A Letter of Admission and An Act Of Admonition From JC Penney
This past weekend a rather large card arrived in the mail. At a glance its contents offered a most significant message with the same efficient impact of a picture post card providing a glimpse inside a vacationer’s joy at an exotic locale.
However in this case any recipient with an interest in retailing could not help but interpret the contents of the 11”x6” post, as an admission of recent errors and a major correction in course for its sender, JC Penney. The only element missing to formalize a true admission was a signature, in this case that of CEO, Ron Johnson.
About a third of the card was a tear-off coupon boldly stating, $10 OFF and going on to clarify with the words, ‘your purchase of $50 or more’. The promotion was limited to the days between Tuesday, April 2 and Sunday April 7. Perhaps the company wanted to avoid any implication of an April Fools prank and so the event commenced on a Tuesday.
Just over a year ago, then newly crowned CEO, Ron Johnson announced essentially the rebirth of the more than a century-old retailer with detailed, radically new merchandising policies which were to do away with the nearly six hundred promotions of the previous year. Coupons were out as a relic of the past. Events based on crazy store hours were also to be done away with. This was strongly promoted in a series of highly visible ads, including ‘arty’ commercials featuring former company associate Ellen DeGeneres. The new corporate mantra was to be, everyday low pricing.
Much to corporate’s surprise, many traditional, even long-term customers stayed away in droves. Some, who remained loyal, began to blog of a sharply perceived loss of quality in private label apparel which accompanied the newly arrived everyday lower prices.
Worse, quarterly financials consistently reflected the sharp negative reactions to the new policies at JCP. By year’s end, after a disastrous, all-important holiday season, corporate numbers were stunning. Total sales for the fiscal year decreased 24.8 percent to $12.985 billion. Comparable store sales declined 25.2 percent. Even Internet sales had decreased 33.0 percent from the previous year.
Compounding the situation, by year’s end, JC Penney stock had lost more than half its value from the time Johnson’s policies began to be implemented. Since the recent New Year, the stock’s value has declined an additional twenty five percent.
These numbers have heightened edgy concerns from Wall Street and have created strong tensions among members of the JCP board. They have also spawned a series of awkward denials to calls for a return to the merchandising policies of the past. These denials have often been couched in words vaguely refuting JCP’s recent overall failures and terming seeming reversals of Johnson’s policies as evolution. Through its current mass-mailing of coupons, it seems that the company is quietly admitting to a return to its longtime, promotion-based merchandising policy, even if in a manner that continues to reflect a tone of refusal to admit failure.
Now comes the accompanying news from JC Penney’s board of directors, that CEO, Ron Johnson, is having his pay cut by 97 percent for 2012. In addition, company senior executives are being denied their annual cash bonuses for 2012. Though the previously stated numbers would seem to easily justify such normally drastic moves, such corporate punishment does not always accompany notably poor performance.
Recently, despite abject corporate failures which ultimately led to the sale of its retailing operations, Supervalu’s top executives were treated to eye-opening financial spoils despite companywide pronouncements of austerity, steep budget cuts and employee layoffs which included many long-time loyalists. Despite cutbacks in minimal employee perks, when the CEO was relieved of his duties, he left with an enviable financial package. His short term replacement was again extremely well compensated when he oversaw the sale of the company’s retail operations.
Golden parachutes are often dangled to temper unacceptable corporate results. Several years ago after a heated annual shareholders meeting at Home Depot, then CEO Robert Nardelli was eventually sent packing. One aspect which increased the tension at the meeting was the more than $120 million golden parachute Nardelli was to receive if indeed he was forced to depart. Ultimately, despite the shareholder’s intense fury, as Nardelli was relieved of his duties, he relieved the company coffers of those many millions.
Currently there is a great deal of speculation as to Ron Johnson’s future with JC Penney. Though many of his ideas for change, both in merchandising as well as in store design, were considered as perhaps future industry-wide game changers, his refusal to test radical change while turning a deaf ear to the cries of loyal, long-time customers, despite timely admonitions from JCP board members and executives, may hasten his departure. Don’t feel too sorry for his financial plight. Even after his severely reduced annual financial package he is still set to receive nearly $2 million for the year.