Ron Johnson's latest undertaking has the makings of a perfect business school case study. As the new CEO of J.C. Penney he's charged with transforming an aging department store chain with lagging market share.
The sweeping plan begun February 1 to put cool back in Penney includes new designer brands, simplified pricing that replaces the retailer's constant sales and coupons, and an updated store design that promises to make one think more of Apple's high-touch emporiums than a typical department store layout.
“J.C. Penney is in a very tough spot.”
In fact, the apple does not fall far from the tree. Johnson (HBS MBA'84) comes to Penney after more than a decade of leading Apple's retail effort, where his innovations included the Genius Bar. Johnson is also credited with making Target chic. This makes his launching of the new Penney one of the most intensely watched experiments in the future of retailing, as the industry grapples with how to entice shoppers away from their keyboards and back to the sales floor.
Johnson could make his plan work, but it won't be easy, says Rajiv Lal, the Stanley Roth, Sr. Professor of Retailing at Harvard Business School.
"J.C. Penney is in a very tough spot," Lal says. "If you ask people today what J.C. Penney stands for, you don't get a particularly compelling answer."
Once a staple for everything from bed sheets to children's clothing, many shoppers now associate the 110-year-old brand with a bygone era of paper catalog shopping. Penney's sales have lagged in an increasingly fierce retail environment, with stores such as Walmart vying for customer dollars on the lower end, Kohl's and Target jockeying for the middle market, and Macy's and Nordstrom reaching for the upper-middle end. JCP reported a December-quarter loss of $87 million, with revenue falling year over year by 4.9%, to $5.42 billion.
Johnson, who took over in November, is revamping Penney's 1,000-plus stores to target "all Americans." Standing out in the crowd, making the pricing scheme work, and reinvesting in the company despite razor-small margins are all part of his challenge, Lal says.
Pricing It Right
Retail pricing is a high art, and Johnson is starting from scratch at Penney, replacing frequent sales—the company had 590 of them in 2011—with "Fair and Square everyday pricing."
When outlining the plan in January he called the company's former strategy of offering items at a high initial price and then marking them down weeks later "insulting." He also eliminated coupons, something Macy's did in 2007, only to reverse the decision after unhappy customers snubbed the store.
Nearly three-quarters of everything at Penney is usually sold at 50 percent discount from list price. The new model is based on three prices: the everyday (at least 40 percent off), which kicked off February 1; month-long values, based on themes like back-to-school and Valentine's Day; and "best prices," which are clearance sales. In addition, Johnson decided to end all prices in "00," instead of 99 cents, and exclude the suggested retail price of a product on the tag in favor of just one marked-down price.
"I think that on the consumer side this has simplified pricing, which makes a lot of sense," Lal says.
“All department stores either rise or fall on their ability to execute a strategy.”
Penney will be able to move more merchandise off the floor faster, Lal adds, quickly making room for fresh items. This strategy could bring customers into the store more frequently and buying when they find a compelling piece of merchandise, rather than waiting until the next sale.
Still, Penney's pricing plan is risky. "Every day prices will not be as low as the biggest discounts that [the company] once offered," pricing consultant Rafi Mohammed wrote in a recent Harvard Business Review blog. "Instead, its pitch to consumers is why play the 'wait for the rock-bottom price' game when Penney offers 'pretty good' prices every day?"
Aside from pricing changes, all retail stores are under intense pressure to create item assortments that cannot be found elsewhere. "We complain that every department store is the same," Lal says.
Some retailers are already fighting this perception, observed Lal and coauthor Jose B. Alvarez in Retailing Revolution: Category Killers on the Brink. TJX Companies—parent company of T.J. Maxx, Marshalls, and HomeGoods—is well positioned because it "fostered a differentiated treasure hunt that is highly productive. Macy's [has strengthened] its already wide-ranging assortment of unique items. Nordstrom's private label has always been a respected part of its offer."
Town Square
Johnson's vision is to make the shopping experience as easy and enjoyable as buying a smartphone at an Apple store or sipping a latte at Starbucks.
J.C. Penney stores will be overhauled and streamlined, adding 80 to 100 so-called brand shops, or stores-within-stores, to be located along a new "Main Street" that replaces the confusing, endless racks common in department stores.

Brands will include the ubiquitous Martha Stewart and Nanette Lepore's "l'amour nanette lepore" line, a budget-friendly teen boutique. Existing brands including IZOD, Liz Claiborne, and The Original Arizona Jean Company will receive refreshed displays. Add to the mix an American themed red, white, and blue logo, an as-yet-undefined "Town Square" space in all stores, and the naming of talk show host Ellen DeGeneres as a company spokeswoman, and the ingredients are moving into in place to create a buzz around the brand.
The store-within-a-store concept promises to provide Penney with the unique merchandise it needs to stand out and attract new customers. But it can also be tricky to execute. For example, if Penney allows too much leeway to the individual store-in-store brands on how they display and manage their merchandise, it could subtract from the overall shopping experience that Johnson is trying to create, says Lal. Overall brand control includes everything from how the merchandise is sold to the way employees interact with customers.
"If [Johnson] is able to control the shopping experience it's a much more viable strategy," Lal says.
Will It Work?
Johnson has "painted a picture that is very reasonable," Lal continues, but it will take about three years to gauge whether he's succeeding.
This August, the company will begin updating all stores with new merchandise. Two to three in-store shops will be installed monthly over the four-year plan. The Town Squares, which will likely be used to provide shoppers with complimentary services (free ice cream? haircuts?), are scheduled to debut in 2013. Johnson expects the transformation to be complete by 2015.
"All department stores either rise or fall on their ability to execute a strategy," Lal says. "These are great ideas, but the ability to execute day in and day out, and keep employees motivated in such a large organization where stores are spread over such a huge territory" will make or break the plan.
and the town square in their logo. But I hope they did
not spend much on it. Well I guess if Macy's can make
the North Korean Red star work anything can happen.
that I worked with were like family and totally were on the same page. This included the management.
I like the new JCP logo, the ads on TV and the stores are
looking great. Keep up the good work.
I my self and friends will no longer shop at JC Pennies due to the new structure. People like to see deals / good advertisement.
The four Ps of the Marketing Mix are out of whack at the new JCP. And the department store business model is passe.
Product is not unique but a grab bag of designer shops that do not build a core brand because it's a hodge podge of others' names.
Price will fail because it won't be predictable as the author states above. Apple, with its closed loop vertical integration and tech/design has superior brand differentiation to support a premium price. JCP won't be able to clearly stand out as low priced with so-called EDLP; someone will always have a better deal. Consequently, there will be in no man's price land at JCP.
Place. A unique shopping experience may be in the offing but will be hugely expensive to execute and maintain. Will require substantial real estate investment in top locations.
Promotion. Ellen DeGeneres as spokesperson creates buzz but is it broad enough to appeal to a significant market size?
An attractive logo is not a strong enough platform to support a weak business model.
In today's over-stored, competitive retail landscape what is JCPs USP and compelling, differentiating strategy?
Yes and no. It depends on the item. As a consumer, I don't care that XYZ Pasta Sauce is only available in XYZ stores. But for higher priced items, like when I go mattress shopping, and the same products are labelled differently at different stores, I get irate. This is done to prevent me from comparing prices., it is done to stop competition on price.
Similarly, "exclusive" partnerships between, say mobile phone networks and mobile phone brands, stink. If I can buy the mobile phone "abc 5000" only from one network, my appetite for said model shrinks a lot.
Logo appears to have been done by the Gap logo folks, and that was a bust. Lame attempt to tap the digital logo zeitgeist.
And I remember seeing a Business Week cover in my home in 1966 with a story about the "new" JCPenney; and it seems I see the same story every few years.
After 30 years in specialty retailing, it's amazing how often outsiders come in to announce a whole new approach to pricing; they love the theory and it never works UNLESS it's the by-product of excellent product selection and merchandising.
That's my final thought--no one seems to be talking about "the goods." Imagine Mickey Drexler at this task and that's ALL he would be talking about. So, I'm not impressed....
1. How will he change the culture of a stale company with 5000 HQ employees, 1100 stores with their employees?
2. 100 substantive brands is a nice sound bite, but has anyone even potentially ID'd contenders? Martha Stewart is hardly ground breaking (to say nonething about litigation with Macy's). There are some interesting labels that could be accretive to JCP business and sales, but the majority will be "new" lines from existing players. Eventually, this becomes akin to shopping for a mattress; each retailer wants "unique" products to differentiate and avoid price competition, but reality is that it's the same product with a different label and stitching.
3. Imagine 100 boutiques circling the town square. Johnson wants common fixtures (to his credit), but each boutique will press for something different to stand out. This becomes a visual merchandising nightmare for both store employees and customers. Sometimes a customer wants to shop by label/brand, but sometimes she wants to shop by classification. If I am looking for better denim do I have to cross-shop 10 or 20 different boutiques? Will the boutique (shop within shop) sales people be motivated to help me cross-shop, or will they be "trained" as brand experts with an incentive -- direct or indirect -- to have me buy from their boutique? How do you manage so many boutiques, with different product classifications, price points, sales associates, etc but keep the JCP shopping experience coherent and satisfying? Neiman Marcus and Saks face the issue of balancing "brand" specialists versus category specialists (eg, dresses) with far fewer distinctive bou
tiques and with sales associates who have far more training and far higher earnings potential versus JCP.
4. Johnson wants to keep all 1100 stores open b/c all are profitable at store-level (four wall basis). But thats a HUGE number of stores to re-design with dozens and dozens of different formats -- in mall/off mall, store sizes, layouts. Terry Lundgren spent years integrating the May Dept Store nameplates into Macy's, and he was converting about 325 stores, most all of which were in much better shape to begin with relative to Penney's.
I could go on for hours, but this is an immense task. No matter the advertising, new logo, new pricing, 8-figure apiece new executives, it starts with the product, continues with the in-store experience and can only have a chance at being executed correctly by having complete buy-in at HQ and across the hundreds of thousands of store employees. Those type of true, customer focused, product knowledgeable sales associates don't come at minimum wage or anything close to it. The "plan" is catchy, but that means zilch is JCP can't fill in all the pieces and execute this strategy.
Johnson apparently did wonders for Apple, but he did have the luxury of having a limited number (30-40 key items) of distinctive, high-preference products, complete control over supply chain and distribution, the margins to pay for superior store personnel and store layout. Contrast that with at least tens of thousands of items (no core drivers ala iPad, iPhone, Mac Book laptops, iPods), 1100 stores with 1101 layouts, a long heritage of operating in a much different environment, and much lower margins to pay for all that needs changing.
Not convinced that the 100 boutique strategy is right, but kudos for fresh ideas. Just haven't heard yet any realization of the challenges -- especially cultural -- to actually make this work. Customers will give you a chance but if you continue to invite them to a "party" you better be able to deliver. Otherwise you end up with really annoyed (former) customers.
Johnson can also not directly apply his Apple experience in JCP as these are not the same type of business entities.
are afraid to tell you that you are moving in the wrong direction. I would love for you to come and work with me and you would see what 7.25 per hour will get you.
I am one of your employees . I
get 7.25 per hour and give 100 percent after 20 years.
To me the new look begins wit a strikingly beautifully design logo that makes you want to see more, click on it, share it.
online ordering, PLUS now folding, cleaning out and cleaning up fitting rooms trashed mercilessly by rude customers who are allowed to take as many items of clothing in to try on as they like, with no associates to police the area, resulting in vandalism, theft, enormous piles of clothing jumbled up inside out, ripped, and dragged on the floor with no regard for how long it will take for us to clean up after them before we are allowed to go home. I HAVE HAD IT. JCPenney, go to hell if this is how it's going to be from now on.
I think it's wiser to start with a precise concept and image in order to set up the core meaning (mission and delivered value) of JC Penney in consumer minds and target a specific segment of Americans, before extending to something more and more general and targeting "All Americans".
Then at the same time, gathering in-store partners around that core meaning of JC Penney.
Johnson and his ever-larger team of highly compensated C-level executives are making a bit of a mockery out of his charge to "de-layer" the company, make it more nimble and act like a 'start-up.' Retailing is a complex business, but one is hard pressed to find another retailer (with no significant international store prescence) with as broad an executive management team as does the new JCP; this "act like a start-up" company has a senior executive group that includes a CEO, a President AND a COO (three separate positions) plus a seemingly ever-growing number of functional C-level officers including finance, merchandising, marketing, technology, HR, and EVP's of real estate, private label, strategy, store operations -- excluding 'The Square', which has its own dedicated EVP reporting directly to Johnson -- plus two or three more that I have missed and the result is an incredibly large, fat and expensive executive management team, all of whom received ext
remely generous sign-on packages including upfront multi-million dollar cash signing bonuses (unusual for retail) and multi-million dollar restircted stock grants with short three-year vesting schedules. In addition, few if any of the new gang are going to relocate to Dallas. Why? As JCP puts it, there is so much work to do across the company's 1100 stores in addition to traveling to meet with domestic and international suppliers, that there is no need for anyone to relocate to the Company's Home Office. The JCP BOD seems blind to optics: when you announce to your employees and the world that you are bringing in a new management team committed to a radical remake of the company -- one that will benefit all stakeholders -- it is a bit disengenious to then state that none of these critical people need to actually live near the company. How do you convince your remaining employees that this new group is really so committed to the casue when you don't require anyone to move
? Coupled with the rather outlandish pay packages, the end result may serve to signal that the new team has a rather short-term commitment to the company, its future and its people. No relocations, way above-industry average cash signing bonuses, and stock grants with a short three-year vesting schedule, no serious "claw-back" procedure to recapture these enormous payouts should management fail in its efforts -- these combine to call into question what the real long-term commitment is to wage an unrelenting campaign to radically transform the way this company does business. The underlying commitment of senior management, especially one that's comprised mostly of new talent, should be beyond the realm of any possible question. But the optics don't support that. Both the Board and Johnson (who isn't relocating either) know better. Why allow even the slightest doubt to exisit?
When the CEO is shooting for lofty goals, proclaiming the need to make dramatic changes and cost cutting to survive, spending $135MM+ on new management, while simultaneously laying off close to 15% of HQ staff, slashing store personnel and revamping store employee payroll hours largely to cut out employee benefits, a picture begins to emerge of a leader and a Board who are not at all in touch with the remaining HQ employees, or the store sales associates, many of whom receive minimum wage.
In my original post, a listed but a few of the challenges that lay ahead for JCP under Johnson. At the top was the question of how he will change the culture of this company both at HQ and across the 1100 stores. The strategy so far seems to be two-fold: lead rallying crys for the surviving troops, while simultaneously instilling a sense of fear amongst those who remain. Unless Ron & Co think they can manage the new "turn JCP into a mini-mall of shops & transform into a landlord" strategy by themselves, this matter is in need of serious and immediate attention.
I also questioned the need to keep all 1100 stores open (regardless of 4-wall profitability) since this makes implemetantion of the new strategy that more difficult (Terry Lundgren, CEO of Macy's, regarded as amongst the best in the industry, spent about three years transforming around 300 May Department Store nameplates into his national Macy's vision). As in most industries, some variant of the 80/20 rule applies, where a disproportionate amount of your sales and profits come from a core group of stores (typically labeled in retail as "A" and "B" stores). While Johnson is betting the entirety of the company on his new strategy, why in the world would he want to put the effort into transforming the "C, D and worse" stores? While I don't know the particulars of individual store locations including owned versus leased real-estate and physical store plant, I would guess that this 100-year old company would have its share of owned real estate. Al
so don't know the relative performance of owned versus leased stores, but you get the point: relative chance for success would be both higher and less costly if Ron & Co focused their efforts on the 500-600 stores that are highest in productiviity and profitability. Plus with board members including Ackman and Roth, JCP has its own team of real estate gurus who could maximize stakeholder value by having operating management focus on the potential winners while they focus on liquidating unproductive assets.
While JCP is not reporting monthly comp store results anymore, all indications point to sales sliding much more substantially than expected. Many shoppers still are ignorant of the new pricing policy. It's dangerous enough to make a complete and utterly ubrupt change in pricing policy across all stores on one day (February 1st), but the 'cutesy' TV commercials and monthly brochures do a poor job trying to convince customers that the new strategy is meaningful. Coupled with an unconvincing and limited merchandise assortment and ever more disgruntled store employees (who are your real "touch point" with most of your customers), and what you have left is likely poor business results for at least the next 2-3 quarters (and perhaps much longer), a disillusioned employee base, lack of new customers and the loss of lots of former customers who won't give you a 3rd and 4th try.
My 2 cents: pay more than lip-service to your employees, for you will certainly fail -- independent of the brilliance of the strategy -- without them on board, re-think the breadth of the plan (focus on top 500-600 stores), and recognize when you have to make a tactical retreat in order to win the war. After all, we are all human. Sometimes strategies don't work. Great managers learn from mistakes and adjust tactics and strategy accordingly. And finally to the JCP BOD: your responsibility actually includes 'corporate governance' -- force your (very) high-priced talent to put some skin in the game, and make them relocate (even if they rent)!!
I was replaced with the Training Supervisor, who must have known my job better than I did. I made the store money with my marketing and display experience and was excited to be a part of the new program. Bitter, maybe... but I can tell you that the customers were excited with the sale events and merchandising practices.
I don't think the new strategy will work at all, because customers came to expect a certain shopping experience with Penney's and it is gone.
Nothing in my opinion will match the "It's All Inside" campaign. It's been replaced with "It's All Inside If You Can Find It". Good luck with that.
Hopefully JC Penney executives won't be as ignorant as Johnson believes his customers to be.
Ah truly this is brand marketing strategy of "creating a brand within the brands".....
We did all the dirty work. Cleaning up after everyone, including our co-workers, and our super lazy sales associates.
I like the new merchandise and brands, and the low prices. (The majority of the Clearance items are extremely low, and they are always going down each day/week).
Customers don't realize that they don't really need the so called sales or coupons since there are considerably low prices everywhere.
I don't like the fact that customers can return merchandise anytime, anywhere, for whichever reason....you would be shocked to see the things the customers return and use excuses like "it didn't fit,"we don't like it," "it's the wrong color" and so on....and it is OBVIOUS that the item is all stained, ripped, damaged and SMelly!!! and some purchased over 10 years ago!!
and i must say that customer service has gone down because not enough people are being scheduled...employees are not quite happy
Dear Ron, I recommend to personally talk with the people that work in the stores. I'm sure that you will get LOTS of valuable feedback from all of us, both good and bad.
ust this month. By the way, I saw the interview he gave when he first started making changes and I didn't appreciate him saying he's going to teach people how to shop! I do that just fine on my own. He should learn what the people really want before he can teach anything.
In addition, I imagine that when you allow employees to dress so causally they do not buy new clothes as often - I know I wouldn't. Thus reducing employee sales purchases, which I am sure used to count as a high percentage of sales.
In addition, I imagine that when you allow employees to dress so causally they do not buy new clothes as often - I know I wouldn't. Thus reducing sales purchases at the store through the employee discount program.