A brand takes a long time to build, but a short time to destroy – the JC Penney melt down. Management lessons to be learned from a failed CEO who never studied the JC Penney customer and culture.
JC Penney has long been known as the retailer where middle class Gran Ma’s and cost conscious coupon clipping Mom’s shopped for discounts, frequent sales, and poured over the clearance racks. As sales declined from $19.9 Billion in 2006 to $17.2 Billion in 2011, taking the share prices down along the way, the Board decided they needed to do something about it.
Thus began the scenario that destroyed a 109 year old brand already struggling to survive in a declining industry.
The solution was to hire Ron Johnson, an experienced executive responsible for the wildly successful Apple i Stores. In discussions with the Board Johnson was able to convince them that he had a vision to remake JC Penney and rebrand the logo into a more modern, upscale, youth-oriented retailer, even though similar strategies had not worked with their competitors. He compared his plan (?) to that of a “start-up”. In effect, his plan was to Appl-ize Penney.
Besides, who ever heard of a start-up with 1,100 stores and 159,000 employees?
Question: How can you have a start-up for an aging company with a deeply ingrained culture with a relatively loyal customer base looking forward to and enjoying the existing “shopping experience” at Penney’s?
Answer: You can’t alienate your existing customers before you even attract new ones who may not be interested in your value proposition.
Johnson’s target market was the daughters of the Moms and grand- daughters of the existing customer base. Obviously, unbeknownst to him the JC Penney brand was not on their radar screen and they were happy shopping at Bloomingdale’s, Saks, Nordstrom’s, and a variety of other outlets that had already established a position in the minds of these young hip fashion conscious shoppers.
What not to do !
Everything that Johnson did, like:
- Eliminate sales and promotions – the heart of the JC Penney culture.
- No more clearance racks – what, where did they go?
- Eliminate the “house brands” that key customers segments loved.
- Got rid of the JC Penney logo – now JCP (what’s that?).
- Discard the familiar other symbols of the “stodgy old Penney”.
- Carve the old department store into separate boutiques – for who? Penney spent $120 Million alone just to build Lev’s boutiques.
- Eliminate the cash registers and replace them with hand-held devices that employees were unfamiliar with and customers did not trust.
- Have the sales staff dress up in the styles being promoted – problem: they looked like the customers – who is who?
Johnson, in typical corporate fashion, hired a star-studded new team of very expensive players from Target, Apple, and apparel maker Kellwood. He spent $24 million in cash signing bonuses as well as millions of stock options. Another tell-tale sign was that these new executives did not move to company headquarters in Plano, Texas, but jetted in every week and stayed at the posh expensive Ritz-Carlton. Johnson did not move either!
In addition, he hired Ellen DeGeneres to be the new spokesperson for the company. This backfired too as the middle America customers (One Million Moms Group) objected to her and threatened a boycott.
A variety of other mistakes
At a $3 Million company party Johnson announced a $900 Million cost cutting campaign which included eliminating employees. As a result 19,000 employees lost their jobs.
He applied another Apple strategy that bombed by having the JCP.com buying group located in Silicon Valley and the stores buying group in Plano. The lack of coordination between the two groups caused dotcom sales to plummet 37%. This decision cost $500 Million. Many wondered how a former tech company executive could make such a mistake?
In another embarrassing faux pas was Johnson’s change in Penney’s exchange policy. He allowed customers to return merchandise without a receipt and receive cash. Savvy shoppers took items off the shelves and took them to the registers, and traded them in for cash.
Johnson’s 6 P’s
Lecturing his team Johnson said that there were 6 P’s driving his plan – personality, promotion, price, presentation, place, and product. Kind of an extension of the 4 P’s of marketing I guess.
However, one major P that is missing is people?
There are many lessons to be learned here if anyone is interested.
Probably the biggest of all is where was the Board while all this was happening?
The results were obvious every quarter culminating in revenues for 2012 falling by $4.3 Billion with same store sales down 25%, resulting in a whopping loss of $1 Billion.
The stock lost half its value in a year dropping to $18 a share while the rest of the stock market surged.
Worst of all cash declined from $1.5 Billion to $930 Million, another obvious indicator that apparently no one was paying attention to, either.
Where is the CEO ?
In the middle of it all near the end Johnson took a family vacation to the south of France. C’est La Vie !
Who cares about the shareholders, the employees, and the customers?