Ron Johnson Takes a Run at JC Penney

Article from The New Yorker

Image Source

Ron Johnson- JC Penney’s new CEO, had helped turn Target around into a hipper place to shop.  He has also brought great success to Apple, helping in the creation of the Apple Store itself.  Clearly, he is no stranger to turnarounds in multiple industries. 

Johnson planned on ‘revolutionizing’ JC Penney.  Penney has been known for its deep discount sales and for the simple fact that walking into a Penney’s customers are certain they will find lots of sales to pique their interest.  From Johnson’s point of view, sales are ubiquitous and finding a sale is no great feat for a customer.  He chose to re-focus Penney on what he called “fair and square pricing”- every day low prices, no coupons or sales required.  With this strategy, he struck out to reposition JC Penney as “America’s Favorite Store”.  Second to the ‘fair and square pricing’, he plans to create mini-shops throughout the store to create a boutique feel despite the vast size of the store.

14 months later and over the past year, JC Penney’s revenues have fallen by 25% and Penney lost about a billion dollars.  The company’s stock price has fallen sixty percent since Johnson announced his big plans, which caused the stock to jump 24%.  Mark Cohen, professor at Columbia University and a former CEO of Sears Canada says “There is nothing good to say about what he’s done… Penney had been run into a ditch when he took it over.  But, rather than getting it back on the road, he’s essentially set it on fire.”

The article emphasizes how important it is to know one’s customers before making such sweeping changes.  What Johnson did not realize is how very attached his customers were to the sales and coupon promotions they had come to expect and love.  The article also points out the flaws in the implementation of the changes.  Stores opened before the remodeling was complete and created a hectic atmosphere that was unpleasant to shop in.  Old customers were driven away because of the atmosphere and there was no incentive to bring in new customers. 

Johnson’s reputation preceding the JC Penney debacle was impressive.  The article speculates that perhaps this was a job that he simply should not have taken on.  The article closes with an apropos quote from Warren Buffet:  “When a manager with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.”