Seems like just about a year ago, JC Penney was taking the stance of eliminating sales, and offering every day low prices. This thinking was radical, and seemed to work well for Wal-Mart (whom has always been in a low price leadership position and, as far as I am aware, has never had sales), so the logic made sense for JCP and their former CEO Ron Johnson. Mr. Johnson's decision was a bold one, as it was geared towards eliminating "fake inflated prices" and focusing on core values. The name of this campaign was the Fair and Square Plan. Genius, right? Not so fast......
Fast forward a year later. JCP lost over $1bil, department store sales were down, and significant market cap was lost. 17 months into his tenure, Mr. Johnson was shown the door. Although I hate to see a CEO leave a company in a very short period of time such as this, the bottom line is just that - the bottom line. A CEO is required to produce revenues for his or her company, and if they fail to do so, they must be shown the door for failure to perform their job. There are many who feel executive compensation is out of control (and my response to this depends on the situation), but one must also consider the risk involved, as well as the responsibility for delivering results of the entire organization - if the CEO fails, they are fired.
In the case of Mr. Johnson, it kind of reminded me of being a captain of a ship making a daring move....a ship does not move quickly, once the decision to make a move is made it is challenging to change course, and the end results can produce severe consequences, both good and bad. History is filled with daring maritime moves which come to mind....HMS King George and HMS Rodney (they are the ships that sank the Bismarck), the Costa Concordia (wreckage off the coast of Italy is still being removed), the Titanic are a few. In some instances, there were positive outcomes, and in others, there were negatives.
JCP and the Fair and Square Plan were a little different than the consequences of the ships above, as there were both positive and negative outcomes. On the negative side, there are the obvious answers - substantial loss of revenue, market cap, and market share - all of which led to Mr. Johnson's termination. However, the strategy highlighted a major changing demographic, which is the evolution of online shopping and decreasing market share of the traditional retail department stores. One can see this in the market with the rise of institutions such as Amazon.com and Zappos, combined with the substantial decline of old-school stores such as Sears and JCP.
One final note to consider with this case is the rise of technology and smart phones. Many successful retailers have discovered that to be competitive, it is imperative to leverage technology as consumers tend to like their gadgets. The online retailers mentioned above have demonstrated mastery with this new technology and have successfully utilized it as a competitive advantage. In addition, many smart retailers have adopted electronic coupons which not only cut the cost of paper printing, but can be delivered directly to the smartphone many of us have become so dependent on. This is a major point for the JCP case - coupon use is on the rise (as tends to be the case during a recession), and the perception of a sale can carry a business during such times of financial hardship. Let's be honest - everyone likes a deal, and a coupon is one of the best ways to let the consumer think they are getting a great deal.
Mr. Johnson made some radical changes to how JCP did business. Let's be honest - radical change will result in either radical success or substantial failure, as there is no real middle ground. I think it would be appropriate to give him credit for understanding that the traditional model of business was no longer viable, and that for the organization to survive, radical changes needed to be implemented. However, the changes he chose were too radical as demonstrated by substantial decline in sales. Perhaps could have been phased in over time to be successful, but then one must consider the brand identity associated with JCP versus that of a Wal-Mart (low-price leadership).
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