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Why J.C. Penney’s Transformation Needs to Be Transformed

By Rob Bates, Senior Editor

Posted on June 27, 2012

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Very few CEOs are saddled with the expectations Ron Johnson had when the former Apple stores head took over J.C. Penney last year. And even after Johnson’s new pricing policy led to huge declines in sales and profits in the first quarter, many cautioned patience, arguing that Johnson and his “dream team” knew what they were doing.

But last week’s firing of Johnson’s No. 2 man, president Michael Francis, may have marked a tipping point. The dream team is turning on each other, and the overall impression is one of chaos. The question now is: Will management even get a chance to see if their plans can work? One analyst says Johnson has until August to start showing positive results. 

Some have called Francis a “scapegoat” for Johnson’s problems, but the CEO was likely right when he said Penney’s marketing campaign—overseen by the former president—wasn’t working. And yet the reason the new ads didn’t draw in customers was perhaps symbolic of what’s gone wrong here. The commercials focused on how customers would be getting less stuff in the mail, how sales were ending, and all about Johnson and company’s brilliant reinvention plans. What they didn’t do is give people reasons to come in the store. The message became “no more coupons”—rather than “no more coupons, we have great deals every day.” (Some think that’s not necessarily a winning message either. But at least it stands a fighting chance.)

And now, there’s evidence that the changes have alienated not just the dread “coupon clippers,” but other customers as well. Read this complaint, that the new store lacks the “frumpy” clothes it once carried. And wait till they see the watches selling at high price points! At some point you wonder if there isn’t a disconnect between highly paid executives like Johnson and the middle American bargain-hunters who are the core of the Penney consumer base. (Whereas there wasn’t that issue at Apple.) 

Then there are the store’s employees, who have suffered through the end of commissions, slashed hours, and significant layoffs. (Read their complaints here.) If you are all about treating people “Fair and Square,” shouldn’t you treat your employees that way too? Meanwhile, Johnson’s alma mater, the Apple store, just raised employees’ salaries. Where, I ask, would you expect to get better service in the next few months?

In announcing the cutbacks, Johnson said that J.C. Penney should “operate like a start-up.” And maybe that’s the problem. Johnson built the Apple store chain from scratch. Here he’s dealing with something that already exists. 

The new management of J.C Penney doesn’t head a start-up. (How many start-ups have CEOs making $50 million a year?) They don’t head Apple, or Target, or a mini-mall filled with upscale boutiques. They head J.C. Penney. Boring 108-year-old J.C. Penney. It may not be glamorous, or hip, but it has generally turned a profit and offered pretty good deals on pretty good merchandise, as well as provided a service for countless vendors, employees, and customers. And in the end, that’s who really counts here. This transformation needs to stop being all about Ron Johnson and his retail experts, and more about the people who shop and work there.

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