In Part 1, I applauded JCP’s new leadership for committing themselves to a bold, multi-year re-invention strategy. At the same time I cautioned that the first plank in their transformation–their new “fair and square” pricing program–may be far more challenging to implement than they imagine–and frankly need–to sustain momentum for the pieces to come.
Now let’s delve a bit deeper into Ron Johnson and team’s audacious vision for Penney’s future and why I remain skeptical.
To be fair, there are definitely several important things they have assessed correctly. There is no question that to have any chance of meaningful (and profitable) growth requires a major re-think of all pieces of Penney’s value proposition. Penney’s pricing and promotion had gotten wildly out of control. Their marketing has been cluttered with no clear point of differentiation. Their digital/omni-channel strategy has under-delivered big time. Their product assortments, while improved in several key areas (e.g Sephora, Mango, Claiborne), have not made them the store of choice for a sufficient number of their target customers. They have not made enough progress attracting younger consumers. And like all the major moderate department stores, the overall customer experience is stale and boring.
But at the same time, there are several critical aspects of their vision–and way of thinking–that I worry about.
First, there are the relentless comparisons to Apple and the success of their retail stores. Every time I hear Ron Johnson refer to his success there I’m reminded of the old Steve Martin joke about how to be a successful millionaire: “Step 1: Get a million dollars. Okay, Step 2 …”
While I have no doubt that Penney’s can benefit from many of the leadership lessons and certain tactical aspects of Apple’s retail strategy, Penney’s ain’t Apple. It’s a lot easier to build retail stores around products that are in high demand, have limited distribution and “fixed” high margins. Apple is a single brand specialty store with a clear tribe of loyalists, not a multi-brand, multi-category store serving an incredibly diverse set of customers. Apple is vertically integrated and the stores benefit directly from total brand advertising–and a ton of buzz. All of Apple’s stores are in “A” real estate locations and have a tight prototype and are not unit intensive. The list goes on and on.
Second, in their investor presentation they said “we want to be the favorite store for everyone.” I hope this is hyperbole because it’s so patently ridiculous. While the size and scope of Penney’s footprint necessitates a reasonably broad set of consumer segments, THE number one challenge of this management team is to define the key customer segments they wish to own, rigorously edit (and develop) their assortments against these target segments and then deliver a remarkable and relevant cross-channel experience for them. Penney’s will not win by going broad and shallow. Every winning retailer on the planet wins through a well-honed differentiation strategy and clear positioning.
Related to this is the new team’s apparent unwillingness to believe that “treating different customers differently” is an increasingly powerful point of competitive advantage and fuel for profitable growth. Various reports suggest that little to no consumer research or segmentation analysis was done to vet their new strategy and one of their first moves was to blow up major pieces of their customer analytics/CRM group and bring in a guy with little apparent direct marketing/customer analytics experience to head up the remnants. In their 2 day investor presentation there was little mention of any actual consumer behavioral data and what was mentioned was, to me, either obvious or irrelevant.
Clearly Penney’s must get the big, foundational pieces right or the notion of competing on analytics by moving to deeper personalization will be irrelevant. But to move towards an everything to everybody sort of strategy strikes me as somewhere between folly and lunacy. I suspect you will see them reverse their course on this by year’s end.
As Penney’s reports what I am fairly certain will be a disappointing set of initial results, I hope the new team will embrace humility, stop flogging the Apple comparisons and get focused on deep customer insight and the need to build a set of rich, relevant, channel-agnostic and increasingly personalized set of value propositions for a well-defined set of customer segments.
If not, it will be strike 2.