Even when a company is clearly on its last legs, it’s customary on conference calls for CEOs to serve up a data point that offers a slim reed of hope. On last week’s J.C. Penney conference call, following a set of impressively bad financial results, CEO Ron Johnson was clearly grasping for good news. He pointed out that, since the company started its new marketing, sales were two percent better than the spring, when they dropped more than 20 percent. Traffic improved a bit too (though it was still down 7 percent). Of course, that overlaps with the period when Penney gave out over a half a million free kid’s haircuts. The fact that Penney could lure that many people in the store, with a service offered at a huge discount (100 percent off!), and the numbers didn’t move much, is not a good sign.
Truth is, there aren’t many good signs here. The J.C. Penney reinvention is looking like a long, grim haul. Even if sales do turn around next year, as Johnson predicts, the company has suffered such huge declines that it could take a very long time for it to just get back to where it was. How long? Look at Zale. Its sales drop was so stark during the recession, that, even with nearly two years of positive comps, its numbers are still lower than they were in 2008.
And that’s if things turn around. I wrote earlier that this reinvention needs to be about “more than Ron Johnson,” but, at that point, he is all the company has going for it. It’s not just his track record; the former head of the Apple retail chain clearly learned from his old boss Steve Jobs how to give a persuasive speech. He is so good that, following his presentation last week, Penney’s stock actually rose.
Johnson’s ideas remain intriguing, including his idea for branded theme shops, such as the recently-installed Levi’s store, which is by all accounts impressive and doing well. He also plans to install a “square” in every store that will feature all sorts of communal activities, including Santa Claus, holiday celebrations, Pilates classes, and yoga(!?), along with a “street” where people can hang out and get coffee. Of course, there are already places to do those things—they are called malls. This new concept, by the CEO’s own admission, amounts to “a mall within the mall.” Now, one of the big trends today is “retail-tainment,” or offering consumers experiences they can’t get online. So this makes sense. But can Penney really offer a better experience than the malls its stores are in?
Still, at least a bigger picture is coming into focus. If all these innovations were introduced before—or even during—the switch to “Fair and Square” pricing, Penney may not have landed in the mess that it’s in. Instead, the store just took coupons away, without changing much else, and consumers felt almost punished by it.
Clearly, Johnson is not a guy content with just being CEO of a major department store chain. He wants to create, as he puts it, something new and “profound.” Before he took the job, someone urged him to throw away the rulebook, and that’s what he’s done, to a remarkable extent. He has consistently said that Penney “needs to think like a start-up,” and maybe if he was really heading a start-up—or Sears, where there is little to lose—he wouldn’t be receiving half the grief he’s getting. But he’s heading a company that was profitable until he came around. And all the vendors and employees are getting mighty nervous while he rolls the dice on his various brainstorms.
If there is one glimmer of hope, it came from a comment Johnson made about the latest iteration of the company’s pricing policy: It was clear to focus groups, meaning he researched it. When Johnson first launched his “Fair and Square” pricing, he didn’t test it beforehand. (Hey, Steve Jobs never tested things.) Focus groups aren’t perfect by any stretch of the imagination. Yet probing the thoughts of your target audience is clearly called for when your assumptions have been proven so wrong, so often. Johnson may still be following his own rulebook, but at least now he occasionally consults the old one.
Even if the CEO is let go tomorrow—and that doesn’t look likely—the company has already changed so much, and put so many of his plans in motion, that it would be quite difficult to turn back now. Penney is basically set on this path, and we’ll all just have to watch where it leads