Why I’m pulling for CEO Ron Johnson to transform the J.C. Penney customer experience

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Several years ago, my first visit to an Apple store was to buy an iPod for my son. Amazing experience. The store had a clean and open design, and the staff was really helpful. When I was ready to buy, I realized something was missing. The checkout line!

Instead of a row of registers at the front, the staffer just pulled out a scanner from underneath a table, charged my credit card, printed a receipt and we were on our way.

Much of the credit for that store design goes to Ron Johnson, Apple’s former Senior VP of Retail Operations. Ron joined Apple in 2000 after earning his retail stripes at Target and Mervyns. The Apple store design eventually became the biggest success story in retail: twice as productive as Tiffany and 7 times the median of the top 20 retailers.

Of course, Apple’s stores wouldn’t have been such a huge hit without massively popular products such as the iPod, iPhone and iPad.

Well, now Johnson is trying to reprise his Apple success at a more conventional retailer — J.C. Penney. JCP’s prior strategy could be summed up like this: “If you didn’t buy this on sale, you’re stupid!” That’s because the retailer was known for continuous promotions of one kind or another.

Hired as the CEO last November, Johnson has set a new course for the struggling retailer, including fresh store designs and (mostly) everyday low prices. He’s hired new executives and told Wall Street the transformation could take 4 years.

Then Q1 results came in, and it was ugly. Analysts started questioning the strategy, and JCP made some adjustments to its pricing strategy. While everyday low prices would still be the core, JCP added selected specials on seasonal items.

Now the Q2 results are in, and they are still dismal. The company lost $147M and said it wouldn’t meet its yearly profit forecast. Johnson is vowing to stay the course.

I applaud him (and his board) for not giving in to the short term interests of Wall Street. You see, Amazon.com went through a similar rough patch in its early days. So did Apple when it launched the innovative retail store design, including the now famous Genius Bar.

Most people forget that the Genius Bar wasn’t an instant success. In a recent interview, Johnson said, “it takes courage to go the full distance.”

You know, when we launched the genius bar years ago, nobody came. I mean literally after a year and a half, a lot of people at Apple said why don’t you close that down? We had to put in Evian bottles of water in refrigerators to get people to spend time at the bar. But we stuck with it, and today, you look at that genius bar. Could you imagine an Apple store without a genius bar? Could you imagine owning an iPhone without having a place to stop by and get that repaired or restored or fixed? You couldn’t.

I’m rooting for Johnson because this sort of courage is all too rare. JCP’s challenge, though, is quite a bit different from Apple. First, Apple had killer products. Second, it had a blank sheet to design a new technology retail experience, focused on Apple’s products.

JCP, on the other hand, sells a multitude of products that can be bought elsewhere — like Macy’s, Kohl’s and more. And over the years, JCP has trained its customers to expect price promotions. The fact is that some people love getting things on sale, even though often times it’s just an illusion. The list price is a fiction that exists only in the marketer’s mind.

Here’s an example from a happy JCP shopper in 2010, who loves getting deals: “So I think you now see why I love shopping at JCP. Designer brands, sales, coupons, and free gift certificates. All the elements a bargainista loves…”

It’s going to take a lot of time for Johnson and team to reset customer expectations. I’m not optimistic that existing customers will embrace everyday low prices. Habits are hard to break. “Bargainistas” are going to shop elsewhere, and JCP will need to win customers away from other retailers with a superior experience, not promotions.

I like Macy’s and Kohl’s, but can’t remember the last time I visited a J.C. Penney’s store. Today in our local paper were promotional inserts from all 3 retailers. Macy’s front page screamed “20%-60% OFF STOREWIDE.” Kohl’s promoted 35-50% off early bird specials on Saturday, plus additional discounts for using a Kohl’s credit card. Both had the usual clutter of ads and product promotions inside.

By contrast, JCP’s insert was like a catalog. Simple, clean and consistent with Johnson’s new direction. The front page says simply “back to school favorites” and inside you’ll find a selection of featured products with their everyday low prices, one product per page. Out of 24 pages total, only the last page promoted clearance items, but without discount percentages.

You know what, I think I’ll make a trip to JCP to check out the new in-store customer experience. I’m betting more customers will do the same. Here’s hoping his board and investors keep the faith, because the road ahead will be difficult.

8 COMMENTS

  1. Bob –

    Last week, there was a very insightful blog about Penney’s situation on Retail Customer Experience.com. It was written by retailing author and business consultant, Dale Furtwengler. Here it is:

    “JCPenney: Not a pricing failure

    August 2, 2012

    There’s a lot of talk about JCP’s failed pricing strategy, but is it really the pricing that’s off?

    In order for a pricing strategy to be effective, there needs to be congruency among four elements of that strategy. These elements are:
    • A clear brand promise.
    • Marketing messages that attract customers who desire what the brand offers.
    • Sales scripts that communicate the value.
    • Pricing that reflects the value.

    Let’s see how JCP stacks up against these.

    Brand Promise

    Before you answer the following question, let’s make sure that we’re on the same page about what a brand promise is. To me it’s the result the customer can expect from dealing with the business. In this case, JCP.

    Can you tell me what JCPenney’s brand promise is? Nor can I. I can surmise what it has historically been, but I can’t say that I know what it is now. Why?

    JCP’s strategy, when first announced, was three-pronged:

    1. Adding brands not available in other stores.
    2. Modernizing the look of existing stores.
    3. Establishing everyday prices.

    The only part of the strategy that has been effected thusfar is the everyday pricing. That does not give us, as consumers, a sense for where the company is headed, what offerings we can expect or what the ‘new look’ will be.

    Without that information we have no way of knowing what JCP’s brand promise is.

    Marketing Messages

    Further evidence of the lack of a clear brand promise is JCPenney’s marketing messages. Their focus on a ‘square deal’ in their ads doesn’t indicate that JCP’s leadership has a clear direction. If they have one, then why are they continuing to focus on price (square deal) instead of the look and feel of the JCPenney experience?

    JCP’s leadership seems to overlook is the fact that we, consumers, don’t buy anything unless we feel that we’re getting a ‘square deal.’ When’s the last time that you bought something knowing that you were being ripped off?

    Having made these observations, I can’t say that the poor quality of the marketing messages surprises me. How can the marketing folks be expected to create effective marketing messages without a clear brand promise? I do this for a living and I won’t begin to develop marketing messages for my clients until we’ve established that brand promise.

    Sales Scripts

    Like the marketing messages it’s nigh on impossible for sales clerks to distinguish the value for interested customers when they don’t know the brand promise. How much easier would it be for them if they did have brands that couldn’t be found elsewhere or if they could feel the difference in atmosphere of their surroundings?

    Pricing

    Establishing pricing should be the last step in the process. Until you have a clear understanding of:
    • Who your ideal customer is.
    • What it is they value.
    • How much they value it.

    How can you possibly establish a price? All three of the above are developed when a company creates:
    • A clear brand promise.
    • Marketing messages to attract those customers.
    • Sales scripts to support your brand and marketing claims.

    … much less the pricing.

    Lesson

    What can we learn from the JCP experience? Two things:

    1. That there has to be congruency between the four elements of a pricing strategy – brand promise, marketing messages, sales scripts and pricing.
    2. That there is a sequence – brand promise, marketing messages, sales scripts, then pricing – that must be followed in order for the strategy to be effective.

    Unfortunately JCP’s leadership violated both of these rules. If you want to avoid the pain and turmoil the folks at JCPenney are experiencing, make sure that you use the sequence outlined above in developing your pricing strategy. Your customers will reward you handsomely for the effort.”

    As you note, Johnson will have to make almost 180 degree adjustments from the marketing and communication strategy applied so far in 2012. Earlier this week, I received a blanket note from him through my Gmail account. The note was an explanation of how Penney is trying to change, and a request for feedback. I responded by saying that Penney’s assessment and delivery of customer experience has pretty much commoditized their value proposition, and that they will first need need to research the brand promise, marketing messages, and touchpoint experiences (from the perspectives of both the customer and the employee) to better understand what is driving behavior.

    Regards.

    Michael

  2. The pricing change was the first and easiest thing to fix. Johnson has made some tweaks, but for now his core strategy is “fair and square.” Personally I like it, but in the rough and tumble world of retail, I wonder how it will play out. A lot of people are hooked on “sales” and most of JCP’s competitors seem happy to oblige.

    But there’s more coming to increase differentiation. Clearly he wants to make the in-store experience better and different. According to this article:

    Johnson also highlighted some of the improvements he is making in the stores. He announced that JC Penney had scrapped an outdated technology infrastructure and replaced it with an Oracle-based system. The new technology will allow the company to improve the in-store experience with mobile checkouts, self checkouts and tags based on RFID instead of bar codes, which would speed up purchases.

    Other improvements include the “store within a store” concept, which some say will emulate the “Shops at Target” concept.

    My guess is it will take 1-2 years for this strategy to be implemented, perhaps much longer. JCP is targeting the store makeover for 700 locations in major metro areas.

    Adding unique or private label brands will also take time, but without this, JCP will still end up selling the same stuff available elsewhere.

    The JCP brand promise? That’s a good question. My guess is Johnson will try to emulate the “cheap chic” brand that he helped create at Target.

    One thing I’ll be curious to see is how employees buy into the new strategy, and how they’ll be trained to do their part in improving the store experience. Current Glassdoor reviews are 3.0 (“OK”) on a 5-point scale, with Johnson getting 47% approval rating. Target’s employee give a 3.2 overall rating, and 71% approval of the CEO.

    Add it all up, and it’s easy to see why Johnson said this was a 4 year transformation. In the process, JCP will lose some existing customers and employees, and gain others that like the direction. Will be interesting to watch!

  3. Johnson has been on the job for a year now, and so far the results have not been good. The SF Chronicle did a nice piece today that’s well worth reading.

    A few lowlights:
    * stock down >50%
    * 19K jobs lost
    * investors bailing

    JCP is now the 2nd most heavily shorted stock on the S&P 500, a sign that more bad news is expected.

    Let’s remember that Johnson said this was a 4 year turnaround. So far, he’s had to pull back a bit from “fair and square” pricing, adding back some promotions. And the store makeovers are still in the early stages. By May this year, about 30% of the stores will be updated to the new boutique format, which Johnson says will post higher sales per square foot.

    One thing both supporters and detractors agree on — Johnson’s strategy is a huge gamble. The challenge is enormous, because in my view to succeed Johnson has to do 4 hard things simultaneously:
    * Convince current JCP shoppers that everyday low pricing is better than constant deals.
    * Convince non-JCP shoppers to try the new more upscale designs
    * Convince Wallstreet, his board and the employees to keep the faith
    * Implement new store designs

    It’s like doing a major overhaul on a 747 while it’s in flight. Not surprising that some are bailing out (sorry).

    I still admire his leadership for taking the bold path, but hope that there are some glimmers of success in the numbers by the end of 2013.

  4. Ron Johnson is out. The board pulled the plug on his audacious attempt to reinvent JCP.

    To put it simply: JCP is not Apple.

    And the board is not Amazon’s, either. They gave Jeff Bezos a lot of latitude to build Amazon into what it is today, without worrying about short-term results.

    As many have pointed out, perhaps Johnson tried to do too much, too quickly. As one illustration of why sales were so bad, I spoke with a long-time JCP shopper who was turned off by some of the changes. Some of her favorite clothing was ditched in favor of more fashionable (Gap-like) lines, and loud disco-pop music drove her crazy.

    My take: Johnson wanted to attract a different kind of shopper — younger, more fashion conscious, less driven by deals. But, remaking a brand takes a long time, while pissing off your current customers can be done remarkably fast.

    Unfortunately, I don’t see how JCP is going to fare much better under the old leadership. Instead of a bold change, JCP will end up in a long decline into oblivion, like Mervyns.

    Robert Passikoff comments further here.

  5. …and, another image and positioning challenge with jcp, JCP, or Penney’s, or whatever it is or will become, is that while it isn’t Apple – and never would be – it also isn’t Sears, or Target, or even Walmart. Like Mervyns, Bradlees, Caldor, Jamesway, Ames, and other similar retailers, JCP seems headed for the vast beyond.

  6. Fast Company has a great article on why Ron Johnson failed at JCP:

    1. JC Penney Is Not A Startup, And Therefore Can’t Behave Like One
    2. Not All Business Decisions Can Rely Solely On Gut
    3. JC Penney Isn’t Apple
    4. Managing A Team Within A Company Requires Different Leadership Skills Than Being The CEO Of A Company
    5. Behemoth Businesses Can’t Be Reinvented Overnight
  7. The NY Times has a great article on why Ron Johnson failed. Essentially, he didn’t understand shopper psychology. Some shoppers actually enjoy getting discounts even when the end price is about the same as “everyday low prices.”

    Another issue is that shoppers need cues to figure out what something is worth. Discounts off an (inflated) list price are a cue many can’t resist.

    Consumers infer that they get a great deal based on the reference point provided by the higher, presale price. Social scientists refer to this idea as anchoring, and it applies to all sorts of consumer behavior and expectations. Without that anchor, consumers have trouble determining whether the store is actually giving them a good price.

    If you look at social media research, the top reason that consumer “like” a brand is to get special offers and discounts.

    I think we underestimate the importance of price. Most of the discussion is around differentiating products and services, or in creating great experiences. But most of us like getting deals. Only a few brands like Apple can succeed with a “take it or leave it” pricing strategy. JCP is not one of those brands.

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