JCPenney’s Road to Recovery (Part 3): The 10 point action plan

In Part 1, I suggested that JCP’s recent results are not just bad, they have become quite sad, mainly due to management’s seeming inability to overcome denial, speak plainly and commit to a more realistic game plan. Part 2 focused on the key things I believe must be accepted and embraced to move forward.

As Penney’s is now in the heart of what is sure to be another disappointing quarter, here are the major steps I recommend to stem the bleeding and give the transformation the time and the momentum it so desperately needs:

  1. Shun contempt for your core customer. We get that Penney’s needs a younger, more affluent and more fashionable customer. Without new customers–and deeper relationships with infrequent ones–they can’t get there from here. But it takes profound, sustained change to fundamentally shift consumer behavior. And remember that growth in the moderate multi-line retail segment is basically flat. That means JCP’s growth must come through stealing share from some pretty tough competitors. Going cold turkey on the traditional pricing and promotional strategy– and ignoring the historical base in both product and marketing–is the single biggest cause of their current problems. Yes, there was way too much promotional intensity. Yes, some of the customer base was fundamentally unprofitable. But there is still a profitable base that can be retained. Product and marketing emphasis must reflect this reality.
  2. Blend intuition with analytics and testing. There is clearly an art and science to retail, but Ron Johnson went too far by trusting his gut and assuming what worked at Apple is appropriate for JCP. That’s been a billion $ (and growing) mistake. And the notion that none of the new strategies could have been tested is simply nonsense. Enough with the Hail Mary’s. More consumer research, more data analytics and more testing is essential.
  3. Build a customer data & insight asset. Re-inventing the JCP brand, rolling-out differentiated product and delivering a more compelling customer experience are incredibly important. But the ultimate competitive advantage is having more actionable consumer insight than the competition. Collecting more customer emails is a great start. But investing behind the Rewards program, the direct to consumer business and a customer insight team–things that were downsized or largely ignored in the first year of the transformation–must be come a critical focus.
  4. Treat different customers differently. The Penney’s transformation got horribly off track because there was zero appreciation for customer segmentation. Any basic segmentation and valuation analysis would have revealed how risky the new pricing strategy was. An actionable customer segmentation (by needs, attitudes, behaviors and value) is the key to guiding merchandising strategies, marketing plans and customer experience enhancements that can fight and win in a crowded market. An actionable customer segmentation is essential to guiding investment prioritization. An actionable customer segmentation highlights the key customer segments to acquire, retain and grow and supports customer-based metrics. It’s fine to talk about shop profitability, but how about sharing key customer segment profitability, growth, retention and Net Promoter Scores?
  5. Aggressively leverage the Rewards program. In retrospect it would have been far better to aggressively prune promotions and then roll-out everyday pricing in a more phased manner. But the Genie is out of the bottle. Re-introducing large-scale promotions undermines the direction of the long-term strategy. Moreover, the fundamental problem with too much reliance on un-targeted promotions is perpetuating a race to the bottom and poor ROI. Free haircuts may drive a lot of traffic, but some of those customers would have bought haircuts anyway, and many who take you up on the offer have zero potential to become profitable regular customers. Done appropriately, it’s far better to leverage customer insight to target promotions to drive desired customer activity. The Rewards program is the best place to start. Marketing dollars needed to be distorted to this area. The program needs to be better highlighted on the website. Do this. Now.
  6. Re-introduce promotions surgically. While the Rewards program is an important immediate term lever, not everyone will want to join, and the program is not yet big enough to make as much impact as is needed in 2013. The transformation merchandising strategy is wisely focused on more exclusive and differentiating product. Unfortunately that investment won’t pay off until at least 2014. The retail equation is simple: revenues are a function of traffic, conversion rate and average transaction value. In the coming months, while the broader strategic imperatives get rolled out and tweaked, tactics must be intensely focused on driving traffic and conversion. Now is the time to borrow from Target rather than Apple. Selectively featuring key traffic driving items at eye-catching prices–particularly on national brands carried at competitive promotional retailers–can re-ignite sales from the more price sensitive customers Penney’s so desperately needs. The Black Friday promotion is a step in the right direction. Future advertising must better balance branding and a more compelling call to action. “Sale”–used boldly yet judiciously–is not a dirty word.
  7. Make sure the invitation isn’t better than the party. I was at Sears when we rolled out the “Softer Side of Sears” campaign. It garnered a lot of attention, won many awards and drove a ton of incremental traffic. But the payoff in the store simply wasn’t there and, once disappointed, many consumers that tried us never came back. Penney’s dismal conversion rates and declining average transaction value suggests this is a real issue right now. Pull back a bit on the beautiful 20-something hipster types in the advertising and show more of the customers you have today. Aspirational is fine. Alienation is death.
  8. Upgrade the overall experience. The new shops look great. And the technology that is being rolled out is cool. But the customer experiences it all against a sea of racks, mostly scruffy fixturing, poor lighting and a lot of 90′s vintage interiors. It will be impossible to move the dial within 3 years without pushing the envelope, but a more targeted store by store investment strategy–delaying some shops in some stores, while getting high profit leverage stores “all the way to bright”–is a better use of cash and will better inform future investments.
  9. Re-launch “catalogs.” One of the dumbest things Penney’s did was completely exit the catalog business. It’s one of the key reasons their e-commerce business has tanked. Many of the best multi-channel retailers understand that the traditional mail order business is dead. But they also know that print catalogs done better–i.e employed as mass customized direct response vehicles–are important drivers of both the web and brick and mortar channels. This was a key strategy for us when I was at Neiman Marcus and it remains so. Williams-Sonoma and many others successfully employ sophisticated direct marketing strategies to build their brands and target key consumer segments. Penney’s needs to begin diverting marketing dollars from one size fits all television, circular and direct mail pieces to treat different customers differently and create a better omni-channel experience.
  10. Remember: cash is king. On the last quarterly earnings call Penney’s management was pretty sanguine about their cash position. It is true that they–like just about every retailer on the planet–will build their cash position in this quarter. And they do have a substantial credit line to draw upon. But it is also true that they are investing mightily in re-inventing the store experience and their brand. However, it’s abundantly clear that so far their marketing investments aren’t yielding the desired results. I’d also be willing to bet they will discover they need to spend more per store than currently planned. And let’s not forget that unless Penney’s starts running strong double-digit comparable stores sales increases soon, they will fall far behind their needed trajectory and the transformation risks becoming a house of cards. Moreover, dramatically increased sales require a big investment in inventory. The only thing we know right now is that a lot of investment is needed and that the near-term outlook for cash from operations is pretty scary. By early next year Penney’s needs to spell out how this all will come together.

Obviously this is far from an exhaustive list. And obviously Penney’s management has access to data and consumer research that an outsider does not.

Some wonder why I have such passion for the Penney’s turnaround. Some have suggested that I’m angry that Ron Johnson has not engaged me as a consultant, despite my experience, my location (Dallas) and the fact that we were business school classmates. Others think I want to call attention to my having predicted the disastrous results.

Could be. But having lived through the decline and near decimation of another iconic retail brand (Sears), I’d like to think it’s because I know in both my heart and my head that it could be so much better.

Of course if I’m wrong, I’m just deluding myself–and it would hardly be the first time. But if Penney’s management gets it wrong, it costs tens of thousands of  jobs and destroys billions of dollars in value. And THAT would be a shame.

So this is just one guy’s opinion. Take what you like and leave the rest.

 

10 thoughts on “JCPenney’s Road to Recovery (Part 3): The 10 point action plan

  1. Steve,
    I agree with everything you said but you left out the most important element – PRODUCT!. Who cares if a T-shirt is $4 if it is a quality of a $4 t-shirt. They have to product fashionable goods with Brands that someone can see the value through quality, price and the brand position. Currently the shops are disjointed Brands that few care about.

  2. One of your best posts, Steven, mainly because you are offering specific ideas rather than bashing for bashing’s sake. I’m on the bullish side with Penney’s – nothing short of a ripping off of Band Aids would do the trick. That said, the main takeaway is that Penney’s will not have to be wildly successful to change the face of retail. They are already influencing others – and, to quote Martha Stewart, that’s a good thing.

    P.S., I love the invitation vs. party point. Target got away with this for years but it looks like their party is slowly starting to live up!

  3. Ron Johnson seems to be following in Jobs’ footsteps in terms of ignoring the input of customers and co-workers. We’ll have to see if he shares Jobs’ ability to grab the future. He’s on his own to find out, I guess.

  4. Steve — Great stuff, rooted in fundamentals of the jcp business that cannot be ignored. Like you, I am pulling for jcp’s success, and for many of the same reasons. It is a “grand experiment”, but I fear that you simply cannot drag customers into compliance with a new model; you must lead them. I know. Sounds trite, but change management is hard, and change leadership is even more difficult, both inside the organization outside, in the customer world. “BAM!!!” is not the answer here, though the tempo cannot drag along either.

  5. I held off on commentary here through all three in the series in order to see it come together. This is a well architected and assembled series, almost a restructure or turnaround plan presentation in itself.
    I started my retail career as a “Sears Man”, operations wholly, and witnessed the lack of oomph, nothing exciting, waiting in the aisles behind the “softer side” message, also witnessed firsthand their missing their mark prior with their “Hub” restructuring , in order to support change and impact customer service opportunities. J.C. Penny was our nemesis, in most cases anchored opposite most locations.
    Now, looking in from the outside, in visiting Penny locations as a walk through, I see little real change. This is truly disappointing to me as a retailer in general, no matter our past rivalries. I feel as if Pennys has, and continues to simply fail at what I was brought up to consider retail 101 – Flexibility…and having fun while doing what you do. I tacked that last part on myself. I have experienced this before. Being a turnaround guy, every single under performing location…store, District, Region that I ever visited …the very same. Their people look down at the ground. Merchandising? Soft lines are a bore, and hard goods are…regular ol’ stuff. If there is something cool there, they ain’t sharin’ it. Loyal or new customer, what’s there to make them come back? Catalog? Why couldn’t they merge their “known for it” (next to Sears of course, ahem) concept with eCommerce better than most, THEY shoulda’ /coulda’ better than most in the early days of online shopping emergence. They left those loyal…lost. All of this provides an overall morose and lost feel to being in their stores…there is never an event like atmosphere…no excitement, no fun, and once again the associates are just looking at the clock or…the ground. My teenager and pre-teen never mention or want to go into J.C. Penny, ever. At their age, I lived for the catalogue to arrive at Christmas and trips there otherwise.
    Bottom to top, side to side, engaged associates regularly and as a plan interacting with one another and their customers, no boundaries of title or position otherwise, an openness to ideas coming from the guy loading the cars to the guy sitting on his duff in a board room or an office…and then masterful, driven, and effective execution is the only solution for their current state of being…my two cents.

  6. I may have to leave a few replies, to say what all I have to say, so forgive me if you see 6 or more replies. That said, JCP is dying. I feel bad for what long time employees are left, as they must feel like they are polishing the brass on the Titanic. Today my 2 daughters, ages 21 and 18, went to JCP to use their gift cards. They came home with nothing. I asked them why they didn’t get anything, their reply was” There was nothing we wanted there”. This is one problem I have seen in the Penney’s that are remodeling. I am a life long shopper of Penney’s, a 39 year old woman. The store is void of merchandise. In the junior department,or young ladies dept, they have cubbies on the wall,that have the same sweater in different colors. One style sweater, in very bright colors. That is it for one whole wall. Then there is a wall of jeans,boot cut or skinny, one small rack of shirts that look cheap. You can literally see through the shirts the quality is so poor, and a small table of Camisoles. That is it. I could not believe what I was seeing. I was like, where the Hell are all the clothes? Before Ronnie boy took over I could barely move there were so many clothes and styles. It’s almost like Penney’s is trying to pick my clothes for me,with so little to choose from. It is very bare and empty in all the departments. Men’s wear, sleep wear, ladies wear. It looks like. Going out of business sale it so bare. I have been visiting other Penney’s, and it looks this way at each store I have been to.

  7. Also taking away sales and coupons completely was a bad,bad move. I have worked as a manager for Subway restaurants for years so I know that a coupon is a incentive to being in traffic. I would rather have a customer visit me with a coupon than not visit me at all. Even restaurants that have EDLP, like buffet type eat all you like for $5.99 offer coupons. Also, I remember from manager training that people who use coupons usually spend more money per visit than people who don’t use a coupon at all. Since they think that they are saving money with the coupon,they will usually pick up another item that they did not intend to buy in the first place. Example- I just saved five dollars off this shirt so now I can buy the five dollar belt to match. I think Penneys should have kept coupons and sales. I bought some Mens Dockers at Kohls that Penney’s carries and when I used my ten dollar rewards cash/coupon, those pants were ten dollars cheaper than if i went to Penney’s. I also think it came off as insulting to customers when Penney’s or Ron referred to coupons as a drug that the public needed to be weaned off of. It’s not the fact he called the coupons a drug, it’s the fact that he thinks he knows what is best for the public or customer. He comes off as cocky and condescending. I also don’t understand why Ron thinks this idea of shops inside Penney’s is such a good idea. It’s not. Penny’s is not a mall. A bunch of shops under one roof is called a Mall from what I understand.

    • I ABSOLUTELY AGREE WITH EVERYTHING YOU HAVE STATED. I HAVE BEEN A LOYAL JCP CUSTOMER FOR MANY YEARS AND HAVE HIGH HOPES FOR A RETURN TO GLORY. I HOPE THAT THE BOD AND CEO OF JCP ARE PAYING ATTENTION.

  8. Pingback: My Top Ten Blog Posts of 2012 « Steven P. Dennis' Blog

  9. On September 10th, 2012, former Sear’s Marketing Chief David Selby wrote a column for Adage saying JC Penney has a sound turnaround strategy despite marketing errors. He writes, “And frankly, what other option does JC Penney have?”

    I believe we’ve found the best answer to Mr. Selby’s question here in Steven Dennis’ 10-point action plan for JCP . Unlike most of the articles that just criticized Mr. Ron Johnson, Steven not only clearly identified the problems of the current JCP strategy, but more importantly he also provided practical solutions to these problems.

    Having worked more than 15 years in the retail space applying analytical solutions to customer management problems, I’ve learned that often the best solutions to turning around a downward business do not have to be fancy. Ideas such as re-launch catalogs, better segmentation, deeper customer insights, and advanced analytics, etc. may not sound sexy to Mr. Johnson and JCP, but believe me, they will work.

    Many people think print catalogs are a passé. But Steven pointed out that “One of the dumbest things Penney’s did was completely exit the catalog business.” I cannot agree more with him. For Omni-channel retailers, before you decide to nix your catalogs, you will need to segment your customers by their preferred communication and shopping channel, thus truly understand the direct and indirect revenue the catalogs have brought to your business, and also their impacts on both the web and the retail channel as well.

    For JCP, the 10-point action plan is free, but it’s priceless.

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