Lessons from JC Penney

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Ron Johnson was fired from his position as CEO of JC
Penney
last week after sales under his leadership continued to freefall
(for my
earlier comments on Johnson’s efforts see: 
JC Penney Moves Away From Fake Pricing” and “The Pricing Paradox: to
Promote or Not to Promote, that Is the Question
”).    Johnson’s major misstep (he made others)
was ending JC Penney’s reliance on sales and coupons and turned to everyday low
pricing. 
  The result was a 25% drop in
retail sales in 2012 and a big drop in value for the company’s stock price
(down 57% in the same year).

Johnson was considered a brilliant strategist for his
success in running Apple’s retail division.
 
The J.C. Penney board was so enamored of his brilliance that they gave him free
reign to test his strategy in ALL STORES. 
In other words, he never test drove his revolutionary concept in a small
market to see if it worked.

Is Johnson’s failure a lesson in hubris; well, probably
yes; but there are other more important lessons than those of having an
oversized ego
and a worshipful board. 
Here they are:

  • Measure
    twice and then cut
    . “
    That piece of wisdom comes from good carpenters.  Obviously, JC Penney should have tested and
    tested more than once before taking such a bold step.
  • Know
    your consumer
    .
      Johnson
    and his board had to know that the average JC Penney shopper, older and far
    less tech savvy) was far different than the average Apple consumer.  To make a horrible pun, this was no apples to
    apples situation.
  • Understand
    why people shop. 
    Many
    people shop as a form of adventure and sport. 
    As I wrote in my earlier piece, “The Pricing Paradox,”  “discount
    hunting is a sport
    ; that according to Mark Ellwood who calls
    coupon hunters “mathletes with credit cards.” Maybe there is some “Haggle” gene
    in people that makes them want to feel that they are smarter than other
    shoppers?”  In other words, take away the
    sales and shopping becomes drudgery.

What’s
next for JC Penney?  Some predict that
the chain will be sold.  I hope that does
not happen as we need more and not fewer retailers.  We can all hope, however, that JC Penney and everyone else in retail learns from their mistakes. 

 

6 thoughts

  1. Great read. “Everyday low pricing” can read as, “Cheap”. And why eliminate the need for coupons and special promotions? That’s where the fun is — and the opportunity for customer engagement across all social media platforms.

  2. I agree it was probably too much, too fast and without caution but I still think it was a good approach if implemented without killing off its base of current customers. Lets not forget that it was not smooth sailing before Mr. Johnson took over. They needed to broaden the base and appeal to customers that appreciate quality over a voracious appetite for clearance pricing. Even with the short term blood letting and ultimate ouster it may have a long term improving effect if not totally abandoned. Honest, straight forward, quality are American values. At some point it became uncool to shop at K-Mart or Sears and then they joined forces. All they can do is hope for a protracted death. The people I talk to prefer Target over Walmart. People shop Walmart for low prices and they deliver but its not a loyal following and that could cause problems in the future. Some things have to be measured over time. It’s always been cool to shop at Nordstrom’s but that reputation was not won overnight. I think Mr. Johnson just tried to turn the ship too sharply and was then thrown overboard because someone’s head had to roll for the stock holders. Johnson is gone but his vision sails on. Square Deal, higher brow offerings… just with a return to sales.

  3. Richard:
    Xavier Gabaix and David Laibson, from MIT, wrote a paper entitled “Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets” back in 2005. In that paper, they discuss myopic and sophisticated consumers and how they interact with different pricing models.
    I suspect that neither the “brilliant” Mr. Johnson or the JCP board that was so enamored with the “brilliant” Mr. Johnson read that paper.
    I recommend that anyone that is thinking of trying JCP’s strategy read that paper first.
    It can be downloaded for free at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=728545
    Your friend,
    Jeff Bakalchuck

  4. Apple with its loyal consumers is anything but a low everyday price mass retailer.
    Perhaps those who controlled the recruiting drive that ended up with this appointment should have known better what motivates consumers to spend in the JC Penny real estate.

  5. Richard… as always, great insight and some solid & sound advice here! The calling card of his past relationship with Apple was really no accolade at all; considering that the Apple brand is notorious for its fiercely loyal consumers who would rather use an iPhone as a paperweight than stoop to using a PC-based device. My 20-year-old Grandson could have done just as admirable (if not far better) a job marketing Apple’s retail division. Johnson’s position at Apple was like having the only soft-drink & ice cream concession on a popular beach. Clearly he lacked the vision and past real retail experience (like dealing one-on-one w/customers) to handle the reigns of an enterprise the size & scope of JC Penney. I also agree with your sentiment and hope this was not a fatal blow to one of America’s landmark retailers. Hopefully they’ll be able to rebound and become a major retailer again. Measure twice; cut once… First rule in building anything!

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