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JCPenney’s Road to Recovery (Part 2): The intervention

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 (or at least lay out) a more realistic game plan.

While it’s fair to acknowledge that many elements of the transformation are yet to be rolled out, it’s more than fair to say that much of what has been implemented thus far has fallen well short of expectations. More importantly, without a dramatic change in momentum, the strategy is in big trouble.

To earn back trust–as well as to take needed action–Penney’s management must go the humility route: acknowledging their mistakes and speaking from now on in clear, plain-spoken English about what’s working, what’s not and what’s next.

Here are the 8 most critical things they need to come clean on ASAP.

  1. Relentless comparisons to Apple are irrelevant.  No doubt Ron Johnson learned much from his Apple experience, but little of it is directly translatable to JCP. And the more he harps on it, the more out of touch he seems. By the time Apple had even a couple of dozen stores, their products were in incredibly high demand, while being narrowly distributed and with virtually all being sold at MSRP. By stark contrast, with few exceptions, JCP’s products are undifferentiated, widely distributed and promoted heavily. Apple has a relatively narrow demographic, sells all premium priced products, serves basically two purchase occasions and has products that are infrequently bought. JCP’s products serve a more diverse demographic, are in totally different pricing segments, serve a wide variety of purchase occasions and, by and large, are frequently purchased. Apple stores are all in A locations, generally single level with a single entrance and are in terrific shape. JCP has many poor, under-maintained locations and most are multiple levels with multiple entrances. Apple stores are supported by hundreds of millions of dollars in parent brand advertising; JCP must fend for itself, all the while trying to totally re-brand itself. And so on.
  2. Department stores are NOT retail’s biggest opportunity. Mall-based department stores have been losing share to general retail for decades. The competition is intense. For Penney’s strategy to work they basically have to double their share on the mall. How much better does a JCP store have to be than the competition for this to be plausible? How much do customers shopping habits have to change for this to sound realistic?
  3. We are trying to change our customer base much too fast. Study Penney’s brand advertising, shop roll-out plans and new store environments and three things are clear: they want a younger customer, a more fashion savvy customer and a more affluent customer. At the same time, by bailing on their historical promotional strategy and displacing traditional brands, they are basically firing a large chunk of their current customer base. While this may work over the long-term, this is simply way too much, way too soon. It’s very hard to find ANY brands, much less such a well-known brand such as JC Penney, that have been able to quickly shift their core customers. One of the most famous examples is Cadillac and that took nearly 15 years.
  4. “Sale” is not a bad word and a promotion is a promotion.  By now it should be obvious that starting the transformation with such a bold new pricing strategy was a colossal error. But now the problem is management’s failure to admit as much and their engaging in Clinton-esque games of semantics. Free haircuts and free portraits are promotions. So are $10 “thank you” coupons and the 30% off clearance event. Regardless of what they are called, this tip-toeing back into sales has failed to  improve traffic patterns.
  5. Shops aren’t new, and ours ain’t that different. I continue to be puzzled by why the addition of shops seems like such a breakthrough. Plenty of department stores have shops. Many had them in the past and pulled back when they discovered that often consumers shopped by product not brand. I will admit that JCP’s new shops look pretty good. But good enough to steal a huge amount of share from Macy’s, Kohl’s, et al?  Eh, not so much.
  6. “We want to be America’s favorite store”? That’s just hyperbole. I’m all for Big Hairy Audacious Goals, but this sort of vision statement can do more harm than good. The key to JCP getting back on track is to become much more clear about which consumer segments, purchase occasions and price points it wishes to own. To date, they’ve provided little granularity on this.
  7. E-commerce is a disaster. Sure the core (and most visible part) of Penney’s transformation are the physical stores, but little attention is apparently being paid to their even more dismal e-commerce performance. Not only should e-commerce be Penney’s fastest growing and most profitable channel, it should be a key enabler of improving the overall customer experience.
  8. A lot of the data we’re feeding you is misleading.  Quite a few analysts were encouraged by the sales productivity of JCP’s new shops. Unfortunately the comparison was not to the space that these shops replaced but to the chain average. The new shops are mostly in prime real estate. The new shops are getting most of the advertising. A like to like comparison is needed to really understand any meaningful improvement. Also, when depicting its new store design, Penney’s loves to show a single floor layout, with a single entrance and no escalators. The reality is the overwhelming majority of Penney’s store are multiple floor, multiple entrance with escalators right smack in the middle. This greatly complicates bringing the new vision to life.

With this critical holiday quarter sure to be another big disappointment, we can only hope to hear much more about plans to right the ship. I will be using this list to see if Penney’s can make the move from Awareness to Acceptance to Action.

 

Up next in Part 3, my recommendations on what JCP needs to do strategically and tactically right now.

 

9 thoughts on “JCPenney’s Road to Recovery (Part 2): The intervention

  1. Great points as always Steve. I suggest the emperor has no clothes. To your point the relentless “Apple” wunderkind bears no comparison. I’d say luck had a lot to do with it. This is such a mismanaged mess you’d have to look long and hard for a worse example. #9 you left out: Johnson needs to go.

    1. I should have said to the chain average for the “non-transformed space.” So thanks for pointing that out. Regardless, my point remains the same. It’s not a useful comparison. In fact, it probably further distorts it because they don’t intend to add shops to many of the least productive stores.

  2. Steven, I wrote some counterarguments to your post about JCP some time ago. I am increasingly coming around to your way of thinking, though.

    One of the takeaways that Guy Kawasaki took from Apple was that Apple was able to offer something unique and valuable. JCP have, in effect, demonstrated that they do NOT have something unique and valuable (at least not yet). JCP touts itself as offering “good value at reasonable price”. Apple never sold itself as a reasonable price offering – it sold itself as a cool gadget that you had to have. There is nothing unique about offering good value at a reasonable price – that’s just competitive pressures at work.

    Come the day that JCP can dispense with having sales, that will be the day that JCP can compare itself with Apple. Until then, not so much.

  3. Great article, Steve. You have to step back and wonder what competitive position they feel they are going to fill even if they are somewhat successful. A higher priced Target on the mall with fewer unique brands?

  4. This article has some of the best insight into JC Penney’s struggles I have seen. I would like to see your insight into Best Buys’s downfall. I see them as the next giant to disappear due to their lack of being in touch with what the consumer really wants.

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