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JC Penney: The way, way back (Part 2: The action plan)

In part 1, I laid out the context in which JC Penney must recover from the disastrous performance of the past 2 years. In particular, I posited that their performance is likely to get better in the near-term. But I also pointed out that better is not the same as good. Even a return to the “decent”  2012 performance levels–which won’t come any time soon–is not an acceptable long-term outcome.

Now, from my outside looking in perspective, are what I believe to be the essential components required for Penney’s to make its way back to long-term viability.

  • Nail the positioning/Evolve the value proposition. To gain top-line momentum and assure near-term financial stability, Ullman and team are bringing back “legacy” products for their traditional core customer and returning to intensive sales promotion. This is necessary, but not sufficient. The value proposition of 3 years ago is not sustainable. Like all retailers serving the moderate market and offering a wide range of products, the challenge is crystallize your competitive positioning and to ruthlessly edit against the key customer segments, purchase occasions and price points you wish to own. Deep customer insight is key to getting this right. Penney’s must figure out how to attract a younger, more fashion forward customer over time, while not alienating its historical core. A tricky proposition to be sure and one that must be approached as an evolution rather than the catastrophic revolution that Johnson attempted. Once this is decided upon, it must become the “true north” that guides all future strategic execution.
  • Accept that it’s about ‘share of wallet” and plan accordingly. Maybe the economy will begin to grow above the rate of inflation. Maybe the long-term secular decline in the moderate mall-based department store sector will reverse. Maybe I will be starting quarterback for the Cowboys. But let’s not plan on it. The reality is that Penney only thrives, must less survives, by stealing share. The good news is they are likely to get a bounce from Sears’ slow slide into oblivion. But the rest will not come easily. Copying Macy’s and Kohl’s won’t cut it. Sucking less is not a strategy. Carefully choosing the customers Penney’s wishes to serve, understanding the levers to their engagement and loyalty and out-executing the competition are the table stakes. And since it’s a battle for share, expect the competition to fight back fiercely.
  • Defy the sea of sameness. Visit any of Penney’s key competitors–on or off-the-mall–and you’re struck by the lack of differentiation in product, presentation and experience. Take the brand name off the circular and, except for color scheme and typeface, all the advertising looks virtually identical. During the Johnson regime JCP obviously went too far and too fast on just about everything. But the underlying logic should not be lost. Penney’s must build stronger proprietary brands, while selectively bringing in (or amplifying) differentiating national brands to win in targeted consumer segments and price points. They must relax their seeming obsession with depth and get behind key items that solidify their new positioning. And advertising must be about this differentiation, not just price promotion. You can’t own “discount.”
  • (Re) Build a customer data & insight asset/Treat different customers differently. Ron Johnson’s eschewing of customer research and analytics, along with his dismantling of Penney’s CRM capabilities, contributed to Penney’s implosion. More and more, those brands that have the deepest understanding of customer behavior, the ability to reach a large percentage of their customer base on an individually addressable basis AND the willingness to progressively customize their offerings will gain considerable competitive advantages. Penney’s historical strengths in direct-to-consumer, large private label credit card base, burgeoning loyalty program and an e-commerce business that is (finally!) beginning to tap its inherent potential are all important building blocks. It’s time to step on the gas. More dollars to direct marketing. More personalization, less mass. More “test and learn. Rinse and repeat.
  • Invest aggressively in frictionless commerce/Own the moderate omni-channel customer. Right now cross touch-point shopping behavior is the norm. Right now only retailers talk about channels. The growing reality is that consumers think brand first and are becoming increasingly channel agnostic. They are expecting a seamless experience between digital and brick & mortar worlds. The growth in mobile further blurs any distinctions. For Penney’s, organizational silo busting must be a priority. They need to learn from the success that Macy’s and Nordstrom are having and translate that to a brand appropriate omni-channel strategy that will make them the undisputed leader in their competitive set.
  • Re-invigorate and evolve the brand. The JC Penney brand is a blessing and a curse, resonating strongly with some, not connecting well with many. JCP simply cannot win without retaining many core customers, deepening relationships with infrequent shoppers and attracting a new generation of potential high spenders. This is a hell of a challenge and the only certainty is that it will take tremendous investment and many years to prove successful (think Cadillac). Current marketing efforts are, understandably, about winning back customers Johnson “fired”, clearing old merchandise and securing financial stability. The basics of this should be accomplished by mid-year. Then the tide needs to turn to a multi-year strategy that shifts the focus on discounting to emphasize trust, value and the key elements of product and experiential differentiation. Plans need to assume it will take 5-10 years to make a meaningful dent in the minds of the critical Millennial segments.
  • Re-energize the culture. Deep customer insight, well articulated value propositions and kick-ass operational capabilities are great. But it is leaders, their teams and the determined perseverance of individuals that make the difference between a compelling strategy and its actual impact. The wrong-headedness of Johnson’s strategy, his inept management style and his gutting of key personnel has set back Penney’s mightily. I know of many talented, loyal Penney’s associates who both wish for and believe in Penney’s resurrection, but who have elected to leave for more secure career opportunities after enduring more than 2 years of craziness and disappointment. Ullman’s instincts in this regard seem spot on, but one should not underestimate the challenge of rebuilding key organizational capabilities, attracting the new talent necessary to take the brand beyond where they were in 2012 and building a customer-centric culture for the brave new world of omni-channel. Improving results will help, but this too is a multi-year substantial investment.
  • Don’t get distracted. Wall Street will push for cost reduction and store closings. To be sure, there will be incremental opportunities to ferret out buckets of productivity. But Penney’s issue–just like Sears’–is sales productivity and growing target customer share of wallet. They need to keep their eyes on the prize.
  • Settle in for the long-haul. I’m not about to get into the timing issues inherent in the signs Wall Street values that might cause Penney’s stock to pop. Having said that, I do think many of the liquidity issues are overblown. I do think new spring merchandise and easy comparisons to last year’s dead on arrival Home strategy should generate solid comps. I do think that gross margins will steadily improve. And I do think that many of the investments Johnson’s team made in upgrading layouts and presentation can serve as a stronger platform as new merchandise hits the store. Do with that what you will. But the transition from better to good will not come in a few quarters. Even in a best case scenario I expect it will take Penney’s at least 3 years to get back to 2012 performance levels. Whether they can do what it takes to be around a decade from now remains a huge open question and will remain so for quite some time.

 

Note, if you are desperate for entertainment and/or wish to check out my early call on the inevitable failure of the Ron Johnson strategy, just Google my name and “JC Penney” for my many JCP related blog posts of the past 2 years.

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