So last year when activist-investor Bill Ackman announced he was installing new management, everyone in retail wondered how this storied #4 retailer would be updated.
That question was answered with the almost messiah-like announcement that former Apple store-head Ron Johnson would lead the transformation.
In January, Johnson took a presentation to Wall Street that announced that Penney’s stores would be totally transformed. Each store would have a new “Town Center” in its middle where coffee, hot dogs or other seasonal items could be sold, and where shoppers could just “hang out” on couches. In addition, each store would now house 100 branded stores within their own four walls, each offering new lines never offered by Penney’s before. They would also end discounts to offer simplified “fair” pricing. Banished was the word “Sale.”
Ads appeared everywhere with Ellen DeGeneres saying how fair pricing was, well…fair. Johnson said couponing was a drug and Penney’s would no longer offer them.
But even before all the changes were made, first quarter results came in that revealed sales had sunk 20% from the previous year. Michael Francis, president of JCP, the head of merchandising and marketing hand-picked by Johnson was let go. New pricing strategy was announced. “Customers just don’t get our pricing,” explained Johnson.
While July had large retail increases, JCP reported Q2 comp sales down 23% from last year. They also announced they would do away with checkout counters and instead give all employees an iPad by 2013 to have paperless checkouts. Another new pricing strategy was announced. They would offer yoga in the future and start advertising in newspapers.
After Johnson cut staff and de-commissioned salespeople in six departments he explained in a conference call, “I know with every bone in my body that a noncommissioned salesforce will create better customer service, better teamwork over time,”
That was an improvement? I think Wal-Mart and Macy’s should be sending flowers to Johnson as their sales were up significantly.
The stock market rewarded Johnson's optimism and the stock is up double digits.
Nevermind that Sears reported their same store sales were only down 2.9% for the same period. You have to go a long way to be worse than Sears, another activist-investor driven brand that is now being sold off in pieces.
Nevermind that as JC Penney suffered a 30% online sales decrease, Macy’s enjoyed a 36% increase.
Nevermind that JC Penney gave away 1 million free kids’ haircuts just to build in-store traffic which was, in essence, a 100% discount to everyone, many of whom had no prior relationship to their brand. Many who probably walked in to get the haircuts and went on without making any other purchases.
A Loss Prevention Supervisor from JC Penney actually said, “Anything free is a strong draw for consumers, they'll get their freebie and leave.”
Allen Questrom, former CEO of Penney’s said on CNBC recently, “Clearly the first part of Johnson’s strategy - elimination of coupons and sales - was a failure,” he says. “ It doesn’t feel like they’re listening to the customer.”
Too strong? Consider this JC Penney employee's comment, "I fear we are turning into Sears, the laughing stock of retail establishments."
What do you think caused this train wreck for such a Messianic leader. They turned loyal customers actually away from them. What did they miss? What lesson do you take? What was important? What did Penney’s executives fail to grasp? Please enter in your comments below.
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