Anybody catch JCPenney’s new commercial asking you to “come back?”
If you are reading this blog from anywhere in the continental US the chances are good that your closest department store is a JCPenney. I’m also going to make the assumption that if you are reading these words you also have some sense of Apple products. The products and stores of both of these brands have as much in common as an apple and a penny.
About eighteen months ago with great fanfare, JCP hired Ron Johnson, the former guru of Apple’s retail stores, as the new JCP CEO to direct the venerable retailer on a new, modern path. This was at the urging of a JCP board member, hedge fund manager, Bill Ackman. While I would wager Mr. Ackman is a pretty smart guy, I would say that in this case neither he nor Mr. Johnson did his homework.
The first thing task of any job candidate (or change agent) is to visit the environment and learn all s/he can about the target customer. In Mr. Johnson’s case it’s fine to come from a point of view, such as his great success at Apple and its futuristic retail model of glass and “genius bars” showcasing a handful of products, but did he spend any time shopping in his local mall-based JCP?
JCPenney is as old-school a retailer (111 years-old) as they come: a national retail chain with big stores in locations that were built when indoor malls revolutionized leisure time for Americans. I’m talking about the “Big Bang” 1960’s and 70’s before retailers began gobbling each other up. I challenge any Nappers reading this blog to tally up the number of local retail chains from your “Wonder Years.” I’ll give you a few to jog your memory: Stern’s, Hahne’s, Bradlees, Caldor, Jamesway, Gold Circle, Lazarus, Rich’s, The Bon Marche, Gimbel’s, Abraham&Straus, Two Guys. Like another local employer, the high school cafeteria perhaps, the folks who worked in these stores were the parents of your friends (or maybe you had a part-time job yourself). Whole families shopped there for everything: clothing, shoes, soft home goods, even furniture. And then you could get a haircut in the beauty salon before getting your family portrait taken! There was something sweet and non-ironic about it. In the JCP of my youth, there was even a little coffee shoppe.
If you visit your local JCP today you might notice that the big footprint of the store is little changed. Mr. Johnson’s ambitious goal was to carve up the selling floor into multiple “stores within a store” – more of a boutique approach. What he failed to realize was that moms with strollers and elders who have to make every step count don’t want to troll from “store” to “store” to find what they need. (That’s why they came to a DEPARTMENT store in the first place.) They want to find the color/size of their choice right there in a stack or hanger they can reach without a pole. Or a friendly sales associate to help them get what they need and get on their way.
In his effort to streamline product assortments Johnson and his new team eliminated brands that had generated huge volume for the chain, but no longer fit this new paradigm. Customers used to seeing these familiar labels became confused and frustrated that they were no longer available and ultimately walked out of the store. Tied to this confusion over product was a new strategy to stop promoting with deep discounts and sales by adopting a “Fair & Square” pricing strategy. Unfortunately, this customer has been trained to believe that only a fool would pay the ticketed price; “I’ll just wait until it goes on sale next week.” All these conditions created a “perfect storm” of lost sales to the tune of over $4 Billion, and a -55% drop in JCP stock.
So what makes this business tale compelling blog fodder? Because you don’t need an MBA or fancy hedge fund pedigree to see the difference between an Apple and a Penney. I’m not belittling the job of a retail chain CEO when I say this. You need a broad skill set and the ability to see both short and long-term consequences. You have to take some heat and at times apply some in ways that keeps the operation moving but doesn’t burn it out. But it sounds to me like both Mr. Johnson and Mr. Ackman thought this was going to be an easy “A.” For some reason they didn’t factor in the locations of these stores, the cost of renovating them, or the reasons people chose to shop there. Mr. Johnson recently left the firm and the CEO he replaced, Myron “Mike” Ullman, has returned.
I like JCPenney, and I tried shopping there over the past year. The inserts in my Sunday paper were bright and cheery, but when I went to the store I had a hard time finding those products. Or I could find them, but not in the size I needed. And the only sales associates I could see were at the register doing the best they could to tame a line of folks waiting for check-out. I wish the management of JCP all the best, but hubris, or taking your customer for granted, is not a successful business strategy. So when you say you want us to come back, be ready to show us that you’ve done your homework.