Flipping the Coin

Last August in this space, I discussed the troubling sales trends and tumbling earnings from iconic retailer J.C. Penney, mentioning that the growing pains associated with implementing CEO Ron Johnson’s ambitious brand overhaul might have been a case of “too much too soon.” Given that Ron Johnson is now ex-CEO, it’s clear that those growing pains were too much to overcome.

Johnson’s critics have comprehensively chronicled his mistakes, but I genuinely feel like many (or even most) of the post-mortems I’ve read paint the story as a little too black and white. While I’ve criticized his efforts myself, the story of JC Penney over the last year and a half is a little more nuanced than many have made it out to be. Johnson had big goals during his 17-month stint as CEO, and while he was not wholly successful, he did make some progress. When we think about where JC Penney goes from here, I do think that a useful and possibly instructive first step is too look a little closer at that mixed track record: to break down what went wrong, but also to appreciate what went right.

The bad
Johnson clearly made some important strategic errors. One miscalculation was the move to one-sized pricing/fixed pricing, which was both a psychological and structural mistake. Consumers are very value focused, and successfully tapping into that impulse is not just about low pricing, it’s about sales. In most cases, shoppers react much more positively to a percentage price cut then they do to an everyday low price. The one-price-fits-all model won’t really work unless you’ve got something that is both unique and desirable. Apple can pull that off. J.C. Penney cannot.

Another problem was the marketing of a “New Penney.” They didn’t do a good enough job getting the message out and communicating the changes, and consumers hadn’t absorbed the message. Part of that goes back to the “too much too soon” problem I mentioned in the opening: not all of the planned and advertised changes were even in place nationwide when announced. While some of the disconnect was marketing, some of it was also an experiential letdown; you can’t wait until every store has all the new brands and changes integrated, but customers inevitably ended up disappointed. And people don’t come back for a long time, if ever, when that happens.

I also think there were a few swings and misses with the push for new brands. Bringing in Martha Stewart was a mistake in the sense that the brand (while still fairly popular) is a little tired and not much of a differentiator any more. That error was compounded by the fact that it resulted in a drawn-out legal battle that took up a great deal of time and energy and, I suspect, took JC Penney’s eye off the ball for some of its larger-picture projects.

The good
While there were a few head-scratchers, there were also definite positives that came out of the Johnson regime. Perhaps most prominent of those, to my mind, is the push to revamp (or at least refresh) the retail product categories and concepts by introducing trend-forward brands and chic new names. Names like Giggle for children’s clothing, Sephora cosmetics and Buffalo Jeans are all hip and welcome new additions to a retailer that had definitely lost some of its edge. Creating these stores-within-stores has proven itself a great way to introduce brands to new markets where they would be unlikely to establish a brick-and-mortar presence — offering customers access to products they wouldn’t have otherwise.

The planned new store designs were also different in a good way: a higher-tech brick and mortar experience, with a more “mall-like” feel. The addition of experiential elements to keep people there longer and giving them a better experience (components like a coffee bar, for example) also makes sense. Bringing in more amenities and mixing in a few more higher-end brands are not new exactly revolutionary concepts, but they are winners for the brand.
The future
While there are still too many uncertainties to define exactly where J.C. Penney goes from here, there are a few key things we need to watch carefully. Maybe the most important of these is whether the deals with these trendier brands are set in stone — and what the legal ramifications would be to undo them. You have to wonder if other trend-forward brands that are currently negotiating with Penney might not rethink their partnerships (was Caribou coffee the canary in the retail coal mine?), and if the others that are already signed might be looking to back out. No one wants to be associated with a brand on the way down, and while J.C. Penney is still on its feet, it is still staggering.

In the near term, the brick-and-mortar news for Penney is brighter: The announced cash infusions mean there will now be enough money to keep everything moving forward for the time being. So, from a developer’s perspective at least, there’s no need to panic, and there is still time to plan. Whether or not this is enough to right the ship in the long run depends on how skillfully the new executive team will be able to keep the good pieces of Johnson’s plan while changing direction on those strategies that weren’t working.

My concern now is that, while the decision to change CEOs is not inherently negative, Mike Ullman may not be the best candidate to lead the company forward. Bringing back an old regime and a CEO who couldn’t get the job done before doesn’t make a whole lot of sense. If we knew that what was happening before wasn’t working, why go backwards? Only time will tell whether the once and future CEO can truly lead J.C. Penney forward, if only for the short term.

Even with the recent cash infusion, there is still a big unanswered question in my mind: How they’re going to get people back into the stores? I’d love to hear your thoughts about how J.C. Penney can make that happen, as well as what the prospects might be for Ullman’s second term as CEO. Join the conversation by leaving a comment below or feel free to e-mail me privately at jeff@jeffgreenpartners.com.

Click here for past columns by Jeff Green.

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