2012 Report Card: J.C. Penney

I’m continuing my series of year-end report cards, and in this entry I want to focus on the retailer that’s stimulated more chatter and debate than any other for being the year’s most notable non-success story: J.C. Penney.

But before we get into that, let’s recall a few years back, when the head of a major jewelry chain decided—not without reason—that his company had become too promotion-oriented. So he trimmed sales and discounts. Unfortunately he did this during the worst of the recession. Business plummeted dramatically—and then suddenly, discounts were back. And in many ways, this was the worst of both worlds, as the retailer was now delivering an inconsistent message.

Yet, even with all that, in January of this year, when J.C. Penney announced its new pricing policy, I thought maybe this time things would be different. After all, this is a company with a huge marketing budget that would seemingly be able to convince the consumer to embrace “Fair and Square” pricing. And CEO Ron Johnson was the genius who created the Apple retail chain.

But of course, after a year of dismal financial results, it shouldn’t surprise anyone that we see J.C. Penney bringing back promotions and coupons. Back in January, Johnson said that promotions make a company look “desperate.” If that’s true, Penney now looks desperate, and then some.

But I’m not here to pile on Johnson and Penney; plenty of people are doing that. I’ve talked to vendors who, even though they have taken quite a hit, still believe this could turn around. One I talked with was particularly impressed with the new prototype store outside of Dallas (which I haven’t seen). “I’m a believer,” he said.

I wish I was too. Yet for all of Johnson’s creative ideas, for all the applause I want to give someone bringing a fresh approach to a stale industry, he’s too often gone against the core principles of management that I’ve learned in covering companies. Namely: Make changes slowly and deliberately. Test them first. Don’t try to do too much too fast. And have customers guide your decisions, rather than trying to do it the other way around. In this case, I would add: Don’t take away things customers like—such as coupons and discounts—unless you have something better to replace them. (And maybe not even then.)

Now, some people do defy these rules and it pays off. But it’s a huge gamble. And right now, Johnson is losing big-time. 

But let’s go back to why I and so many others were so excited about Johnson taking over Penney in the first place. I was just in the market for a tablet computer, and my preference was to head to an Apple store, rather than RadioShack or Best Buy—despite the latter two offering a wider selection, and more discounts. And that’s because whenever I go to Apple I usually find some friendly hipster salesperson, who is not only knowledgeable but genuinely helpful, and is more than happy to spend as much time as possible helping me with my purchase. You sometimes find that in other stores, too, but the service at the Apple stores is consistently good—while elsewhere it’s consistently inconsistent. And even the most helpful salesperson at a place like Best Buy rarely gives you a lot of time, because there are usually three other customers trying to flag him down.

Now, if Johnson could recreate, or even approach, that level of service at J.C. Penney—and obviously that would take a while—he really would have something. He wouldn’t even need yoga and haircuts as traffic builders. Instead, we see reports that the customer service at Penney is indifferent, that the new “brand stores” don’t even have people manning them, and that the company is now worrying about its best people flying the coop.

In November, Johnson announced he was really running two companies: one is JCP, a “specialty department store” that is “the fastest growing start-up in retail history.” The other is “the old J.C. Penney.” It’s not hard to figure out where Johnson’s heart is; who wants to shop at a place called the “old J.C. Penney”? But that rusty old relic remains the basis of the business. So here’s my advice: Why not make J.C. Penney two companies? 

Get some grizzled veteran to run the traditional Penney chain—someone who knows that business, cares about it, and understands what makes the core customer tick. Johnson will then be free to transform a handful of stores into JCPs. And the more successful that part of the business becomes, the more JCPs will open. In other words, JCP really will operate like a start-up. That’s certainly better than trying to reinvent hundreds of stores at once, and it will give the new crew plenty of time out of the spotlight to get the concept right. If this year taught us anything, they will need it.

Johnson says that Penney will “return to growth” next year, but I don’t know what he’s basing that on. The new concepts don’t seem to have been tested with consumers, aside from a few walkthroughs. And while the numbers for the new brand shops are apparently pretty good—in some cases, sales are up 20 percent or more—that really just brings Penney back to where it was before all this started. And those numbers may not be repeated throughout the store, as the success of a brand shop very much depends on the power of the brand.

So on our imaginary report card, the new J.C. Penney gets an “A” for effort, and maybe a “B” for originality. But overall a “D.” If things really don’t start turning around next year, this not-so-little experiment may end sooner than expected.

For more on this, worthy articles on J.C. Penney can be seen here and here.

JCK News Director