and once-loyal shoppers lose interest, may mean there may not be much time left for Johnson’s regime. Even former company Chairman and CEO Allen Questrom has now joined the ranks of those calling for Johnson to be replaced.
Johnson’s original timeline to overhaul JCP was five years. The recent holiday quarter and year-end financials have shaken the confidence of both analysts and investors. The rumor mill which Johnson seems to enjoy not quashing continues to churn. What further changes are imminent? What recent changes will be cancelled?
As more victims fall from corporate firings employee morale can only suffer. This will only serve to further disenchant an increasingly confused and less loyal shopping public. Considering the current and potential damages accruing from the Macy’s trial, even before any judgment comes down, predictions are beginning to emerge as to just how much longer Johnson has to right the ship.
Less than a month ago, most experts thought that Johnson’s job was not in imminent danger. Now rumors have begun surfacing that there is a limit to Penney’s corporate patience. Most of these give Johnson less than a year to turn things around and that timeframe seems to be shrinking. These are rumors that John must take seriously.