Ron Johnson is out at JC Penney. His seventeen month stint at the retail giant will go down in history as one of the great leadership fiascos of the decade.
We can learn a lot from Ron Johnson’s tenure at JC Penney. Here are three of the key lessons.
– It is easier to lose your existing customers than it is to gain new ones.
JC Penney proved that it is pretty easy to lose your customers. The company basically told people that the days of deep discounts were over and anyone looking big sales should go shop at Kohl’s.
They did.
It is very hard to attract new customers, especially to a well-established brand. JC Penney tried to bring in people who were younger, more stylish and less price sensitive. They made some progress, apparently, but not very much and certainly not enough.
This isn’t a surprise; getting someone to rethink a brand takes time. Repositioning is an enormous challenge. It takes time and money and success is never certain.
– Set low expectations.
People evaluate results by comparing them to expectations. Is profit of $500 million good? Well, if the goal was $400 million, a profit of $500 million is terrific. If the goal was $800 million, a profit of $500 million is a disaster.
Johnson failed to set low expectations at JC Penney. His plan was going to hurt sales and profit in the short run but he didn’t predict the size of the drop. When results were weak investors lost patience.
Meg Whitman at HP has embraced the idea of low expectations. As she began her tenure as CEO she basically said HP won’t make anything for many, many years to come, perhaps ever. This is a good approach; it gives her time to make changes and adjust course.
– Don’t get too confident.
Ron Johnson and his leadership team at JC Penney were very confident. After a successful stint at Apple, Johnson believed he knew the answers. Johnson and his team also apparently thought the people working at JC Penney were somewhat clueless and pathetic.
So Johnson fired many of the existing executives and rolled out a plan that was deeply flawed. Did anyone tell him the plan wasn’t going to work? I suspect so. Did he listen? No.
Assuming you know all the answers is dangerous.
The focus has all been on Ron Johnson but the Board of Directors hired him, gave him full leeway and let him double down on his strategy for way too long. Unlike Coke (New Coke / Classic Coke ) the Board did not face up to their error and change back. Also, Bill Ackman promoted Ron like a Demi-God for his own short-term interests( making presentations at investor meetings etc ). After his debacle at Target, what does Ackman know about big-box retail?
Here is everything Ron could have done differently.
No testing. The whole concept could have been tested in an area or two for three months.
Constantly insulting your existing customer who valued the old pricing strategy.
Humiliating your long-term employees implying they have been incompetent all their lives.
Changing the entire senior management team in a matter of months – CEO, COO, CMO, CTO, CIO etc.- Losing all insitutional memory.
Having no compelling value proposition. After all, whose customer were they going after?
Everyday low price – Walmart wins
Branded shops – Macy’s wins
Younger customer – Zara, H & M and so many others win
Several of his supposed new brands that were going to replace the tired brands consisted of unknown names. Other than those in the industry, most have not heard of William Rast, Dreampop, Conran, etc.
Not recognizing how costly it is to change an entire industry pricing structure when all your real competitors (Sears, Kohl’s, Target, etc.) are promoting the opposite message with a high-low strategy.
The employees and stockholders have paid a price. Mike Ullman is a smart guy with great experience. I predict he will stablize the ship keeping maybe a third of the brands and other changes Johnson made. His successor will bring back JCPenney because he will have the advantage of Johnson’s expenditures in updating the physical facility and shop-in-shops. In a sense, Johnson was a great gift to his successors..
Finally, while everyone says JCPenney was a tired concept (which it was), it takes a lot to destroy these long established stores. Look at Sears. Besides, while this segment of the industry will never be glamorous or fun, there are those like Kohl’s and Target who have figured out their own niche.
JCP will do it too , possibly as a private Co. Wouldn’t it be an irony if Ackman after destroying the co. takes it private at a low valuation. Stranger things have happened in the retail world.
There are successful examples of CEOs turning troubled retailers around, moving from high end to value shoppers. Take Art Martinez of Sears. He came from Saks Fifth Avenue and turned Sears from a dinosaur to a cash cow and a respectable name again. Obviously, he had plenty of help by selling off property and companies like Allstate and Dean Whitter.
Retai has undergone tremendous change since then. I think that some of the commens on this thread identify what led to much of his demise, such as arrogance, moving too fast, imposing a model he knew to be successful on an existing culture he barely knew yet.
Hindsight’s 20/20 but the business world heralded the board’s choice to hire Johnson because of his creative ideas at Apple, so a lot more folks than Johnson thought his retail savvy would work for Penney’s. And some of his ideas were very creative, like the ability to work with a sales team and cutom fit jeans to your shape. Brilliant and needed. Some of the ideas he employed at Apple might have worked given more time.
And JCP was in a major turn around mode anyway. Any new strategy takes time to work. Only a miracle could have turned JCP around in the short order that the board was expecting. Johnson was working at changing his strategy. He admitted that a discount strategy was necessary.
I agree Ron Johnson’s plan had some good elements. I think the pricing shift caused a lot of the issues; if he had made a smaller pricing change perhaps he would have had time to see the other parts take hold.
I think too much of the focus on Johnson’s failure is on young/hip at Apple vs.old/staid of JCP. There’s another aspect at play: the differing strategies of consumers. Two of the most common strategies consumers use are
a)If you want the best, pay for the best
b) Get value for your dollar.
Apple customers believe that Apple products are the best, and they are willing to pay more for them. While a PC might be a better bargain than a MacBook, Apple customers don’t care. They want the best and that’s Apple. Apple stores reinforce this idea.
JC Penney customers want good value for their money. Sure Nordie’s might sell a better blazer,,and JC Penney might not be the absolute cheapest, but Penney’s offers good quality for a reasonable price.
There are plenty of Apple consumers who use the value strategy for other purchases: They may get an econo-box car when they could afford a luxury SUV, for example. .
.I think Johnson would fare better with a high-end retailer, where prestige and customer experience are important — no matter what the age of the consumers — than any place where price is a crucial part of the equation.
Good points. JC Penney is in a difficult position, struggling to compete with both high end retailers and discount players. There is a space there but it isn’t easy to get the proposition right. Certainly the Apple model didn’t work too well.
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I guess the question, now that Ron Johnson is gone, is whether JCP (or for that matter the likes of JCP, e.g. Sears) have any future in the current economy?
Masoud—That is a terrific question. I thought Johnson would last longer because there isn’t an obvious alternate plan. What do they do now? If the old approach wasn’t working, bringing back the old CEO isn’t likely to address the core issues.
Tim
Tim, Certainly Johnson’s approach was flawed in many ways. So too was JCPs Board by assuming a manager who understands young consumers in the context of technology media, would automatically get how these 20 and 30 somethings think about fashion. Let’s face it, iPhones and Power Macs have very little in common with brands like St. John’s Bay, Liz Claiborne, let alone Stafford ties. Not a big JCP guy myself, but these brands do not scream out young and hip iTunes subscribers.
Maybe the board will realize what’s really needed to right the JCP ship is retail turn-around experience – likely a dying breed. Maybe too the next executive brought on will not be allowed to commute from Cupertino, CA to Plano, TX.
Sergio
Tim,
Great points — he forgot that he no longer worked for Apple.
The other mistake, was ignoring the Voice of the Customer. He thought he knew best.
Phil Corse
Spot on. Death by hubris.
Doesn’t anybody ever learn “everyday low prices” is a self-inflicted wound? That changing perceptions requires more that willing it?