JC Penney Fixes 1 Mistake But Makes Another
By Bob Johns, associate editor
Recently JC Penney announced what everyone in retail had been expecting — the return of advertised sales. CEO Ron Johnson’s year-long experiment to change how consumers approach retail purchases has utterly failed. Revenue has dropped by double-digit percentages in every quarter since the “Fair and Square” pricing strategy was implemented, and its stock has fallen by half.
During this time, Johnson has attempted to revamp stores and skew toward a younger demographic with lots of disposable income. In the process, however, he has alienated the company’s traditional customer base. That base is aging, but they are consistent shoppers who love sales and the perception of added values like free gifts with purchases or BOGO offers.
Obviously, the process to convert to an entirely new customer base was too difficult to accomplish with such an established brand. Going forward, the process of converting the customer base will need to be more gradual and capitalize on new brand additions, store upgrades, and a renewed focus on sales.
Johnson is in the middle of a store makeover which calls for multiple “stores-within-a-store” concepts featuring several exclusive brands. Assuming you can promote these individual brands and create value within each, the concept definitely has merit. With this philosophy, new, hot brands can be brought in and featured with their own “store” to promote the exclusivity. JC Penney is scheduled to complete the transformation to this format by 2014 at 700 of its locations.
More interesting to me than the backtracking on sales and the revamping of stores is the recent announcement to significantly reduce the RFID program. Similar to how Macy’s is taking RFID to an item level to ensure product is in the right place at the right time for the customer, JC Penney had instituted a program where suppliers were paid a premium if their products were RFID equipped. This allowed for quick inventory time and increased accuracy of stock levels. Unfortunately JC Penney is backing off of its plan. To me this looks like strictly a financial move. Johnson had stated that JC Penney would be 100% RFID enabled in 2013, and that it was critical to the operations of the new store format. It was supposed to be key to the planned self-checkout and mobile checkout to be able to just drop in the items without having to scan anything due to the RFID tagging. RFID is now going to be limited to three categories — shoes, bras, and denim — a significantly lower percentage of the stock carried throughout the store.
The question is, does this represent a complete shift in the goal of enabling the associates and customers to engage more intimately and complete sales at the point of decision? If JC Penney’s current cash flow situation is beginning to dictate strategy changes, Johnson may have a lot longer road to truly make significant changes in the company. Forward-thinking strategies cannot be compromised due to financial concerns unless the company cannot afford to operate day-to-day. The RFID initiative was supposed to be a significant cost-saver over time, with a large up front cost, though. It seems that the retailer’s declining revenue is creating a catch-22, which may end up stifling growth and innovation within the company.
Assuming the new store format and the return of sales will boost revenue enough to bring back some of the abandoned projects, hopefully shareholders give Johnson enough time to reboot his vision for the company in the long term.