Ron Johnson ousted as JC Penney CEO
tuaw.com
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-Warren Buffett
It perfectly describes the situation.
1)http://cl.ly/image/2y1T1L2M1s0e 2)http://cl.ly/image/1a3D3c1J1Z0I
I think the more obvious problem is they're a low-margin business at a time where being low-margin is difficult unless you're the biggest guy with the lowest operating costs.
it's a very good book. i just gave a friend a copy today (if anyone in santiago is looking for a spanish language copy it's sold out in all the shops but bazuca.cl still have it in stock - i guess no-one thinks of buying books there!)
After all, isn't not accounting for customers' irrationality in your business also irrational?
I think that is the sad part.
It's not even clear that fully rational humans would be a good thing. Great art, for instance, doesn't come from being rational. It comes from people with irrational drive and vision.
And while I know that humans aren't rational creatures (in fact it was my research for a number of years), some of this can be fixed with market leadership and "training" customers to understand that they're acting against their best interest by demanding an economy in which marked prices are in fact price anchoring deceptions.
But people often like games because of the hoops they have to jump through, not in spite of them.
Shopping is a game to many people. You can't "win" unless you get a lower price than other people.
For her, something at a low price point to begin with appears cheap, however you take that same item and slap a high MSRP on it with a 50% discount down to that same first price point... now we're talking!
I replied that I saved more than that by not buying the stuff in the first place.
She couldn't understand what I was talking about.
We buy discounted items because discounts tell us which items to buy.
For a given product, there are usually several competing choices, and most people don't have enough time to evaluate whether each one is a good deal for the price it's offered at. So the easiest way to select is to just pick the one that's on sale--or if they're all on sale, pick the one that appears to have the biggest discount relative to the MSRP.
The discount also tells us "you should buy this now, because if you buy it later, the price may go up."
Without this important signal, customers don't really know which one to buy, plus there's no urgency to buy the item now, because it's always that price.
So, while Johnson's approach may have "made sense," and may have worked for Apple products because their market position and product lifecycle makes discounts unnecessary, this strategy really didn't play to consumer psychology, at least in the apparel space.
But who cares if it's average or even poor value at the current discount? My thinking should be, "which item offers me the best value as priced right now"? I think what you're suggesting is that the "full price" gives customers a "hint" about how much to subjectively value the item, which is also sad because the last person I want telling me how much something should be worth is the person selling it to me.
However if we accept that all of the above are inevitable, then we must accept a friction-free experience as valuable. And the poster above is pointing out that whether it's logical or not, the feeling of "I made the smart choice!" by buying the discounted option, provides this easier experience.
At a high level human choices aren't rational which is sad, but we must accept it.
I can accept that but I have to ask: who would have the time to make a deep, rational analysis of the value for everything they buy? At some point I think the quick "discount heuristic" is the more rational choice because it saves time.
On the other hand, for big ticket items (cars and houses) I'd hope people would spend a lot more time making a rational choice.
Alternatively, "you should buy this from the clearance rack now, because it's not going to be here tomorrow"
Exactly. One of the most important concepts out there is urgency to buy. One of the reasons car dealers can't sell at fixed prices. They can't create artificial urgency as easily by making the deal "only good today". If you know you can buy the car (assuming of course no supply issues on the model you want or color features etc) in a week you don't have an impetus to get off the fence and decide.
Separately and related to this is not to make open ended offers when giving pricing if possible. Otherwise people are definitely (from my many years of experience) less likely to make a commitment. This of course varies with the product, price and other factors obviously.
There is absolutely no question that sales, coupons and discounting and specials work.
http://www.businessinsider.com/zaras-genius-business-model-2...
Here are the key paragraphs:
Zara's strategy involves stocking very little and updating collections often. Instead of other brands that only update once a season, Zara restocks with new designs twice a week, Suzy Hansen wrote.
That strategy works two ways, according to Hansen. First, it encourages customers to come back to the store often. It also means that if the shopper wants to buy something, he or she feels that they have to purchase on the spot to guarantee it won't sell out.
Obligatory XKCD on shopping patterns: http://xkcd.com/309/ :)
The largest retailer in the world is Walmart, which doesn't really use discounts except to clear inventory, and advertises "always low prices".
American consumerism does love low prices. The problem is that if you play that game, you compete with Walmart and lose.
Walmarts game is a bit different and they can pull it off because of their unique positioning, size and buying power. They also get you to buy things you don't need by their merchandizing. (Similar to how you go into a supermarket for one thing but end up with 10 other things.)
Interesting... how do they do that? I've always found Walmart's retail experience to be about one step above a warehouse club. I tend to go in for what I want and if it's in stock (often times not the case) I buy it and GTF out.
Their data mining lets them know exactly what to price Household Paper Products in your zip code so that they're always lower than the surrounding competition while not leaving money on the table. They're not targeting the lowest possible price system-wide.
Comparing them to Sears, Sears practically screams good deal. Its just up to you to figure out if its not. Plus Sears has Craftsman which sets it apart from other Mall retailers. Not sure what JC Penny has.
The only good job I will give them is, of the few sales people I met there they at least would help me. That stood out because in Macy's I was ignored even when I asked - apparently men are not allowed to shop at the mall or certain stores.
I'm 40 years old and throughout my entire life, JC Penney has represented a pretty consistent image of being a discount store where old people shopped. I don't think anyone (including Steve Jobs) would have been able to modify that image in my mind in a scant 2 years while keeping the brand name, the image is just too entrenched at this point.
This leaves the store in a worst-of-all-worlds position where people who don't currently shop there maintain the decades-old image of what the store used to be while people who did shop there are put off by the changes.
I don't know anything about the retail clothing business but just based off common sense I could have predicted this short-term result based on the half-way measure of trying to redefine an iconic (for better or worse) brand without actually rebranding. Seems pretty obvious, no?
Too much, too fast for the JCP core consumer.
Well, Johnson was most likely a big part of Target's past and continuing success. He was VP of Merchandising (among other roles across 15 years) at Target.[1] JCP was just the wrong fit I think.
[1] http://abcnews.go.com/Business/wireStory/ron-johnsons-resume...
If you read anything about this guy's tenure at the company, it becomes apparent he was riding someone else's coattails at Apple and possibly at Target... because all he did was copy org structures from Apple to graft them onto JCP without understanding why or how they worked at Apple. He lacked basic retail understanding and was a typical middle-road MBA pointy-haired boss. I just wish I understood how I could get hired to fail like he and so many other execs do -- the pay is so much better! The joke is clearly on me.
He was no different than a 'Senior dev' copy-pasting a bunch of Stack Overflow Java code in your team's C environment. Guess what, it was convincing at first but doesn't work ("what do you mean C has memory leaks?").
His approach failed for many reasons, but most succinctly the failure is because JCP is a discount brand and Apple is a premium brand. So far our understanding of retail is that premium and discount stores operate differently. He thought he could take premium behaviors and apply them to discounts (in fairness, this is what he took credit for at Target, but having talked to people in MN it seems that credit was JCP PR to explain how he got hired).
My favorite moves from this guy (recalling from memory, apologies for not providing HN-worthy citations):
-- When it became clear JCP was't getting traction with the new promotion structure ('best price' nonsense) last summer he blamed and fired his good friend and longtime colleague who he personally brought to JCP. He had worked with the guy for years, and somehow the execution of a bad idea was the problem. He took no responsibility and charged ahead. Very quietly he started dismantling his bad ideas.
-- He stopped discount sales altogether. At a discounter. Without explaining or convincing others that they would have cheaper prices than competition.
-- He stopped clearance altogether. Most of my purchases at JCP over the years have been from clearance, so people like me had zero reason to step inside the store ever again.
-- He never moved to Plano so he could keep attending church in CA, and he only flew to the HQ 3 days a week (on average). Plano has an equivalent denomination church, and I imagine his CA community would understand the absence. Few people at the company HQ had a chance to talk to him in person. I don't understand how you can turn around a billion-dollar corporation remotely.
-- He encouraged teams not to talk to each other and be secretive, because somehow that led to a better customer experience when everyone was confused. He asked some teams to report directly to him. JCP doesn't build consumer products, they build store layouts and discount structures. The secrecy was stupid when you consider he managed remotely and was a communication point-of-failure. Some 'incubator' teams were allowed full access to disrupt normal operations, and my understanding is that there was quite a bit of friction that led to much lower productivity.
-- The store-within-a-store concept was an udder failure. However, all public reports are that sales/sq-foot were higher in these store-within-a-store and therefore we were to infer a success. The real story is JCP took its best selling items, put them in the innovation, and sure enough they continued to be well-selling. Of course the per-sq-foot space sold better when the best selling items are concentrated. However, sales for the items dropped worse at a store-within-a-store once re-arranged alongside the rest of sales. If you are curious about this pattern in general, you should watch what happens to Best Buy and Samsung with their new store-within-a-store experiment. I personally don't believe retailers should turn themselves into malls :)
-- They had a small layoff where they targeted HQ people who watched too much YouTube. The packet inspection company had a PR-like piece in the WSJ advertising how well it worked to target those shirking employees. The narrative makes sense except the positions eliminated were predominantly _fashion buyers_, who most likely were watching fashion shows and aspiring fashion makers on YouTube because travel budgets had been cut that same year.
-- The Martha Stewart trial is beyond stupid and short-sighted. I think he should have found an up-and-coming who could produce similar quality but CHEAPER products rather than overpay for a has-been brand. There is a reason that Macy's is not giving Martha as much floor space as she expected.
So, this rodeo has been extremely fun to watch, and I sincerely hope the next chapter for James Cash Penny's store is brighter. It is a good company with good people. It should be focused on the founder's values: good value and fair prices.
This is a very interesting allegation, and I would love to see additional information about it.
Would be interesting, but I wonder at sources. An outcry of justification of said-Youtube viewing would probably have been heard or referenced.
The main references in articles are "back office support," corporate, and cashiers:
This article continues the theme (that you will find on most articles) of the YouTube volume [1]
Kramer shared an example: There were 4,800 employees at the HQ in January 2012, and in one month they had watched five million YouTube videos during work hours. He said that 35 percent of bandwidth at HQ was used for "loafing off." One big consequence was the culling of staff. Now, a little more than a year later, 1,600 of those workers have been sent packing.
Jan, 2013 The moves will eliminate about 5,000 department-store jobs, 300 more at headquarters and regional offices and 265 Eckerd positions — all told, less than 2 percent of the company's work force of 290,000. [2]
The latest job cuts were concentrated in about 100 stores where sales fell the most, and the eliminations hit back office positions. A Penney spokeswoman said none of the cuts affected staff who deal with customers. [3]
March, 2013 [4] J.C. Penney Co. (JCP) is cutting an additional 2,200 jobs to trim costs as Chief Executive Officer Ron Johnson’s revamp of the department-store chain causes sales to plunge.
The positions to be eliminated include back-office administrators in stores and district offices as well as store leadership positions, Joey Thomas, a spokesman, said in an e- mail yesterday. About 10 percent of J.C. Penney’s 1,100 stores cut their headcounts because of sales volume shifts, he said.
Johnson said last week that 19,000 J.C. Penney employees have lost their jobs in the past year as his turnaround struggles to gain traction.*
[1] http://www.businessinsider.com/jcpenney-coo-michael-kramer-c...
[2] http://abcnews.go.com/Business/story?id=88710&page=1#.UW...
[3] http://www.huffingtonpost.com/2013/03/07/jc-penney-layoffs-s...
[4] http://www.bloomberg.com/news/2013-03-07/j-c-penney-cutting-...
This was during the time when "New look, new day, who knew?" was their tagline. Which was utter shit when every time you go into a store it looked like it was in shambles, and telling people you had a new look when they could clearly smell the same pile of dung from a block away doesn't increase customers. It was bad.
Then about 4 weeks from competition, they release a new logo and a new tagline (honestly we were rebranding towards a JCP moniker during our ideation phase anyways), basically throwing us under the bus. We had to make something for their rebrand - it had been 10 years since they did anything previously.
It's no surprise to me that anything unconventional was discarded quickly, and Ron was booted. These people are short-term thinkers, that are entrenched with the big-box department discount store mantra. They were getting close with store-in-a-store ideas like MNG by Mango and Sephora taking up space inside. It's just unfortunate that they're so worried about providing discounts and racing to the bottom with cut-rate merchandise (even their self-created brands like St. John's Bay had a ~4% profit margin).
The market is huge, but they are stuck in the stone age.
JCPs that are big enough to have a Sephora are typically in a large enough mall that already has a Sephora. What new customers are you getting into your store then? Why go into a JCP if you just need something from Sephora? They are also typically located in the front of the store. Go in, get Sephora, walk out. They don't even see any of your other stuff (although I don't think the Sephora consumer overlaps with the JCP consumer).
For instance, JCP has been rather drastically upgrading the quality of their menswear. They've not only started catering to a much more fashion-oriented consumer (they even brought on Nick Wooster, who was previously at Bergdorf Goodman and Gilt Groupe's high end retail site Park & Bond - http://www.jcpenney.com/dotcom/jsp/browse/marketing/promotio...) but they took a stand that such clothes should be wearable and affordable. It's an audacious, if respectable, goal that anyone should be able to see can't be achieved in a year or two. It took JCrew much longer than that to make a similar transition.
Shareholders should have been very aware that things will get much worse before they get better, as it takes time and conditioning to expunge "bargain basement" from the brain and into something that more closely resembles a homegrown Uniqlo. People gave Johnson credit for doing so at Target but to be fair Target didn't gain traction on the upward move till years after he left. He should have never put himself in a position where people were expecting progress barely a year after taking the reins.
Turning around an entrenched company like JCP is a task that really doesn't follow much of Apple's game plan, and I think Johnson's decade in the tech sector might have spoiled him in estimating customer trends (especially with regards to reconditioning behavior). It's a bummer, as someone into clothes AND tech I feel like the JCP transformation could have been a really great story.
This is true in groups too. I've seen groups lose a star player, only to have another 'star' swapped in but with a different vibe and it all goes to hell. This seems to be magnified with CEOs.
I know that I do not have the fortitude that it takes to be successful in a walmart/target/costco kind of retail space. So I wish him luck.
Do you know why Nike doesn't sell shoes in Target or Walmart? You'd dilute the brand. So they bought Converse. The opposite is true as well, however. You certainly can cause brand confusion where your old customers don't like the changes and your new higher-end customers - well, they are still shopping at Nordstrom.
Every step he made was fraught with clear consequences. Getting rid of discounts. Over-streamlining stores to a point they look partially empty. Trying to bring Target's successful ideas (like their mini-boutiques) into JCP just on a bigger scale. And trying to steal Martha Stewart from Macy's was just plain dumb, that's going to cost the company a lot of money.
The board should've hired a CEO from the ranks of Target, Macy's, or Nordstrom instead of Apple. The high-end tech marketing didn't translate to middle-tier consumer shopping marketing.
http://www.npr.org/blogs/money/2013/03/08/173829409/episode-...
It takes a long time to change the image of a brand. Alienating your old customers before you have gotten new ones is a strategy for failure.
- Brand recognition (status)? Nope.
- Low Prices? Nope.
- Quality (higher than) products? Nope.
- Cutting edge fashion? Nope.
- Fashion for average folk? Nope.
They are simply without a defined aim. And that's why their business lacks. Retail is still alive and kicking, but not for companies who still live in the days of The Brady Bunch.
Personally, I shopped more at JCP over the past 8 months than the previous 15 years. There was an appealing mix of brands, quality, and fair prices that struck a chord with me. Unfortunately, it clearly didn't work for the majority of the mall-shopping public that has been trained to only buy when there's a sale or coupon.
His strategy seems to be based at copying what worked with Apple. Reducing product lines, making things upscale, removing sales, etc. I don't think how anyone who actually knew JCPenney would have thought that was a good idea. Their brand was already ruined.
Its not the general public at fault. Past JCPenney management ruined the brand by going coupon crazy. To the point that my wife only shops there when there is some stupid take 15% off, then add and additional 12% off of you buy another coupon. Otherwise, she thinks its too expensive (which I do think is right) for a department store.
This is the same kind of scenario that happens to businesses that became Groupon addicted. People stopped buying when no Groupon was available.
Kohl's and Target have stolen the JCP consumer. Name recognition on clothes, low prices and sales, streamlined and targeted advertising, quality for a fair price. It's not that hard to do, Johnson just didn't know how to do it.
I'll probably never step foot in there again now that they're going back to their ridiculous pricing strategy.
Honestly, if he had not changed the pricing strategy, he would probably still have a job.
The company also introduced a lot of product lines that were supposed to be specialty brands which led to entire stores looking like disjointed flea markets. There was no way to tell what was unique or special because everything was branded as unique and special.
I liked not having to think really hard while clothes shopping. I liked it a lot. But I suppose a target market of "people who hate clothes shopping due to the artificially high cognitive load" is a pretty slim market segment.
They had a coupon though, it was spend 50 get 10 off. I didn't have one and the cashier used the one at the register. She also used an iPhone to ring up up instead of the cash register sitting in front of her.
Found it: http://www.npr.org/blogs/money/2013/03/01/173203739/sales-ar... (I recommend listening to the audio, which has more detail)
The whole thing is a little sad. Thankfully he's gone and maybe for the company's sake they can pull out of his tailspin. If not oh well, that's also what you get for not vetting people and just buying into their PR and dropping a rockstar into the driver seat and giving him the keys without vetting him.
He clearly made a mistake at JCP. That doesn't make all his previous successes invalid or luck.
JCP stands a better shot at dominating the "discount" market, which everyone associates it with, than combating half a century of marketing.
The Gap is a great example of a company that avoids brand extensions. They have separate brands for low/medium/high-end clothing stores (Old Navy, Gap, and Banana Republic) and Athleta for sportswear. I'm not sure where Piperlime fits in, though. It was originally women's shoes and accessories, but now Piperlime also sells clothing for women and men.
In the other direction, I think Volkswagen is making a big mistake with their brand extension from "the People's Car" to high-end cars. They are competing with their own Audi brand instead of reinforcing strong brand segments.
Has long amazed me that JCP couldn't brand properly when their other competencies were so strong.
I was absolutely aghast when I first heard what Johnson was doing. It sounded — almost literally — insane, and never for a moment looked or sounded any better. Marketing is marketing. Target and Apple did the marketing for him, so apparently he never really learned what marketing is.
No board will put up with that.