Learning the Wrong Lessons From the J.C. Penney Disaster

It may be too early to start writing post-mortems on Ron Johnson’s tenure at J.C. Penney, but the writing is on the wall and it seems pretty clear where this is going. At this point, it’s shaping up as one of biggest train-wrecks in American retail history, and there will have to be an equally amazing turnaround for Johnson to keep his job.

Part of me does hope he gets more time, because I do think the department store concept needs a makeover, and I’m curious to see how the rest of his ideas play out. There was a reason the board decided Penney needed a “transformation,” as it wasn’t exactly the picture of health before he arrived. (Still, it was profitable; it isn’t now.) But then I think of all the jobs he’s cut—including 2,000 more this week—while he takes home a mind-boggling amount of money that he hasn’t earned and likely doesn’t need, and it is hard to feel sorry for the guy or think he should still be there. 

That said, it would be a shame if the lesson people take out of this is that retail CEOs should be more risk-adverse. The problem wasn’t that Johnson had some new ideas or that he took chances. The problem was how he went about them.

So let’s review:

—Johnson didn’t test any of his concepts.

Even board members now admit that was a problem. And the irony is: Very few companies allow experimentation the way Penney does. It has 900 stores. He could have tested “Fair and Square” pricing in 50 of them, and it barely would have made a blip.

Yes, Apple never tested—as Johnson reportedly said. But Apple creates new things. J.C. Penney already exists. 

As a very good essay in Business2Community put it: 

By believing that J.C. Penney would behave in the same way that Apple customers behaved, Johnson doomed the company. J.C. Penney customers were used to interacting with J.C. Penney offline (in the store) but Apple customers did not have any point of reference. When you’re changing a current customer experience, it’s important to understand what motivates the current customers, what they respond to, and what is not broken.

—Because he didn’t look at his ideas as a test—more of a philosophy—he didn’t backtrack.

One mystery of this whole thing is: why didn’t JCP bring back coupons and sales after the first quarter of the year, when it was pretty clear consumers were rejecting the new pricing? Instead, Johnson doubled down—eliminating the 12 remaining monthly sales he had planned—only to bow to the inevitable and reverse course about seven months later. Now, he plans to run promotions every week. But, of course, the damage has been done.

—He didn’t tackle the basics.

Many Penney stores don’t look so good. Customer service is a mixed bag. Those are things that Johnson’s alma mater, the Apple stores, have down to a science. Why he didn’t first perfect those, instead of tinkering with things that didn’t necessarily need fixing, is again a mystery. 

—He did too much. 

While most of the attention has been on Johnson’s changes in pricing, JCP also made a lot of changes in merchandising, introducing more fashion-forward items. Yet Target already has a corner on the “cheap chic” market, and Penney stores weren’t necessarily in locations to attract that customer.

So, within a few months of coming aboard, Johnson changed the marketing, pricing, and merchandising, pretty much all at once. If just one of those goes wrong, you have a problem. All of them did, and you see what happened. 

The problem might be that he really did envision the new JCP as a start-up, a whole new entity. I’ve seen it written that he “fired” his old customers. But, of course, most start-ups fail. And when you drive away your old customers, you better find ways to bring new ones in … quick.

Can this turn around? There is always hope. In the past, J.C. Penney articles in the consumer media used to attract a horde of bitter consumers trashing the place. Now you see the odd commenter here and there saying they like the changes. But time is running out. If Johnson is going to survive, he needs to slow down, be more scientific, get back to retail basics, and refocus on creating the kind of Penney that customers want—not just the Penney that he wants.

JCK News Director