J.C. Penney Lesson No. 1: Know Your Customer

By Leslie Hand, research director, IDC Retail Insights

Ron Johnson's highly publicized short tenure at J.C. Penney, or JCP, as it was rebranded, will certainly make it into the textbooks and graduate theses on what to do and what not to do when undertaking a significant retail business transformation. The primary failure was not putting customer needs first in what promised to be an excellent long term strategy. Oops — forget the customer in an omni-channel customer strategy?

What a colossal mistake!

The long-term strategy was good, but execution failed at the outset. If only — if only — the first step wasn't so blatantly ill informed and poorly executed. That step, of course, being the move to Fair and Square pricing without making sure the customer would keep coming to the store if regular discounting and promotions suddenly vanished. This step failed because customers have been trained to be driven to shop because of promotions.

U.S. retailers created this environment, and many would like to turn back time, and create loyalty without discounting, and I would like to think that one day more retailers will achieve this. Some have - think Costco - pricing at Costco is essentially fair and square — fixed markups based on cost, and customers love it and are very comfortable putting things in their carts that they never intended to buy without doing mobile price comparisons. But Costco's business model is different and customers understand it and like it and embrace it. Costco didn't change how they go to market overnight.
What J.C. Penney should have done / what they can still do?
JCP should have executed a bit more like Macy's, competing strongly year over year, always very cognizant of meeting market expectations while fully embracing omni-channel, and making very deliberate moves towards higher levels of omni-channel engagement. Macy's, moving very visibly towards omni-channel, started with reorganizing the business around the omni-channel customer experience and building the supporting infrastructure.
Macy's MOM strategy, which stands for My Macy's localization, Omni-channel, and MAGIC selling is a holistic omni-channel strategy designed to enable in Macy's words "extraordinary service to customers". Under the covers, the Macy's program is driving towards increasing visibility and intelligent utilization of data. In the Manhattan Herald Square store, RFID and mobile devices have combined to create an amazing capability in the women's shoe department where the customer not only gets better service, but the sales staff is well equipped to find and supply the products customers want. If the product is available anywhere in the visible network which includes the DC's and hundreds of stores, Macy's can satisfy customer need immediately.

When the product isn't available, Macy's could electronically capture what isn't found. Imagine the power to improve service when we can quantitatively define with precision what we didn't have in the physical store, and subsequent lost sales and loyalty caused by out of stocks. Valuable data is also being sourced from improved social listening systems, further improving Macy's ability to meet customer needs.

And like many other high profile omni-channel retailers Macy's is testing a variety of technologies to further engage and delight the consumer, including Beauty Spot, virtual concierge, Google wallet, PayPal self checkout, mobile POS and virtual manikins. The manikins rely on strong common content management capabilities shared with other digital systems, another cornerstone of a good strategy — strong infrastructure, integration and governance.
I'd argue that Ron Johnson could have been successful if he had built this new environment first, giving the customer a new reason to be loyal, creating an engaging omni-channel environment that would draw them to JCP. Pricing policies could have changed later, over time - definitely not overnight.

All this of course, sounds like hindsight now, but certainly wasn't through the years as we have advised other retail clients to define how they will differentiate going forward, and invest in transforming their organizations to compete successfully for the omni-channel consumer dollar. The formula for success always depends on who the retailer ultimately wants to be in the eyes of their customer, and well thought out strategic moves executed with foresight of the consequences of missteps, and a plan to recalibrate quickly should one overstep.
At stake, the ability to Increase sales, inventory turns and return on invested capital, in much the same way that Macy's and others like Nordstrom's are proceeding. A big opportunity lost for Ron Johnson, but hopefully not for JCP.

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