The vital error at the core of Penney's revival

Even if you’ve never been inside one, you probably know the name JC Penney. For 111 years the name has been synonymous with America, retailing and department stores.

Mark Ritson

But in recent years Penney’s, as it is commonly known, has also been associated with decline. Its network of just over 1,000 department stores has struggled to compete with Walmart and Target at the lower end and with luxury department stores like Saks and Barneys at the top end.

With revenues dropping, the company turned to Ron Johnson in late 2011. Johnson, who had previously spent 10 years masterminding Apple’s remarkable retail success, was made chief executive and much was made of his potential.

He certainly wasted no time outlining his vision. At a January 2012 shareholders meeting he professed confidence.

“Just like Apple, we’re going to learn that the best days aren’t in the rear-view mirror, they’re right down the road,” he said.

And, just like Apple, one of the first items on Johnson’s agenda was a simple, contemporary logo that was unveiled later that same month.

Next came a major reboot of the pricing strategy. The store had become trapped in a spiral of discounting in which deeper and deeper promotional prices were necessary to drive sales. By 2011, 72 per cent of revenues came from products sold at half or less of their original marked price.

Johnson realised that had to end.

“Every time we do that we’re discounting the Penney’s brand,” was his analysis. So out went the steep discounts and in came a simple, single price rounded up to the nearest dollar for every item. Kind of like how Apple prices.

Johnson set about changing the store concept too. He wanted a simpler look and feel to replace the cluttered and outdated Penney’s layout.

“Stores have been designed to pick something up - they’re transactional, not experiential,” Johnson said, adding that part of what has made Apple’s retail stores so successful was the overall experience. “It harks back to what it was like 100 years ago: it’s the products and the experience.”

So in came a central hub in each Penney’s store surrounded by easily navigable merchandise departments. The hubs were named ‘The Square’ and designed to be service-based desks that Penney’s promised would “merge the physical and digital worlds”. So, again, kind of like Apple’s Genius Bar.

The staff model changed too. Reminiscing on his time at Apple, Johnson noted that when the company hired people the two main criteria were that applicants knew as much about technology as Steve Jobs and had customer service skills that would get them a job at the Ritz Carlton. Johnson said he would bring some of those same requirements to staffing up The Squares at Penney’s.

In came a focus on technology too. RFID tags were going to be used to make checkouts faster. Shoppers could self-checkout using their smartphones and there was free WiFi in every Penney’s store. Again, sounds a bit Apple.

In fact, almost every idea or initiative that Johnson proposed during his first year as CEO was taken from the Apple playbook. So did it work for Penney’s like it had done for Apple?

Did it hell.

Sales were down a startling 25 per cent after Johnson’s first year. Big implementation costs combined with falling revenues meant that by the start of 2013 Penney’s was in worse straits than ever. Since Johnson took over, shares have fallen 51 per cent.

On Monday Johnson was fired after just over a year in charge. The reason should be clear from the paragraphs above: almost every move he made during his short tenure was identical to one originally executed for Apple.

But if it worked so well for Apple, why did it work so badly for Penney’s? The answer is so simple it is often missed by top executives. Every brand is different. You can arguably apply generic approaches to finance, supply chain or manufacturing. But when it comes to brand management the only rule is that each brand has a unique history, a unique set of brand associations and, therefore, a unique way of managing it well.

That’s hard for a man like Johnson to grasp because he obviously assumed the Apple approach was right for every brand. If it was that simple we’d all be billionaires like Steve Jobs. The trick with a brand turnaround is to work out what makes the brand special before you try to modernise it. I’m not sure anything can save

JC Penney, but it sure as shit isn’t going to be a marketing plan based on Apple’s.

There is, however, one brand where Johnson’s pre-loaded strategy might still work. Apple is on the hunt for a retail boss. The company has not found a new retail head since parting ways with Johnson’s replacement, John Browett, last year.

Readers' comments (5)

  • If ever one needed proof that price-discounting leads to long-term terminal decline, this is it.

    I am not sure if any other brand has successfully re-positioned from bargain-hunter haven to ‘aspirational’ or even mid-market. Any ideas?

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  • ...and finally is it really a good idea to rehire the person Ron Johnson replaced? Looks like Penney's downfall will continue until rescued/broken up by private equity buyer.

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  • Further confirmation that Apple is the business world's worst case study. It is not a replicable model for most normal businesses.

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  • Agree very much with Martin's last comment.

    If I see another presentation in which the take-home is "..we should be more like Apple" I might throw up.

    Yes Apple is a brilliant story but it belongs to Apple. Beware the "If we look at how Apple do it..." approach we are destined to fail.

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  • One thing you can take away from the Apple story is to BE yourself, and don't try to be all things to all people. The best brands stand for something and polarise opinion.

    Most big businesses spend too much time trying to do "me too" stuff, looking for Case studies of success to copy because it is easier and less risky than doing something different and using good examples to learn and interpret.

    Because we've all been educated on the principals of the industrial era the focus is often on "doing", rather than being. Meaning we often don't stop to ask why and how we want to BE. We don't guidance from our brand which should tell us what we stand for and how we are different from the rest, Instead we often do something that's been done before, use data to back it up and mitigate the risk and hope.

    It's time we sought to be really different and stand out, rather than follow the vanilla herd

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