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.
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.
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.
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 [email protected]
Click here for past columns by Jeff Green.
The Mobile Leap of Faith – Why Mobile is Not the Next RFID
It’s no secret that consumers are adopting mobile technology at a breakneck pace and integrating it into every part of their lives, including shopping. But while the retail industry generally understands that mobile technology CAN add significant value to both the customer experience and their own bottom line, it may not exactly know HOW or WHY this is the case.
A recent webinar co-hosted by RSR Research and UBM, organizers of the upcoming Mobile Commerce World conference, got me thinking about the essential leap of faith that is required for retailers to fully embrace mobile technology. As related by RSR Research analyst Steve Rowen, data collected from retailers in January 2013 indicates that while a majority of retailers recognize that mobile technology can provide value in getting customers to the store, more than half (52%) say that mobile technology influences less than 25% of sales.
Rowen correctly informed the audience that this estimate is unrealistically low. “Sales may not be consummated via mobile device, but along the path to purchase mobile is involved in more than 25% of sales.” This is where the leap of faith comes in.
Retailers need to trust in the fact that by the time the modern customer darkens the door of their store, most of their shopping is already done. Customers arrive at a store much more focused because they have already performed extensive product research — visiting retailer, manufacturer and brand sites and social network pages, independent review sites, consumer forums and blogs, etc. before they ever enter a store. They know what they want and who can provide it with the most convenience at the lowest price. Much of this research is performed on mobile device, and even in the store customers will use mobile devices for activities like “showrooming” (checking current prices at rival retailers before making an in-store purchase).
So where does the leap of faith come in? It comes in when retailers recognize all this mobile preparatory activity that occurs outside of their direct control and commit funds to turning it to their advantage. Most importantly, retailers need to provide a mobile-optimized customer experience tailored to the unique capabilities and confines of mobile devices. As Rowen pointed out, simply duplicating an e-commerce site in the mobile space is “overwhelming” for the consumer. Whether retailers use responsive design to optimize their digital offering for all platforms or create a separate mobile environment, a tailored mobile experience will draw in mobile consumers at all points along the path to purchase.
In addition, retailers need to take advantage of mobile’s location awareness capabilities. On an opt-in basis, retailers should send customers individually targeted promotions, advertisements and discounts when they are near or in a store. These marketing messages must be highly personalized and timely or they will provide little value.
Retailers also need to perform mobile “social listening,” so that for example if a customer tweets from a store that an item they want is out of stock, either a store associate or remote mobile customer service agent can immediately come to their aid and resolve the problem before the consumer starts browsing competitor websites. Mobile devices also allow retailers to place items on hold shortly before a customer enters the store or direct shoppers to another nearby location where an out-of-stock product is available, saving them the hassle and disappointment of entering the store and finding an empty shelf.
I’d like to conclude with a word about why mobile technology will not turn out like another technology that everyone knows can provide value but so far has not lived up to its potential value proposition – RFID. Obviously RFID has the capability to dramatically improve supply chain performance, but outside of efforts by a few global retail leaders RFID has not delivered anything close to the results that have been predicted for the past decade.
Retailers who took the leap of faith on RFID’s unique potential and got burned may be especially skittish about trusting in the potential of mobile. They shouldn’t be. The reasons that RFID has not yet lived up to expectations (and I’m not saying it never will) would take up another column, but suffice it to say the entire world is shifting to a mobile paradigm. Nobody ever suggested RFID would become a near-universal means for consumers to blend the physical and digital worlds. Mobile is already well on its way to achieving that status, and in places like South Korea has already done so. Adopting an aggressive mobile customer experience strategy now is not so much a leap of faith as a recognition of fact.
Starbucks beefs up leadership team
Starbucks chairman, president and CEO Howard Schultz announced changes to the company’s senior leadership team, aimed to further accelerate the company’s global growth plans.
John Culver has been promoted to group president, China and Asia Pacific (CAP), channel development and emerging brands. Culver has spent the last six years focused on building the talent, business model and infrastructure required for the aggressive growth of the company’s international business with record results, most recently as the head of the CAP region. In his new role, he will leverage his 10-plus years of retail and consumer packaged goods experience at Starbucks to lead the company’s global channel development and emerging brands portfolio while continuing to oversee the growth of the company’s CAP business. Culver will continue to report directly to Schultz.
Jeff Hansberry will be promoted to president of Starbucks China and Asia Pacific, and will report to Culver. In his three years with Starbucks, Hansberry has built what Schultz describes as a world-class channel development and emerging brands team. In his new role, Hansberry will be accountable for the region’s retail business and leading the effort to build a major channel presence in Asia and China, in particular, helping drive the integration of the total business in the company’s fastest growing region. He will be based in Hong Kong.
Cliff Burrows has been promoted to group president, Americas and U.S., Europe, Middle East and Africa and Teavana. Burrows’ 12 years with Starbucks started in EMEA, where he led both the UK market as well as the region overall. He moved to the U.S. in 2008 and has set a high bar of record performance for the Americas retail business and with his team leading the integration of Evolution Fresh, La Boulange, and soon Teavana into the company’s retail stores. Burrows will also be leading the expansion of Teavana retail stores in partnership with Teavana founder and CEO Andy Mack. He will continue to report to Schultz.
Michelle Gass will return to the U.S. this summer to work directly with Schultz, utilizing the skills she has acquired since putting the U.S. transformation agenda of 2008-09 into place as well as leading the EMEA region through its turnaround and growth efforts throughout the last two years. Through the leadership of the Renaissance Plan — including new, locally relevant customer initiatives, energizing Our Starbucks Mission and Values and refining the region’s business model — Gass leaves the EMEA region in significantly better health than when she arrived, with renewed business momentum and a roadmap for a strong trajectory of sustainable growth and profitability. Gass will continue to report to Schultz.
Kris Engskov will be promoted to SVP and president of EMEA. He will report to Burrows and continue the work of the EMEA Renaissance Plan. Notably, Engskov has led the transformation of the UK business — one of the world’s most competitive coffee markets. Burrows will begin a search for Engskov’s replacement as UK and Ireland managing director right away, while Engskov continues leading his current team during the transition.
Sharon Rothstein, global CMO, and Matt Ryan, global chief strategy officer, are joining Starbucks and the company’s senior leadership team, both reporting to Schultz. Rothstein, who has already begun her immersion, comes to Starbucks from Sephora and will serve as steward of the Starbucks brand experience while strengthening integration with newer emerging brands, creating the company’s brand narrative for retail and channel development, leading marketing initiatives, advertising and key business partnerships. Ryan will join Starbucks next week from the Walt Disney Company and be responsible for driving Starbucks long-term strategic planning while bringing enhanced customer insights and analytics to the company’s brand expression and customer experience.