JC Penney: Gloat edition

What’s the difference between God and Ron Johnson?

God never thought he was Ron Johnson.

In the wake of Ron Johnson’s ouster as JC Penney CEO there’s been plenty of gloating.

In fact, nearly all of Johnson’s tenure saw myriad industry analysts, pundits and denizens of the 24 hour news cycle become practically giddy in pointing out the perceived failings of his transformation strategy and his seeming lack of self-awareness.

When he finally got the axe, the sheer volume of “I told you so” and “it’s about time” tweets made me think that Twitter was going to launch a sister site named schadenfreude.com

Now regular readers of this blog will surely recall that I have written multiple posts, as early as March of 2012, challenging Johnson’s strategy and predicting its failure. Frankly, having been the head of strategy at two Fortune 500 department store retailers–and now being in the business of peddling strategic advice to the retail industry–I believed I had both the relevant experience and the marketing need to be out there as a vocal critic.

But I do think it’s entirely fair to say that, at times, I did go overboard. As an ego addict in recovery, I find that this still happens from time to time.

I hope that any of us who may have taken perverse pleasure in pointing out the foolishness of the Johnson regime come to accept at least three important realities.

First, that their mis-steps have resulted in real pain for many, many people, primarily through significant job losses.

Second, that the new team has to quickly catch the proverbial falling knife, stabilize a rickety ship and sort out a compelling strategy from the ruins of a woefully misguided one.

Third, that the job of the new team will be even tougher than the one Johnson assumed.

So let’s get the jokes, the gloating and the schadenfreude out of our system. There is important work to be done.

 

 

 

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If we’ve learned anything from Ron Johnson’s 17 month tenure at the helm of JC Penney, it’s that he and his new team could have benefited mightily from demonstrating greater humility.

All too often when conflict emerges among nations, families, teams or individuals, it’s a visceral need to be right that stands in the way of progress and compassionate connection.

If I’ve learned anything from my own journey during the past few years, it’s that I am at my absolute worst when I let my ego run the show. Defensiveness and self-righteousness are my enemies, not the solution.

Kindr.

Gentlr.

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A new way to connect.

It might be worth a try.

This might take a while

Certainly the world is moving at an increasingly faster pace.

Clearly we have seen transformative new business models seemingly come out of nowhere to supplant industry incumbents.

Without a doubt, traditional sources of customer loyalty are being challenged in a rapid onslaught of ever-expanding options and innovative marketing techniques.

Yet, for many brands, it is still very much the case that relationships and trust matter.  And those precious assets are rarely earned quickly.

Despite the publication of Permission Marketing well over a decade ago, too many brands fail to follow the basics of Seth’s admonitions.

Too many brands want to get married on the first date.  Too many brands fail to take the time to treat different customers differently.

Too many brands think quantity trumps relevance (I’m looking at you Groupon).  Too many brands think they can shift their customer base quickly (I’m looking at you JC Penney).

As the pace of change accelerates, you may be tempted to do everything faster. But if you have a business model that is anchored in trust, rooted in deep relationships and in building a growing permission-based asset, the right answer may well be to go more slowly and deliberately.

Yes, it might take a while. But it’s likely to be worth it.

 

 

Math is hard…for JC Penney

JC Penney’s CEO Ron Johnson has recently been making the rounds with various media outlets proclaiming that Penney’s will return to growth this year. They had better.

There is an old adage in retail that the best way to run a same-store sales increase THIS year is to have run a decrease LAST year.  While we are a couple of weeks away from learning the specifics of how Penney’s fared in their first year of radical transformation, it’s likely that they will be down 25% or so.

This means they will have to run a 33% same-store sales increase just to get back to where they started two years earlier.  Given that new shops are rolling out in the Spring (Joe Fresh in March, Martha Stewart and a new home concept in May) it’s difficult to imagine a major turnaround in sales growth until later in the year. Good luck getting back to even.

Another math problem is their new “semi-promotional” strategy.  While Penney’s sorely needed to re-introduce more aggressive promotions to restore traffic growth, the pricing strategy rolled out last year relied on having prices that were competitive day in and day out.  For this strategy to develop better gross margins, they would have to sell the vast majority of product at the new regular price.  Now, by layering on additional discounts, they will either run lower gross margins or need to take their regular prices up to end up in a sustainable place.  The problem with the latter approach is it means they will be uncompetitive when not on sale.  My guess is gross margin will continue to disappoint until they can fine tune this approach.

The last math problem is their recent institution of “Elsewhere Prices.”  The notion of giving consumers a comparison price is a good one.  But the fine print is the issue.  According to Penney’s most recent circular “the ‘Elsewhere’ price reflects a comparison to the price of that or a comparable item found on-line or in-store for national specialty stores during the last 90 days.”  In other words, not their most direct competitors prices. Not necessarily a price that more than a handful of consumers might actually have paid.

To be fair, lots of other retailers engage in such shenanigans. The off-price and factory outlet stores play this game all the time.  A charitable person might say that such comparisons represent a desire to be helpful for consumers.  A cynic might say that it’s closer to a con.  You can decide for yourself.

To claim truly meaningful progress in the transformation it’s not going to be enough to simply see sales growth.  To have any chance of justifying the massive investments being made, the new JCP must begin to consistently deliver out-sized same-store sales growth and evidence of progress on gross margin rates.

The math for improvement is not that hard. The math for success is pretty daunting.

My Top Ten Blog Posts of 2012

Happy New Year.

And now, as has become my custom, here are my top ten posts of the past year. Enjoy. Comment. Debate. Share.

1.   The world’s best loyalty program.

2.  The end of e-commerce.

3.  JCPenney’s Road to Recovery (Part 2): The intervention.

4.  JCPenney swings for the fences (Part 1).

5.  JCPenney’s Road to Recovery (Part 1): The reality distortion field.

6.  JCPenney’s Road to Recovery (Part 3): The 10 point action plan.

7.  In gut we trust.

8.  Now you’re just somebody that I used to know.

9.  Honey, I shrunk the store.

10. 8 things that are wrong with your omni-channel strategy.

And one of my personal favorites that, in my humble opinion, was mostly overlooked: Knowing what ‘yes’ looks like.

But it did get excerpted in Seth Godin’s new book The Icarus Deception.  So I got that going for me. Which is nice.

JCPenney’s Road to Recovery (Part 2): The intervention

In Part 1 I suggested that JCP’s recent results are not just bad, they have become quite sad, mainly due to management’s seeming inability to overcome denial, speak plainly and commit to (or at least lay out) a more realistic game plan.

While it’s fair to acknowledge that many elements of the transformation are yet to be rolled out, it’s more than fair to say that much of what has been implemented thus far has fallen well short of expectations. More importantly, without a dramatic change in momentum, the strategy is in big trouble.

To earn back trust–as well as to take needed action–Penney’s management must go the humility route: acknowledging their mistakes and speaking from now on in clear, plain-spoken English about what’s working, what’s not and what’s next.

Here are the 8 most critical things they need to come clean on ASAP.

1. Relentless comparisons to Apple are irrelevant.  No doubt Ron Johnson learned much from his Apple experience, but little of it is directly translatable to JCP. And the more he harps on it, the more out of touch he seems. By the time Apple had even a couple of dozen stores, their products were in incredibly high demand, while being narrowly distributed and with virtually all being sold at MSRP. By stark contrast, with few exceptions, JCP’s products are undifferentiated, widely distributed and promoted heavily. Apple has a relatively narrow demographic, sells all premium priced products, serves basically two purchase occasions and has products that are infrequently bought. JCP’s products serve a more diverse demographic, are in totally different pricing segments, serve a wide variety of purchase occasions and, by and large, are frequently purchased. Apple stores are all in A locations, generally single level with a single entrance and are in terrific shape. JCP has many poor, under-maintained locations and most are multiple levels with multiple entrances. Apple stores are supported by hundreds of millions of dollars in parent brand advertising; JCP must fend for itself, all the while trying to totally re-brand itself. And so on.
2. Department stores are NOT retail’s biggest opportunity. Mall-based department stores have been losing share to general retail for decades. The competition is intense. For Penney’s strategy to work they basically have to double their share on the mall. How much better does a JCP store have to be than the competition for this to be plausible? How much do customers shopping habits have to change for this to sound realistic?
3. We are trying to change our customer base much too fast. Study Penney’s brand advertising, shop roll-out plans and new store environments and three things are clear: they want a younger customer, a more fashion savvy customer and a more affluent customer. At the same time, by bailing on their historical promotional strategy and displacing traditional brands, they are basically firing a large chunk of their current customer base. While this may work over the long-term, this is simply way too much, way too soon. It’s very hard to find ANY brands, much less such a well-known brand such as JC Penney, that have been able to quickly shift their core customers. One of the most famous examples is Cadillac and that took nearly 15 years.
4. “Sale” is not a bad word and a promotion is a promotion.  By now it should be obvious that starting the transformation with such a bold new pricing strategy was a colossal error. But now the problem is management’s failure to admit as much and their engaging in Clinton-esque games of semantics. Free haircuts and free portraits are promotions. So are $10 “thank you” coupons and the 30% off clearance event. Regardless of what they are called, this tip-toeing back into sales has failed to  improve traffic patterns.
5. Shops aren’t new, and ours ain’t that different. I continue to be puzzled by why the addition of shops seems like such a breakthrough. Plenty of department stores have shops. Many had them in the past and pulled back when they discovered that often consumers shopped by product not brand. I will admit that JCP’s new shops look pretty good. But good enough to steal a huge amount of share from Macy’s, Kohl’s, et al?  Eh, not so much.
6. “We want to be America’s favorite store”? That’s just hyperbole. I’m all for Big Hairy Audacious Goals, but this sort of vision statement can do more harm than good. The key to JCP getting back on track is to become much more clear about which consumer segments, purchase occasions and price points it wishes to own. To date, they’ve provided little granularity on this.
7. E-commerce is a disaster. Sure the core (and most visible part) of Penney’s transformation are the physical stores, but little attention is apparently being paid to their even more dismal e-commerce performance. Not only should e-commerce be Penney’s fastest growing and most profitable channel, it should be a key enabler of improving the overall customer experience.
8. A lot of the data we’re feeding you is misleading.  Quite a few analysts were encouraged by the sales productivity of JCP’s new shops. Unfortunately the comparison was not to the space that these shops replaced but to the chain average. The new shops are mostly in prime real estate. The new shops are getting most of the advertising. A like to like comparison is needed to really understand any meaningful improvement. Also, when depicting its new store design, Penney’s loves to show a single floor layout, with a single entrance and no escalators. The reality is the overwhelming majority of Penney’s store are multiple floor, multiple entrance with escalators right smack in the middle. This greatly complicates bringing the new vision to life.

With this critical holiday quarter sure to be another big disappointment, we can only hope to hear much more about plans to right the ship. I will be using this list to see if Penney’s can make the move from Awareness to Acceptance to Action.

 

Up next in Part 3, my recommendations on what JCP needs to do strategically and tactically right now.

 

JCPenney’s road to recovery (Part 1): The reality distortion field

Last week the JC Penney story went from bad to sad.

The bad part is well-known by now: financial results dramatically below expectations, thousands of JCP employees laid off, a precipitous drop in the stock price and a debt downgrade amidst mounting liquidity concerns.

The truly sad part, however, is the apparent lack of acceptance of reality being demonstrated by senior management.

Two decades ago Steve Jobs became famously known for what fellow Apple executive Bud Tribble coined the “reality distortion field (‘RDF’).  As Wikipedia puts it: The RDF was Jobs’ “ability to convince himself and others to believe almost anything with a mix of charm, charisma, bravado, hyperbole, marketing appeasement and persistence. RDF was said to distort an audience’s sense of proportion and scales of difficulties and made them believe that the task at hand was possible.”

During his first year as Penney’s CEO (or as he might put it CEO of JC Penney and CEO of JCP), Ron Johnson has frequently alluded to his experience at Apple as being the inspiration for his transformation strategy. While the relevance of those analogies to JCP’s situation seems pretty tenuous (more on this in my next post), it’s beginning to look like the legacy of the RDF is being carried on.

Though it may not seem like it at times, I get no personal pleasure in doing the “I told you so” victory dance or taking pot shots at seemingly easy targets or sitting in snarky judgment. Nobody wants to be that guy.

So to be fair, the Penney’s team HAS taken on an incredibly daunting challenge. They have rightly said that the company needs a transformation, not an evolution. They have begun to put in place a number of exciting and promising initiatives. And as they remind us, this is a multi-year journey and it’s still early.

But the reality is that things are MUCH worse than they thought and most of what they sold the analyst community earlier this year-and in subsequent earnings calls–is simply not proving out.

In some 12 Step recovery programs they talk about a model of change. The first phase is Awareness. Followed by Acceptance and then, ultimately: Action.

I’m not suggesting that Penney’s leadership team is a bunch of addicts (though one analyst recently opined that she thought they were addicted to BS).

Yes, some elements of Penney’s new strategy clearly need time to prove themselves out. But a lot of change remains necessary on key strategic elements to stem the hemorrhaging and get the transformation back on track.

But no major behavioral change is possible unless there is a rejection of denial and a rigorous commitment to reality.

My future posts will detail specific strategy and tactical changes that I believe Penney’s needs to begin making right now. But unless management acknowledges their mistakes and ceases the obfuscation and misdirection, I’m skeptical they will be able to clearly see what they need to do and embrace the requisite urgency.

Moreover, without a big “mea culpa” and a lot more straight talk, they risk losing the trust of vendors and investors.

If that happens, it’s game over.

 

Up next: JCPenney’s road to recovery (Part 2): The intervention

 

 

 

 

JC Penney: The recap and the road to recovery

If you follow retail you know that last week the JC Penney story went from bad to sad.

And if you are anything like me, you know that it’s far too easy to embrace (jump?) the snark or go the “I told you so” route. Guilty as charged.

As we enter the critical holiday selling season, concerns over JCP’s new strategy are mounting and the stock continues to falter. So later this week I will be issuing a series of blog posts dissecting where the Penney’s transformation stands, what industry analysts should focus upon and what Ron Johnson and team need to do ASAP to give themselves a realistic chance to stem the bleeding.

First up will be: “JC Penney and the Reality Distortion Field (Redux).” Stay tuned.

But in the mean time, if you are interested in what I was saying way back in March (before any results became public) please check out these 3 posts:

JC Penney swings for the fences (Part 1)

JC Penney swings for the fences (Part 2 ): The vision thing

JC Penney swings for the fences (Part 3): When the invitation is better than the party

Brand as burden

Wade through marketing literature, or attend a conference, and you may well come across a statement along these lines: “You must be more than a business. You must become a brand!”

Brands garner premium pricing. A strong brand enables long-term differentiation and sustainability. Your brand will be your strongest asset.

But what about the liabilities inherent in many brands today?

An extremely well-known brand that lacks differentiation and relevance with its desired target audience is typically worse off than the upstart ascending brand.

Without question, fixing the tangible weaknesses in a broken business model can be a huge task. But it can be relatively easy compared with trying to re-program the minds of consumers.

Once it committed to a new strategy, Cadillac addressed the rationale shortcomings in its value proposition relatively quickly. But it took more than a decade–and huge marketing expenditures–before it meaningfully moved the dial with the new consumer segments it desired–and needed–to endure. Consumers had to let go of their pre-conceived negative brand associations before being open to even consider buying a Cadillac.

A case in point today is JC Penney’s radical attempt at re-invention. Penney’s is just over six months into a stated 3 year plan to transform their business model. They are aggressively rolling out new merchandise, new pricing, new advertising and a new in-store customer experience, among other needed changes. It will be 2014 before the customers they aspire to own will get a reasonably complete look at the tangible aspects of the new strategy.

But one thing is fairly certain. Many, if not most, of the consumers that Penney’s will need to win over have a well-developed–and long-standing–view of the brand, and it can be summed up simply: “it’s not for me.” Changing the rationale aspects of the shopping experience is absolutely necessary–and no small feat–but it will not be sufficient.

When your brand has become a burden the challenge of turning the ship goes far beyond fixing the cost structure and improving the features and benefits of your offering.

If you are contemplating taking on the challenge of re-inventing a legacy brand, do so very, very carefully. The retail graveyard is filled with brands that failed to appreciate how daunting the challenge is.

And if you go down the path, expect to spend more money and more time than you think.

Probably a lot more.

 

 

 

In gut we trust

A couple of weeks ago I had the opportunity to hear Ron Johnson–JC Penney’s new CEO–present an outline of his transformational strategy. Short version: take a heaping tablespoon of Apple, add a dash of Target, fire the deadwood, stir, and then… a miracle happens.

To be fair, there were plenty of bold, inspiring new ideas presented–and I absolutely agree that Penney’s needs much more than a modest upgrade.

But the scariest thing was Johnson’s insistence that it was sensible to do zero consumer research and eschew any real customer analysis (in fact, one of the first things he did when he took the helm was to blow up both the strategy and the customer relationship management groups). He glibly mentioned the collective experience of his new hires and said that was sufficient to decide on the new strategy.

While reporting dismal quarterly results yesterday, Johnson and team said they were surprised how hard it has been for their new strategies to take hold and by the degree of the corresponding sales decline. Really? They were only surprised because they failed to do the analysis before they boldly swung for the fences.

Consumer research and robust customer data analytics are not the be all, end all.  As the name of this blog suggests: customer-centricity is both an art and a science.

Of course, history shows us that consumers are often not very helpful in reacting to innovative new products or programs. But history also shows us that some of the most successful brands have embraced deep customer insight and competing on analytics not only as a foundational element of their strategy, but as a major source of competitive advantage.

You may be able to thrive on gut feel when you have a superior product line, little direct competition and a simple operating model. But in most businesses, customer-centricity means developing deep customer insight, robust analytic capabilities, actionable segmentation schemes and a commitment to treat different customers differently.

For Penney’s leadership it’s time to get humble, admit you have a problem and take the steps to get back on track.