Lessons from JC Penney
From Gifts and Dec
Ron Johnson was fired from his position as CEO of JC Penney last week after sales under his leadership continued to freefall (for my earlier comments on Johnson's efforts see: "JC Penney Moves Away From Fake Pricing" and "The Pricing Paradox: to Promote or Not to Promote, that Is the Question"). Johnson's major misstep (he made others) was ending JC Penney's reliance on sales and coupons and turned to everyday low pricing. The result was a 25% drop in retail sales in 2012 and a big drop in value for the company's stock price (down 57% in the same year).
Johnson was considered a brilliant strategist for his success in running Apple's retail division. The J.C. Penney board was so enamored of his brilliance that they gave him free reign to test his strategy in ALL STORES. In other words, he never test drove his revolutionary concept in a small market to see if it worked.
Is Johnson's failure a lesson in hubris; well, probably yes; but there are other more important lessons than those of having an oversized ego and a worshipful board. Here they are:
"Measure twice and then cut. " That piece of wisdom comes from good carpenters. Obviously, JC Penney should have tested and tested more than once before taking such a bold step.
Know your consumer. Johnson and his board had to know that the average JC Penney shopper, older and far less tech savvy) was far different than the average Apple consumer. To make a horrible pun, this was no apples to apples situation.
Understand why people shop. Many people shop as a form of adventure and sport. As I wrote in my earlier piece, "The Pricing Paradox," "discount hunting is a sport; that according to Mark Ellwood who calls coupon hunters "mathletes with credit cards." Maybe there is some "Haggle" gene in people that makes them want to feel that they are smarter than other shoppers?" In other words, take away the sales and shopping becomes drudgery.
What's next for JC Penney? Some predict that the chain will be sold. I hope that does not happen as we need more and not fewer retailers. We can all hope, however, that JC Penney and everyone else in retail learns from their mistakes.