Hubris Maximus – Ron Johnson and JCP

Unsurprisingly, Ron Johnson, the former Apple retail executive, has finally been dumped by the J.C. Penney board after 17 disastrous months, as CEO at the mid-tier department store. He took the Texas-based company from a profit in 2011 to a staggering loss in 2012.

William Ackman the activist hedge fund manager (who owns an 18% stake in the ailing JCP), pushed for Ron Johnson to take over the plodding retail behemoth and got his wish to huge fanfare. He touted Johnson, because of his success at Apple and stint at Target as the divine solution to turnaround JCP. No one doubted the need for an overhaul and Johnson provided a compelling sales pitch of a reimagined JCP.

Entrance to the Joe Fresh Department at JCP

Entrance to the Joe Fresh Department at JCP

Johnson was given free rein to continue living in California and play chess with the lives of thousands of employees, vendors and shareholders while disappointing loyal customers. He laid off thousands, stopped sales promotions and created slick Target-esque marketing before changing lack-luster product lines.

This was a classic case of  big-city-smarty-pants going to show those country bumpkins, how to run a better company. Johnson’s attitude was arrogance unchained and a sense of self-infallibility. This is a perfect case study in “Hubris Maximus” for the B-schools. Ackman imparted and granted supernatural powers on a big coastal ego that had no clue how to create and sell apparel and home products. Let face it, anyone can be a genius (pardon the pun he invented the “Genius Bar” in Apple stores) when you are selling the world’s most coveted products. Apple products will sell out of a shack, peddled on the street or at any ordinary retailer. He didn’t create the magic of Apple, he ran their stores.

A JCP turnaround requires more than making physically appealing stores (he succeeded with better visual merchandising); it is a product issue, reinvention of many private label brands and establishing meaningful creative partnerships that would inspire existing customers and attract new ones. There are a few bright lights, but for the most part the new products, like the revamped Liz Claiborne department, is nothing more than make-up on a very big corpse.

William Ackman isn’t the only guy to hire someone who breathes his same rarefied air. So many companies, only want to hire from their social circles, élite schools or MBA’s without regard to their actual credentials and cultural sensitivities to get the job done. They like smelling their own and like-minded perfume.

Better visual merchandising didn't substitute for the traffic driven by promotions.

Better visual merchandising didn’t substitute for the traffic driven by promotions.

The key to the JCP turnaround was respecting the desires of their loyal customers, a willingness to listen and learn before you shoot, testing before your roll out, building meaningful brands and inspiring and empowering your employees. Success was never going to happen with the blind ego of a mere mortal. Ackman made a fool’s bet and lost his shirt.

Dix&Pond is the blog of www.dixandpond.com Creative and strategic consulting for retail and wholesale apparel, shoe and consumer product companies. Follow me to get the latest posts

JCP – A View From the Field

As I have posted before (See JC Penney Report Card July 2012), the biggest challenge for JCP will be the product assortment, not the physical changes or visual merchandising. In a recent visit to see Ron Johnson’s progress turning a bland soup kitchen into a spicy retail buffet of instore shops and experiences, I saw a stark contrast of big improvements and steep mountains yet to climb.

Physically, the stores are significantly more pleasant. There are now many beautifully lit, tidy and open spaces. As small, colorful instore shops form, specifically JCP brand product, kids, lingerie, Arizona Jeans, Mango, activewear, outerwear and of course Sephora, there is sense of modern purpose and destination excitement. The brand experience in these departments invites exploration. The products are compelling and on trend.

Contrast to that, missy, petites, woman’s, handbags, jewelry and the home product areas are generic, at times sloppy and suffer a serious lack of purpose. Junior’s, men’s and shoes fall somewhere in between. Juniors has the tough task of duking it out with top-notch mall competitors like Forever 21 and Urban Outfitters.

Fall 2012 Product at JC Penney

Fall 2012 Product at JC Penney

As previously reported, Penney’s is banking on a revival of the shop-worn Liz Claiborne brand they bought from Fifth and Pacific (formerly Liz, Claiborne, Inc.) Since the glory days of Liz in the 80’s, this brand has stalled, sputtered and headed for a crash. Why do you think Liz Inc. was eager to close the chapter, change their name and put the past behind them? There have been multiple redos over the years, including one by Issac Mizrahi, that flamed out as quickly as the seats cooled at their fashion show. Liz Claiborne lost its way years ago and some of the best talent in the industry, hasn’t been able to resurrect it.

JCP has devoted an enormous amount of space to a zombie brand. They have identified it as a key brand for the new JCP. Liz women’s is a significant part of the entire women’s apparel area. They have erected a grand entrance, with slick modern seating, leading to cluttered racks of dreary sportswear targeted to a matronly customer. There is nothing distinctive or compelling about this merchandise. It could be any concocted private retail brand designed by merchant committees, not with a visionary eye. To make matters worse, the Liz Claiborne men’s product seems targeted to a contemporary, entry-level guy with black shirts, wide belts and slim cut pants.

Handbags have been one of the bright spots in a long cycle of weak apparel for many retailers. Color, interesting materials and unique shapes are driving this category. JCP flatly misses the trends here and their offering is redundant, neutral and uninspired, ditto for shoes. Fine jewelry occupies prime real estate and the assortment is ordinary at best.

Home is not where the heart is for JCP. I am looking forward to Jasper Conran and Jonathan Adler products in the future. Martha Stewart is another planned home introduction. The Martha Stewart brand has diminished in stature, as simpler, contemporary lifestyles have become more important to younger customers stocking their first homes. The current JCP home offering is painfully safe and sleep inducing.

JCP has to hire or collaborate with the best talent in the industry to give their products an authentic soul. Consumers can’t be fooled. They have no real moderate market to turn to.  This is a massive task with the size and scope of their offerings. No surprise there are highs and lows all over the store. They have to make sure their best talent is assigned to the key categories.

As for every day low prices, I think  their final strategy will fall somewhere in between low prices and deals. They can’t change human nature and of the thrill of the deal.

Kudos to Johnson for taking on such a mammoth challenge. The most coveted brands in the world, like Apple have a real soul and identity. It is  clearly impossible to harness enough top talent and provide the culture of creativity, to build a whole store of exceptional proprietary brands.

Dix&Pond is the blog of www.dixandpond.com                                                                                                                                                                    Creative and strategic consulting for retail and wholesale apparel and consumer product companies, as well as reporting for investors and equity analysts.

JCP Report Card – Hope & Change

Visual merchandising is greatly improved.

Visual merchandising is greatly improved.

In my post last February about the transformation of J.C. Penney (JC Penney Ante),  my greatest concern was their ability to turn the product around. I didn’t doubt they could improve the design, housekeeping and experience of the physical stores; or that they could market the new strategy.

Department stores today are far more complex organizations than they were decades ago. They are now multi-channel and in some cases multi-national organizations. They all produce a good percentage of their own private brands and have to have extensive product development teams. Moderate stores such as Penney’s don’t have much of an open market anymore. There are few moderate brands that have the ability to sell these consolidated behemoths. They were squeezed out over time by the retailers consuming selling space with their own products.

A top from JCP's fashion-right Mango line.

A top from JCP’s fashion-right Mango line.

Stores with private brands have to manage traditional merchandising and buying staff and have the ability to run creative design teams. These two functions are polar opposites and have a competitive tension between them. Great design comes from truly gifted and visionary talent. In many companies, it  a considered a common trait. Often unqualified merchants are given creative authority over programs with dreary results. In-house design can become too insular, as well. Unfortunately, for the most part, private label apparel is subject to large committees of leadership, all who put their stamp on the offer. Subsequently, they can water down the soup and create brands with stolen or missing identities.

There is a good assortment of fresh dresses.

There is a good assortment of fresh dresses.

For Penney’s to really transform beyond price selling, they must have the ability to create authentic desirable brands, not generic names with me-too styling. Their true prospects rely on their ability to hire or partner with the best design talent in the industry. This is the Target playbook.

JCP has well represented the active trend.

JCP has well represented the active trend.

On my recent trip to Penney’s, I saw some real green sprouts of change in the environment and merchandising. The stores are less cluttered, brighter and have better housekeeping. In some areas, I felt like I was in Bloomingdale’s or Nordstrom, but at Target prices. Kudos to them, the place feels younger, more upscale, and alive! Some of the featured fashion was an exciting value. It is a much more pleasant place to shop.

The store is a tale of two cities now. They still are devoting a large swath of the store to Liz Claiborne and other missy product. The missy area is a dead zone for most companies, as they don’t really understand how to address the multiple lifestyles of an aging population. This is a core customer for Penney’s, so it will require real introspection. I have little faith that the upcoming Liz Claiborne concept shop will move the needle. This brand has been rehashed for years. (Formerly Liz Claiborne, Fifth and Pacific changed their name and sold their ailing namesake.) It will be an enormous challenge to give this line an appealing and authentic personality. They are also banking on Izod, Levi’s, Buffalo and their in-house basics for third quarter apparel introductions. This is hardly an exciting apparel roster, ditto for the upcoming fall Royal Velvet home shop.

Some compelling contemporary separates.

Some compelling contemporary separates.

I am much more intrigued with upcoming home introductions from Jonathan Adler, Terrance Conran, Michael Graves and Bodum in the home area next year. The current home assortment is painfully mainstream.

Sephora is still their ace card. I give them credit for their large department of trending active wear, big selection of dresses and pretty tops. The Mango department is hip and enticing. All important handbags are uninspiring, but shoes hit on most of the trends. The fine jewelry department is very old school. They will be introducing accessories by Betsy Johnson, Vivienne Tam and Lulu Guinness for fall. There are also some very cute kid’s clothes. Young families will be core constituents of the new Penney’s.

Target and Kohl’s should be very worried about Penney’s transformation, especially Kohl’s, if Penney’s get the missy area on track.  The new Penney’s has the potential to be a low-end Nordstrom. So far I see hope and change beyond my expectations. Stay tuned.

Dix&Pond is the blog of Dix&Pond…creative and strategic consulting for retail, wholesale, analysts and investors. Contact us for more information on custom research and reporting.

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