JC Penney Ante

Update June 19, 2012

The first casualty of the “dream team” assembled by Ron Johnson to turn Penney’s around is out. Michael Francis the former Target exec hired by Johnson as president in October 2011, is leaving the company. Someone had to take the fall. He leaves with more than $15 million in salary, severance, etc., not bad for 8 months work. In May, they reported a 20% drop in sales. I still contend it comes down to great product before illusionary marketing.

May 2012

I wrote this original post in February. Yesterday Penney’s came out with a$163 million dollar loss, which was more than double what analysts expected. The COO said there was a 10% drop in store traffic, 5% drop in conversion and a 5% drop in spending per customer. All of this happened in spite of their recent national ad blitz. In my opinion the cart came before the horse on their “everyday low price” strategy. The exciting, modern ads sent people to see the same old zombie merchandise assortment, without a coupon!

I’m rooting for them, as I applaud their gumption to reinvent moderate department store retail. It will be a challenge in their sector as there aren’t many coveted wholesale brands in their level of the market. Retailers effectively put them out of business a long time ago with their own private label. It all comes down to the product, and they will have to create it.

February 2012:

On a visit to J.C. Penney’s this week,  I was struck by the enormity of the renewal project Ron Johnson (the former Apple executive, new Penney’s

J. C. Penney’s February 2012 Promotion

CEO) has ahead of him. February marks the beginning of the huge new initiative to make this retail behemoth brand relevant. Undoubtedly, he is filled with optimism as he comes from two companies that made their own outsized luck, Target and Apple. These two companies have strong identities and strategies, that rewarded them with brand greatness. Target invented the “hip mass retailer” with their real designer collaborations and cool marketing. No mass retailer had ever taken this approach. Apple has arguably the most dynamic and transformational product line ever created; customers will line up and sleep in the cold to be first to get their new introductions. Ron Johnson is “betting the ranch” that he can transform an enormous, faceless, moderate department store into an exciting retail brand experience.

He started by cutting back endless promotions in exchange for everyday low prices. The jury is out on this strategy for me, as consumers react to a call-to-action by a promotion and love the “art of the deal”. Walmart has everyday low prices, but they struggle in fashion categories such as apparel, as uninspired design isn’t desirable at any price. Will the consumer feel the everyday low prices are simply an inexpensive store, with inferior merchandise?

The store felt more colorful and bold contemporary graphics were placed around the perimeter, defining departments.. They have taken to the airwaves with slick, modern ads à la Target or Gap in their heyday. Do these images promise something that the stores are not yet ready to deliver? See Penney’s website.

A colorful presentation by the mall entrance.

It all boils down to the product. There is SO much apparel in their stores and the consumer can’t be fooled. The problem is that most of it is in-house, private label with meaningless labels. There were pockets of appealing fashion, like the “on-trend” women’s active apparel area. Shoes hit on the dominant trends. Mannequins in the dress department were outfitted with flimsy garments, some with puckered seams. Housekeeping was unevenly clean, very sloppy or absent in some areas.

The best thing they have going for them is still the Sephora department. (I still marvel that they were able to score the sizzling beauty brand.) The long-term strategy is to reassort the store into compelling departments of viable brands. The problem is marquee affordable brands don’t really exist anymore. Over the years, as retailers started making their own insular products they effectively trumped most of the moderate wholesalers. They shut themselves off from the creativity and variety of an open market.

Target’s strategy isn’t new anymore. Real designer collaborations are still a successful way to add authenticity and design credibility to a retailer, that makes most of their own products. There is virtually no way to get credibility without doing collaborations, as there aren’t wholesale fashion brand names in their price points, that create apparel, accessories and home products that consumers crave. When was the last time a 35-year-old woman waited in line for new Alfred Dunner apparel (one of JC Penney’s wholesale brands), like they did for the Missoni collaboration at Target? J. C. Penney will fail if they try to be “Target cool” or safely, mature Kohl’s. I think the opportunity is to position themselves as the “Nordstrom for the mass market”, a fashion department store with some real strength in shoes, bags, beauty, accessories, apparel and home. Nordstrom has the ability to tap the entire creativity of the better and designer wholesale markets. They offer established and up-and-coming brands and punctuate them with their own quality private labels. Penney’s doesn’t have the advantage of being able to access premier fashion brands.

Penney’s is in a game of product poker and the consumer won’t fall for the bluff. They will have to allow real creativity and autonomy to the various in-house design groups. The customer will reward them for a shopping experience that ups-the-ante with some authentic fashion risks and unexpected offerings. It is all about the product.

Dix & Pond is the blog of Dix & Pond Consulting

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5 thoughts on “JC Penney Ante

  1. I all has to do with the product. If the product is improved and compelling, then they will succeed. Right now the product and merchandising standards are ho-hum to just plain awful. Let’s see what moves they make in the merchant arena in the next couple of months. They currently do not have merchants at JCP, they have buyers. There is a big difference between the two. No true merchant would allow a floor to look like that, regardless of the price points or promotional cadence. If they think they can turn that ship around with the current group of buyers that they have, then get ready for an epic fail.

    • I wanted to comment on this story,but JohnQ said it perfectly. Penneys simply has to up the quality ante and clean up the awful presentation.

  2. They will have to make some radical changes to the way they create product. The problem is that most retailers doing product development run everything through commitees. Once eveyone puts in their two cents, the product is sterilized.

  3. Hi Sbernier, I just wanted to respond.

    All I can say is that the product is changing. You can go to the company website and watch the two hour report to the investors. The “zombie merchandise” you talked about is changing. With 1100 stores changing simultaneously, the task is not going to happen overnight. I don’t think people realize how much work it takes to remodel a store. We are five months into the change and things are progressing faster than we expected. I am excited about the next phase of change and I think the creative autonomy you were looking for will appear. I cannot speak for all sales people, but for me it is something exciting and it takes a lot to impress me.

    • Hi Rabedela,

      Thanks for your comment. I applaud what Ron Johnson is trying to do and really want JC Penney to succeed. Noone has shown the courage to do things differently on this scale. I realize it takes a long time. My issue is the exciting, contemporary ads and PR teased customers to come in to the same old merchandise. Good luck to all of you at the company! Hopefully, your best days are ahead!

      Sbernier

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