Lessons from Penney’s and Ron Johnson's 1 Billion Dollar Mistake

How to make a gigantic mess in 17 months will be Ron Johnson’s legacy. Or, maybe a new Harvard case study on “how to generate losses of almost $1 billion in only 5 quarters?”

What Ron did in such a short period is hubris at its best, and the Board went along with it!


Obviously, he did not study the culture of the Penney’s customer. Ron actually said that, “customers don’t know what they want.” That may be true in the market for evolving neat electronic gadgets where the customers are innovators and early adopters anxiously awaiting the next cool innovation. However, the Penney’s customer base was made up of mature bargain seeking coupon cutters interested in deep discounts on more mundane products like clothing and household goods.

Lesson: You can’t sell clothes like you sell iPhones, iPads, and iMacs.

I don’t think Johnson ever went to a large Penney’s store to witness the disaster he was implementing. Otherwise he would have witnessed the mass exodus of customers to his competitors. His elimination of discounts, without a second thought apparently, violated the fundamental rule of retailing where retailers exist to cherish, reward, and coddle every customer with frequent sales, loyalty programs, coupons, and deep discounting, in a highly competitive market.

Lesson: Marketing is about “perception”

Changing the dynamics of the everyday shopping experience in one fell swoop in retailing is “deadly”. Going to a one-price sale concept of $12 or $15 may make simpler sense, but in a market where customers are acclimated to $11.99 or $14.99, or less with a coupon, it translates to “more expensive”.

In combination with changing the store layout, adding boutiques, and more upscale designer clothing, the traditional familiar Penney’s shopping experience was altered dramatically almost overnight.

Lesson: A desk is a dangerous place to view the world

To gauge the reaction all Ron Johnson would have had to do was visit the local Penney’s store in my community. It is located in one of the largest shopping malls in the country directly across from an Apple store (Johnson’s creation). On any busy shopping day the large JC Penney store in the mall is almost empty, but the Apple store is jammed with a line of customers waiting to get in. Apple customers actually walk through the Penney’s store to get to the Apple store.

That one day experience would have been an eye-opener for Ron.


Lesson: Brands exist in the mind

Johnson’s vision was to lure younger more “hip” consumers into the new Penney’s with his reconfigured store layout and one-price strategy. Apparently unbeknownst to him these style conscious shoppers were already happy with Bloomingdale’s, Saks, Nordstrom’s, and other specialty stores. Their perception of Penney’s was a place where Mom and Grandma shop for bargains.

The mind is a like a dripping sponge, the only way a new brand gets in is by displacing one that already exists. The process to make this happen is a long expensive investment of time, money, and effective marketing strategy. Brand identity takes a long time to build and a short time to destroy as is evidenced by what has just happened with JC Penney.

Savvy retail experts have concluded that Penney’s fired their old customers before they hired new ones.

My take on it is that the traditional Penney’s customers were looking to save pennies on what they want, not spend dollars on something new, and have deserted Penney’s for competitive retailers offering their old familiar shopping experience.

Marketing is a simple concept - it’s about the customer.


Robert M. Donnelly is the author of: Guidebook to Planning - A Common Sense Approach, an educator: Professor of Entrepreneurship & Innovation at Saint Peter's University, and a brand builder and marketing expert. His new book: Personal Brand Planning for life is a guide for anyone w...

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